As Australians brace for another winter, the question of whether gas or electric heating is cheaper remains a top concern. In 2026, efficient electric heating, particularly reverse cycle air conditioning, generally offers significantly lower running costs than gas heating across most of Australia, especially when paired with rooftop solar. While upfront installation costs for ducted electric systems can be higher, ongoing operational savings often offset this investment, potentially saving households hundreds of dollars annually. Recent energy market reforms and state-specific rebates further tilt the balance towards electric options.
Current Energy Prices: Electricity vs. Gas in 2026
Understanding your energy bill starts with knowing the underlying rates. Both electricity and gas prices are influenced by wholesale costs, network charges, and retailer margins, varying significantly by state and even within distribution zones. From 1 July 2026, the Australian Energy Regulator (AER) announced that Default Market Offer (DMO) electricity prices will fall across most regions of NSW, South East Queensland, and for small businesses in South Australia. However, South Australian residential customers on standing offers will see a modest increase of 1.4%. Similarly, the Victorian Default Offer (VDO) has seen average residential prices decrease by about 5% for 2026-27.
Notably, the federal government’s $300 Energy Bill Relief Fund concluded in December 2025, meaning households no longer receive this automatic rebate. However, state-based concessions remain available for eligible customers. Daily supply charges, a fixed fee regardless of usage, continue to be a substantial component of both electricity and gas bills, typically ranging from $0.75 to $1.45 per day for electricity and $0.80 to $0.96 for gas (excluding Tasmania where it’s higher).
Average Residential Electricity Prices (July 2026)
| State/Territory | Average Usage Rate (c/kWh) | Average Daily Supply Charge ($/day) |
|---|---|---|
| New South Wales | 28c - 34c | $0.90 - $1.25 |
| Victoria | 25c - 30c | $0.80 - $1.45 |
| SE Queensland | 28c - 32c | $0.85 - $1.30 |
| South Australia | 34c - 40c | $0.90 - $1.15 |
| Western Australia | ~33c | $0.90 - $1.10 |
| Tasmania | 28c - 30c | $0.80 - $1.05 |
| ACT | 27c - 30c | $0.75 - $1.15 |
*Source: AER DMO, ESC VDO, and retailer data. Prices are indicative and vary by retailer and plan.
Average Residential Gas Prices (June 2026)
| State | Average Usage Rate (c/MJ) | Average Daily Supply Charge ($/day) |
|---|---|---|
| New South Wales | 2.72c | $0.88 |
| Victoria | 2.58c | $0.84 |
| Queensland | 2.45c | $0.80 |
| South Australia | 3.05c | $0.96 |
| Tasmania | 5.47c | $0.82 |
*Source: EnergyPlans, Aurora Energy. Prices are indicative and vary by retailer and plan.
Understanding Heating Appliance Efficiency
The key to comparing heating costs lies in efficiency. Electric resistance heaters (like bar heaters or standard panel heaters) convert almost 100% of the electricity they consume into heat, meaning 1 kilowatt (kW) of electricity provides 1 kW of heat. While this sounds good, it’s the least efficient method.
Reverse cycle air conditioners, however, are heat pumps. They don’t generate heat directly but move it from one place to another. Their efficiency is measured by their Coefficient of Performance (COP), which indicates how many units of heat energy are produced for each unit of electrical energy consumed. A modern reverse cycle system can have a COP of 3.5 to 5.0, meaning 1 kW of electricity can produce 3.5 to 5 kW of heat. This makes them significantly more efficient than any other heating method.
Gas heating systems are rated by star ratings, with higher stars indicating better efficiency. A 5-star ducted gas heater is considerably more efficient than an older 2-star unit, but still typically falls short of the energy efficiency of a modern reverse cycle air conditioner.
Electric Heating Options & Costs
Reverse Cycle Air Conditioners: The Most Efficient Choice
Reverse cycle air conditioners are the undisputed champions of energy-efficient heating in Australia. They provide both heating and cooling from a single unit, making them a versatile year-round solution.
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Upfront Costs (Supply & Install 2026):
- Split System (e.g., 2.5kW-7kW): $1,200 – $4,500 per unit, depending on size and brand.
- Ducted System (Whole Home): $8,000 – $22,000, varying with home size, zoning, and complexity. Installation typically adds $80-$110 per hour, with basic split systems taking a day and ducted systems multiple days.
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Running Costs (Example): Consider a 7kW reverse cycle system (e.g., a Mitsubishi Electric MSZ-AP71VG) with a heating COP of 3.5. To produce 7kW of heat, it consumes approximately 2kW of electricity. Running this for 4 hours a day in a NSW home (at 30c/kWh) would cost around $2.40 per day (2kWh x 4 hours x 30c/kWh). Over a typical 90-day winter, this equates to approximately $216 in usage costs, plus daily supply charges.
Electric Panel Heaters & Portable Heaters: High Running Costs
While cheap to buy (from $50 to $300), these are the most expensive to run. They operate on resistive heating, converting electricity to heat at a 1:1 ratio.
- Running Costs (Example): A 2.4kW portable electric heater running for 4 hours a day in a NSW home (at 30c/kWh) would cost around $2.88 per day (2.4kW x 4 hours x 30c/kWh). Over a 90-day winter, this could amount to $259.20 in usage costs, plus supply charges. For whole-home heating, this cost would multiply significantly if multiple units were used.
