For most Australian households this winter, electric reverse cycle air conditioning (heat pumps) will be significantly cheaper to run than ducted gas heating or portable gas heaters. With federal energy bill relief ending in December 2025 and gas prices remaining elevated, switching to or optimising electric heating can save households hundreds, even over $1,000, on their annual energy bills in 2026.
This guide provides current 2026 data on electricity and gas prices, appliance efficiencies, and available state-based rebates to help you make an informed decision for your home.
Understanding the Core Difference: Efficiency is Key
The fundamental reason for the cost disparity lies in efficiency. Gas heaters generate heat by burning fuel, typically converting 80-92% of the gas into usable warmth. In contrast, reverse cycle air conditioners (heat pumps) move heat from the outside air into your home, rather than generating it. This process is far more efficient, with modern units achieving a Coefficient of Performance (COP) of 3.0 to 5.0. This means for every 1 unit of electricity consumed, they deliver 3 to 5 units of heat.
“A modern reverse cycle air conditioner delivers 3 to 4 units of heat for every 1 unit of electricity used. In comparison, even the best gas heaters convert only 80–92% of gas into usable heat.”
This efficiency gap is the primary driver of lower running costs for electric heating, even with fluctuating electricity prices.
Current Energy Prices in Australia (Winter 2026)
Energy prices vary by state, retailer, and tariff type (flat rate, time-of-use). The federal Energy Bill Relief Fund concluded in December 2025, meaning universal bill credits are no longer applied in 2026. However, the Australian Energy Regulator (AER) announced Default Market Offer (DMO) price decreases for most residential customers in NSW and SE QLD from 1 July 2026, while South Australia saw a modest increase.
Electricity Prices (Indicative Residential Rates, July 2026)
| State | Avg. Usage Rate (c/kWh) | Avg. Daily Supply Charge ($/day) |
|---|---|---|
| NSW | 29 - 34 | $0.95 - $1.25 |
| Victoria | 25 - 30 | $1.05 - $1.45 |
| Queensland | 27 - 31 | $1.00 - $1.30 |
| South Australia | 33 - 40 | $0.90 - $1.15 |
| ACT | 26 - 30 | $0.95 - $1.15 |
| Tasmania | 27 - 31 | $0.85 - $1.05 |
| Western Australia | 30 - 31 | N/A (regulated tariff) |
Note: These are indicative ranges. Actual rates depend on your retailer, plan, and distribution zone. Always compare using your actual bill on sites like Energy Made Easy (for NSW, QLD, SA, TAS, ACT) or Victorian Energy Compare.
Gas Prices (Indicative Residential Rates, June 2026)
Natural gas prices remain elevated compared to pre-2022 levels, though stabilising.
| State | Avg. Usage Rate (c/MJ) | Avg. Daily Supply Charge ($/day) |
|---|---|---|
| NSW | 2.72 | $0.88 |
| Victoria | 2.58 | $0.84 |
| Queensland | 2.45 | $0.80 |
| South Australia | 3.05 | $0.96 |
| ACT | ~4.0 | N/A (varies) |
Note: Gas is charged in megajoules (MJ). 1 kWh of heat requires approximately 3.6 MJ of gas input. South Australia has experienced the highest gas price growth.
Running Cost Comparison: Electric vs. Gas (Per Unit of Heat)
To directly compare, we convert gas costs to a ‘per kWh of heat output’ equivalent. We’ll use average NSW prices for this example:
- Electricity: 32 c/kWh (average usage rate)
- Gas: 2.72 c/MJ (average usage rate)
1. Electric Reverse Cycle Air Conditioner (Heat Pump)
- Efficiency: Modern units average a COP of 3.5 (meaning 1 kWh electricity input = 3.5 kWh heat output).
- Running Cost per kWh of Heat: 32 c/kWh (electricity) / 3.5 (COP) = 9.14 cents per kWh of heat
2. Ducted Gas Heater
- Efficiency: High-efficiency gas heaters are around 90% efficient (0.9).
- Conversion: 1 kWh electricity equivalent = 3.6 MJ gas.
- Running Cost per kWh of Heat: (2.72 c/MJ * 3.6 MJ/kWh) / 0.9 (efficiency) = 9.792 c/kWh / 0.9 = 10.88 cents per kWh of heat
Based on these averages, electric reverse cycle heating is approximately 16% cheaper to run per unit of heat than ducted gas heating in NSW. This saving can be even greater in states with higher gas prices or for homes with older, less efficient gas systems.
Appliance Costs and Installation
While running costs favour electric, the upfront investment varies:
Electric Heating (Reverse Cycle Air Conditioners)
- Split System: For a single room, expect to pay $1,500 - $4,000 installed, depending on brand (e.g., Daikin, Mitsubishi Electric) and capacity. These are highly efficient for zoned heating.
