As Australia braces for another winter, the question of how to keep warm without breaking the bank is more pertinent than ever. With energy prices fluctuating, understanding the true running costs of different heating methods is crucial. For Winter 2026, the data is clear: reverse cycle air conditioners (heat pumps) remain the most economical way to heat your Australian home, offering significant savings over traditional gas and electric resistance heaters.
Electricity prices, while still a concern, have seen some relief with the Default Market Offer (DMO) and Victorian Default Offer (VDO) for 2026-27 showing reductions in most regions from 1 July 2026. Meanwhile, gas prices continue to be elevated.
The Cost of Keeping Warm: Heating Methods Compared
To provide a tangible comparison, we’ve analysed the running costs of common heating appliances, assuming an average electricity price of $0.30 per kilowatt-hour (kWh) and a Victorian average gas price of 2.58 cents per megajoule (MJ).
We’ll consider heating a medium-sized living area requiring approximately 5 kilowatts (kW) of heat output for one hour.
| Heating Method | Appliance Example | Efficiency (COP/Star Rating) | Energy Input for 5kW Heat | Estimated Cost per Hour (AUD) |
|---|---|---|---|---|
| Reverse Cycle Air Con | 5kW Heating Capacity (e.g., Daikin Cora) | COP 3.5 - 5.0 (avg. 3.5) | 1.43 kW Electricity | $0.43 |
| Efficient Flued Gas Heater | Rinnai 559FT Energysaver (5.2kW output) | 4.8 Stars (approx. 83%) | 23 MJ Gas (for 5.2kW output) | $0.59 |
| Portable Electric Heater | DeLonghi Radia S 1500W Oil Column Heater | COP 1.0 (100%) | 1.5 kW Electricity | $0.45 |
| Standard Electric Panel | 2.0kW Panel Heater (e.g., Nobo) | COP 1.0 (100%) | 2.0 kW Electricity | $0.60 |
Assumptions: Electricity rate $0.30/kWh. Gas rate $0.0258/MJ (Victorian average). Costs are indicative and vary by appliance model, actual usage, and specific energy plan.
Reverse Cycle Air Conditioners (Heat Pumps)
The clear winner for running costs. Reverse cycle air conditioners don’t generate heat; they move it. For every unit of electricity consumed, a modern reverse cycle system can deliver 3 to 5 units of heat into your home (a Coefficient of Performance, or COP, of 3.0 to 5.0).
“A modern reverse cycle air conditioner delivers 3 to 4 units of heat for every 1 unit of electricity used.”
This makes them three to five times more efficient than traditional electric resistance heaters and significantly more efficient than gas. For a typical Melbourne 4-bedroom home, annual heating costs with ducted reverse cycle can be as low as $400 to $900, compared to $1,400 to $2,200 for ducted gas. Look for models with a high Heating Seasonal Performance Factor (HSPF) of 5.0 or higher for optimal winter efficiency.
Natural Gas Heaters
While often perceived as cheaper, gas heating has become less competitive. Modern gas heaters, like the Rinnai 559FT Energysaver with a 4.8-star energy rating, are efficient for gas appliances, converting around 83% of gas into usable heat. However, the rising cost of natural gas per megajoule means their running costs are typically higher than reverse cycle systems.
Average residential gas usage rates in 2026 range from 2.45c/MJ in Queensland to 3.05c/MJ in South Australia, with daily supply charges also adding to the bill. States like Victoria and the ACT are also accelerating plans to phase out gas in new builds, indicating a long-term shift away from the fuel.
Portable Electric Heaters (Convection, Radiant, Oil Column)
These heaters convert virtually all the electricity they consume directly into heat (COP 1.0). While this sounds efficient, it means they use a lot of electricity. A 1500-watt oil column heater like the DeLonghi Radia S Digital TRRS0715EG, running at full power, will consume 1.5 kWh per hour. At $0.30/kWh, this is $0.45 per hour, making them relatively expensive for heating larger spaces or for prolonged use.
