I got a heat pump, and my energy bill went up!

Last year, we installed a multi-zone mini split heat pump system in my apartment, replacing the single floor furnace in the living room that heated the entire space. It’s amazing.

Not only do we finally have warm bedrooms in the winter and the ability to air condition in the summer, but my installation team found the flue to the old furnace had rusted away, filling the crawlspace with its exhaust gases. Yikes.

This isn’t uncommon - installing heat pumps can help improve comfort and safety for most homeowners.

But beyond the quality of life and safety improvements, homeowners care about dollars and cents. After all, heating and cooling are typically the largest component of energy costs, so it’s important to understand if you’ll save money.

More efficient means less money, right?

Heat pumps are the most efficient way to heat and cool a building. They use a fraction of the energy that a gas furnace would use to heat the same space. So obviously, they’re cheaper to operate, right? Well, that’s where it gets complicated.

I got my first winter heating bill after installing my heat pump, so I did the math. As expected, my energy use was lower. 1 therm equals about 29 kWh, so my combined daily energy usage between natural gas and electricity decreased from 22 kWh per day the previous year to 20 kWh per day this year.

You can clearly see the gas use decrease and the electricity use increase, consistent with replacing the furnace with the heat pump system. Notice that the gas usage stays relatively constant with the summer months, meaning the gas use is coming from other devices in the home - our oven, stove, and water heater that we use throughout the year.

But it’s not all rainbows and butterflies. My total energy bill more than doubled! This is not uncommon feedback to hear from homeowners after installing a heat pump, but there’s more to the story.

Apples to oranges?

Something wasn’t passing the sniff test, so I dug deeper. Remember that heat pumps use 3-4 times less energy than a gas furnace, yet my total energy usage was only about 10% lower than the prior year. So I checked my calendar. It turns out that last year during this billing period, we were out of the country for 3 weeks! Of course we didn’t use much energy during that time.

I checked my bill data from a year before, and sure enough, we used 5.5x as much gas and 1.1x as much electricity in December 2022 as we did in December 2023. Our total energy use in 2024 is down 89% from 2022! That’s more like it.

The spark gap

Even though my energy use is way down, my total energy bill for December 2024 is still 12% higher than two years prior. What gives?

If the cost of electricity and the cost of natural gas were the same, then my bill should have decreased by 89%. But there’s the rub - natural gas and electricity don’t cost the same amount.

In fact, a Massachusetts study shows that heat pumps in that state will cost slightly more to operate than gas heating with their current energy rates.

It’s not just in the US. Electricity in many places around the world is more expensive than natural gas, in a phenomenon often called the spark gap. Relatively cheap natural gas combined with relatively expensive electricity is a huge barrier to building electrification.

Why is electricity so expensive?

After years of slowly increasing, electricity prices in California have skyrocketed over the past 4 years.

Sources of these rate increases largely stem from wildfire impacts and climate risk adaptation, but also from things like updating billing software.

It’s important to note that the cost of electricity comes in two parts - generation (how much it costs to make the electricity), and delivery (the costs to build and maintain the poles and wires that bring the electricity to your home). Counterintuitively, the generation cost is actually lower than distribution in most cases.

The source of the electricity cost increases is largely in the delivery portion. In fact, Peninsula Clean Energy, who generates my electricity, has committed to not increasing their rates year-over-year! Meanwhile, PG&E recently had its 6th rate increase of the year approved by state regulators.

State regulators play an important role in this. They are responsible for reviewing and approving rate increases from the utilities, and ensure that the utilities provide “safe and reliable service at affordable prices”. However, many regulators continue to approve utility rate increases, and given the large amounts that the utilities spend on lobbying there are concerns around regulatory capture.

Gas prices increase too, and are more volatile

Although electricity prices are increasing, so are natural gas ciders. In the first two weeks after the Russian invasion of Ukraine, natural gas prices increased 180% in European energy markets!

Electricity prices are also linked to geopolitics and commodity prices, since much electricity is still produced from coal and natural gas. However, its costs are more stable when produced using domestic renewables. Given that renewables like solar are now cheaper than other forms of energy, the grid will continue to transition toward it and be less exposed to volatility than natural gas and oil markets.

Heat pumps are often cheaper to operate than gas furnaces*

*with a whole list of caveats, which we’ll talk about soon

Using a heat pump calculator, I can see how much money I could expect to save by switching to the heat pumps in my home. Even considering the spark gap, I should actually be saving money by switching to a heat pump. This is true for many California homeowners, even with expensive electricity rates.

So why am I paying more? It has to do with my rate plan.

When you use electricity matters

PG&E has 106 different rate plans, which describe how you are billed for the energy that you use. Many of these plans, including the one that I am on, vary rates based on when you use your energy.

It’s important to choose the right rate plan. Right now, I’m on the E-TOU-C plan, which is the default for most customers. It’s designed for relatively low users of electricity, who are able to minimize their usage during the hours of 4-9PM, which is the time of highest demand (everyone gets home from work and turns on their heating, lights, TV) and lowest production (the sun goes down, and solar energy production goes down).