Gas Heating Options & Costs
Ducted Gas Heating
Ducted gas heating remains a popular choice for consistent whole-home warmth, particularly in cooler southern states.
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Upfront Costs (Supply & Install 2026):
- New Installation: Typically ranges from $3,000 to $9,000, with more complex systems exceeding $10,000.
- Replacement: Costs can range from $1,900 to $6,000 for just the unit, depending on brand (e.g., Brivis, Braemar, Bonaire) and capacity. Installation labour can add $60-$100 per hour.
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Running Costs (Example): A 5-star ducted gas heater with an output of 20 MJ/hour. Running for 4 hours a day in a NSW home (at 2.72c/MJ) would cost around $2.18 per day (20 MJ/hr x 4 hours x 2.72c/MJ). Over a 90-day winter, this could amount to $196.20 in usage costs, plus daily supply charges. However, this calculation assumes efficient operation and doesn’t account for standby consumption or heat loss through ductwork.
Gas Log Fires & Portable Gas Heaters
Gas log fires offer ambiance but are generally less efficient than ducted systems. Portable gas heaters are convenient but can be inefficient and pose ventilation risks. Running costs vary widely based on MJ consumption, but for a unit consuming 10-15 MJ/hour, the daily cost (4 hours, NSW) would be roughly $1.09 - $1.63, accumulating to $98.10 - $146.70 over 90 days, plus supply charges.
The Solar Advantage for Electric Heating
For households with rooftop solar, the economics of electric heating shift dramatically. By running reverse cycle air conditioners during the day, you can utilise your self-generated electricity, effectively reducing your heating costs to near zero for those hours. This maximises your Maximise Your Solar Savings in Australia 2026: Unlock $1,500+ Annually with Smart Strategies and reduces reliance on grid power, especially during peak demand periods. The new federal “Solar Sharer Offer,” effective from 1 July 2026 in DMO regions, further incentivises daytime electricity use by offering 3 hours of free power for households with smart meters, even if they don’t have solar panels.
Investing in a larger solar system or a home battery can further enhance these savings by storing excess daytime solar generation for evening heating. Learn more in our guide on Solar System Installation Costs in Australia 2026: A Complete Guide and Best Home Solar Batteries in Australia 2026: Models, Prices & Post-May Rebates.
Government Rebates and Concessions for 2026
Several state government initiatives are designed to make energy-efficient upgrades more affordable:
- Victoria (Victorian Energy Upgrades - VEU): The VEU program offers upfront discounts on eligible energy-efficient products, including reverse cycle air conditioners (replacing old electric resistive or gas ducted heaters), heat pump hot water systems, and insulation. Significant changes to VEU AC rebates are expected from 31 July 2026, potentially increasing customer contributions for larger systems, making it beneficial to act sooner.
- New South Wales (Home Energy Saver Program / ESS): Launched on 17 June 2026, the NSW Home Energy Saver Loan Program provides eligible households with zero-interest loans of up to $15,000 for approved upgrades, including reverse cycle air conditioning, solar panels, home batteries, and insulation. A separate discount of up to $4,000 for lower-income households is expected later in 2026. The broader Energy Savings Scheme (ESS) also offers incentives for installing energy-efficient equipment.
- South Australia (Retailer Energy Productivity Scheme - REPS): REPS requires energy retailers to meet energy-saving targets by offering discounted upgrades to customers. In 2026, REPS covers energy-efficient split system air conditioning, heat pump hot water systems, and insulation, with a focus on Priority Group households.
Beyond the Heater: Reducing Your Overall Heating Bill
While choosing an efficient heating system is crucial, optimising your home’s thermal performance can yield even greater savings. Proper insulation and draught proofing are fundamental to retaining heat in winter and keeping cool in summer.
“Insulation, particularly ceiling insulation, can cut heating and cooling bills by up to 30%.”
Consider improvements like:
- Ceiling Insulation: Many Australian homes, especially older ones, are under-insulated. Upgrading to modern insulation can significantly reduce heat loss. Victoria’s VEU program now includes insulation activities.
- Draught Proofing: Sealing gaps around windows, doors, and floors prevents warm air from escaping. Our guide on Cut Winter Energy Bills by $400+: Best Home Insulation & Draught Proofing Upgrades in Australia 2026 provides practical steps.
- Thermostat Management: Setting your thermostat to a comfortable yet economical temperature (e.g., 18-20°C) and using timers can prevent unnecessary energy consumption.
- Smart Energy Management: Utilising smart thermostats and energy monitoring systems can help optimise heating schedules and identify energy waste. For more strategies, refer to How to Cut Your Electricity Bill This Winter in Australia 2026: Strategies After Federal Rebates End.
Bottom Line
For Australian households in 2026, electric heating, specifically modern reverse cycle air conditioning, is demonstrably the most cost-effective option for winter warmth, offering superior energy efficiency and lower running costs compared to gas. This advantage is amplified for homes with rooftop solar, where daytime heating can be virtually free. While the upfront investment for a quality reverse cycle system can be substantial (e.g., $1,200-$4,500 for a split system or $8,000-$22,000 for ducted), state government rebates and zero-interest loans are making these upgrades more accessible. Coupled with essential home insulation and draught proofing, transitioning to efficient electric heating is a strategic move to future-proof your home against rising energy costs and reduce your carbon footprint.