- Ducted Reverse Cycle: For whole-home heating, installation costs range from $8,000 - $12,000. This is a significant investment but provides comprehensive, efficient heating and cooling.
- Portable Electric Heaters: Convection, radiant, or oil column heaters cost $50 - $300. While cheap to buy, they are far less efficient than reverse cycle units (COP of 1, meaning 1 kWh electricity = 1 kWh heat) and are expensive to run for extended periods. They are best for supplementary, short-term heating of small spaces.
Gas Heating
- Ducted Gas Heating: A new ducted gas heating system typically costs $3,000 - $9,000 to install, with some complex systems exceeding $10,000. Replacement units for existing ductwork can range from $1,900 - $6,000 for the unit alone, with brands like Brivis, Braemar, and Bonaire offering various star ratings (3-star to 6-star and even 7-star equivalent).
- Portable Gas Heaters: These cost $200 - $800. They offer instant heat but carry safety risks (ventilation required) and are less efficient than ducted systems. Their running costs per unit of heat are comparable to ducted gas, making them more expensive than reverse cycle.
Government Rebates and Incentives (2026)
Australian governments are increasingly incentivising the shift to electric appliances, particularly heat pumps, to reduce emissions and energy costs.
- Victoria (Victorian Energy Upgrades - VEU): The VEU program offers upfront discounts on eligible heat pump hot water systems and reverse cycle air conditioning units. Combined with federal Small-scale Technology Certificates (STCs) and the Solar Victoria Hot Water Rebate (up to $1,400 for Victorian-made units), some heat pump hot water installations can achieve $0 upfront, though the income threshold for the Solar Victoria rebate reduces to $150,000 from 1 July 2026.
- New South Wales (Home Energy Saver Program / ESS): The NSW Home Energy Saver Program, launched on 17 June 2026, provides zero-interest loans of up to $15,000 for eligible upgrades, including reverse cycle air conditioning and heat pumps. A separate discount of up to $4,000 is expected later in 2026 for lower-income households. The NSW Energy Savings Scheme (ESS) also offers discounts of $400-$1,000 for heat pump hot water systems, which can be combined with federal STCs for total savings of $1,200-$2,500.
- ACT (Sustainable Household Scheme): From 1 July 2026, eligible ACT homeowners can access low-interest loans (3%) of up to $20,000 (increased from $15,000) over 10 years for energy-efficient upgrades, including electric heating and cooling systems and heat pump hot water.
- South Australia (REPS): The Retailer Energy Productivity Scheme (REPS) provides incentives for energy-efficient upgrades, including air conditioning and heat pump hot water systems, particularly for Priority Group households.
- Federal STCs: While not specific to space heating, federal STCs provide significant upfront discounts (often $800-$1,500) on eligible heat pump hot water systems nationwide, which can be stacked with state incentives.
These rebates make the upfront cost of efficient electric heating and hot water systems significantly more attractive, further widening the gap against gas.
Maximising Your Heating Savings This Winter
Beyond choosing the right appliance, several strategies can help you reduce your winter energy bills:
- Insulation and Draught Proofing: A well-insulated home retains heat more effectively, regardless of your heating method. This is often the most cost-effective first step. You can find more details in our guide: Cut Winter Energy Bills by $400+: Best Home Insulation & Draught Proofing Upgrades in Australia 2026.
- Smart Thermostats and Zoning: Use smart thermostats to program heating schedules and zone your home so you only heat the areas you are using. Many reverse cycle systems offer advanced zoning capabilities.
- Optimise Your Electricity Plan: Regularly compare electricity retailers to ensure you’re on the best market offer. Time-of-use tariffs can be beneficial if you can shift some heating (or other appliance) usage to off-peak periods, especially if you have solar. For more strategies, see: How to Cut Your Electricity Bill This Winter in Australia 2026: Strategies After Federal Rebates End.
- Consider Solar and Batteries: If you have rooftop solar, using electricity for heating during the day when your panels are generating can effectively make your heating nearly free. Adding a home battery can extend these savings into the evening. Explore your options: Solar System Installation Costs in Australia 2026: A Complete Guide and Best Home Solar Batteries in Australia 2026: Models, Prices & Post-May Rebates.
Bottom Line
For Australian households in winter 2026, electric reverse cycle air conditioning is unequivocally the cheaper heating option when considering ongoing running costs and available government incentives. While the upfront cost for a ducted electric system might be higher than a gas equivalent, the significant operational savings, coupled with state rebates and low-interest loans, mean a faster payback period and substantial long-term savings.
Given the trajectory of energy prices, increasing grid renewable penetration, and government policies favouring electrification, investing in efficient electric heating is a sound financial and environmental decision for most Australian homes.