Heat pump rates are great

The problem is that with my heat pump, I’m now a larger user of electricity! I should be on a plan that considers my higher electricity usage and reduces my total cost. Luckily, I can figure out what rate plan to be on using the same calculator!

In my case, it’s the E-ELEC plan, which is specifically designed for homeowners with heat pumps and other home electrification measures. With this plan, the cost per unit of energy is lower than on the E-TOU-C plan, but I pay a base $15/month charge which I didn’t pay before. Since I use a lot more electricity now, it’s still a good deal.

It’s not always easy to know the best plan

Choosing the right rate plan for your home is incredibly important, and PG&E doesn’t do a good job communicating the best one to homeowners. I recently switched over to E-ELEC, but PG&E has been telling me that I should switch back!

This is because PG&E is using 12 months of historical usage data - so on the whole, it still thinks that I’m a low electricity user!

Many homeowners with heat pumps are likely on the wrong rate plan and paying more than they should. The right plan can make the difference between saving money and spending more money with the exact same equipment.

Use a good calculator

There are many heat pump calculators on the internet that will help you estimate how much you could save by switching to a heat pump. But not all calculators are built alike.

The best calculator I’ve found so far is Lumina’s, which does a detailed simulation considering time-of-use and is loaded with energy rates from a handful of providers in Northern California and Colorado.

It’s important to model the actual rate structures and time-of-use behavior to accurately estimate energy savings, and most calculators don’t do this.

Some contractors share energy savings projections with their customers, but in almost every case they use simplistic bill savings calculators that may overrepresent savings. Even the Massachusetts state government used averaged annual rates in the study referenced earlier in this article.

Optimistic savings estimates can motivate homeowners to buy heat pumps in the short term, but could lead to damaging consequences in the long term if they are disappointed in their actual savings.

Your behavior matters

Since electricity rates change based on when you use it, using your heat pump less when rates are high can save money.

Above is my actual electricity usage from my heat pump. If I could shift my afternoon usage to earlier in the day, I could spend less.

Our usage also changed with the new heat pump. Because our old floor furnace was so ineffective at warming the house, we barely used it and bundled up, wore a lot of sweaters, and didn’t go into the bedrooms unless we absolutely had to. Now we’re able to use the whole house more, but it means that we have the heating system on more regularly.

Also - we’ll be using AC in the summer! Our apartment didn’t have it before, so we would bust out a portable AC for the two or three hottest days of the year. It’s likely that we’ll use more energy in the summer because of the new feature.

Variable speed means less energy

How we use the heat pump matters, too. Heat pumps are often most efficient when they’re operating at lower capacity. Variable-speed inverter heat pump systems are able to modulate their capacity, taking advantage of this lower capacity operation.

If you let your house get really cold and then turn on your heat pump at full blast, it will be less efficient than letting it run continuously at a lower capacity, adding just the small amount of heat needed to maintain a consistent temperature.

Installation quality matters, too

The exact same system can be less efficient based on how it was installed. A leaderboard of recorded heat pump efficiencies shows that the efficiency of identical equipment installed by different contractors can vary by more than 30%!

At my apartment, my landlord installed a fence a foot in front of my heat pump outdoor unit. The fence significantly reduces airflow, and makes my heat pump less efficient than if it was open and unobstructed.

What should I do if I got a heat pump and my energy bills went up?

If you installed a heat pump and your bills increased, there’s a few things you should check.

1. Check last year’s rates: Electricity prices may have risen since last winter.

2. Check your usage: Were you actually using your heating system last year? Holidays or extreme weather could also have driven higher energy use.

3. Evaluate your rate plan: Are you on the best TOU rate for your usage? Tools like Help Electrify’s calculator can help you find the best one.

4. Inspect your installation: Are your ducts properly sealed and insulated? Is your outdoor condenser free from obstructions? Is your filter clean? Are the heat exchanger coils of the indoor and outdoor units clean?

Once you’ve nailed the basics, a few behavioral tweaks can make a big difference:

• Shift your load: Preheat or cool your home during off-peak hours and let your home’s thermal mass carry you through peak times. If you have a home battery, take advantage of it.

• Play with automations: Smart thermostats like Ecobee can be set to adjust based on TOU rates.

• Let your system run: Heat pumps are most efficient when running at low capacity, so avoid turning them off and on repeatedly.

We can make this less painful

Do we really need 106 different rate plans in California? Why don’t utilities automatically put people on the cheapest rate plan for them, and reevaluate monthly based on usage?

Good calculators with high quality information from a high trust source will add a lot of value and help homeowners make an informed decision. Lumina’s tool is a great start, but it only has rate data for a handful of utilities, and much of that information is over a year old since it takes a lot of effort to manually update.

An open source, community maintained calculator that appropriately models time-of-use seems like it might be the best path. The community could add rates from different utilities and maintain them. Even better would be the ability to upload historical gas and electricity bills to anchor future estimates against those. Is anyone building something like this? Let me know if you’ve seen one or want to build it!