Portable electric heaters are best suited for spot heating small, well-insulated rooms for short periods. Relying on them for whole-home heating will lead to significantly higher electricity bills.
Wood Heaters
For some regional areas or homes with access to affordable firewood, wood heaters can be a very low-cost heating option. However, their efficiency varies wildly (some older models can be quite inefficient), and they require significant effort for fuel sourcing, storage, and cleaning. They also contribute to air pollution if not operated correctly. For urban areas, modern, highly efficient slow-combustion wood heaters are available, but fuel costs and convenience often make them less practical than electric heat pumps.
Maximising Your Winter Savings Beyond the Heater
Choosing the right heater is only part of the equation. Optimising your home’s thermal performance and leveraging available support can further reduce your winter energy bills.
Insulation and Draught Proofing
This is arguably the most impactful long-term strategy. Heating a leaky, uninsulated home is like trying to fill a bucket with holes. Properly insulating your ceiling, walls, and floors, and sealing draughts around windows and doors, can significantly reduce the amount of heat lost, meaning your heater works less and consumes less energy.
Several state governments offer rebates for insulation upgrades in 2026:
- Victoria: The Victorian Energy Upgrades (VEU) program will offer discounts on ceiling insulation from 1 October 2026, potentially halving typical installation costs from around $3,000 to $1,500.
- ACT: The Home Energy Support Program provides rebates of up to $5,000 for eligible owner-occupiers for ceiling insulation.
- South Australia: The Retailer Energy Productivity Scheme (REPS) includes discounts for ceiling insulation through participating energy retailers.
For a detailed guide, see our article: Unlock $1,500+ Winter Savings: Your 2026 Australian Insulation & Draught Proofing Rebate Guide
Energy Bill Relief and Concessions
The federal Energy Bill Relief Fund, which provided universal credits, concluded on 31 December 2025. However, state and territory governments continue to offer targeted concessions for eligible households, including pensioners, concession card holders, and low-income earners. These can provide substantial annual savings.
- NSW: Low Income Household Rebate (up to $285/year), Family Energy Rebate (up to $180/year).
- Victoria: Annual Electricity Concession (17.5% off usage and supply charges).
- Queensland: Electricity Rebate of $386.34/year.
- South Australia: Energy Bill Concession of $281.78/year.
- ACT: Electricity, Gas and Water Rebate of $800/year for 2025-26.
Check your eligibility and apply through your state’s energy department or Service NSW. For more information, refer to our comprehensive guide: Australian Energy Rebates in 2026: Your State-by-State Guide After Federal Relief Ends
Smart Usage and Energy Plans
- Thermostat Settings: Every degree above 20°C can add 10% to your heating bill. Set your thermostat to the lowest comfortable temperature (e.g., 18-20°C).
- Time-of-Use Tariffs: If you have a smart meter, consider time-of-use (TOU) tariffs. In Victoria, new ‘Midday Power Saver’ plans offer $0 electricity rates between 11 am and 2 pm, allowing significant savings if you can shift appliance usage.
- Shop Around: Don’t stick to the Default Market Offer or Victorian Default Offer if you don’t have to. While these are safety nets, market offers are often significantly cheaper. The AER estimates DMO customers could save up to 13% by switching to a mid-market offer. Use government comparison websites like Energy Made Easy (for NSW, QLD, SA, TAS, ACT) or Victorian Energy Compare (for VIC) to find the best deal for your usage patterns.
For assistance in navigating energy plans, read our guide: Choosing Your Australian Energy Provider in 2026: A Definitive Guide
Bottom Line
For Australian homes this Winter 2026, the reverse cycle air conditioner (heat pump) is unequivocally the cheapest way to heat your home on an ongoing basis, offering superior efficiency and lower running costs compared to gas and electric resistance heaters. While initial installation costs can be higher, the long-term savings, potentially up to $1,300 annually compared to ducted gas, make it a sound investment. Combine this with excellent insulation, diligent draught proofing, and smart energy plan choices, and you can significantly reduce your winter energy expenditure.