Heat Pump vs Natural Gas vs Heating Oil: Annual Heating Cost Comparison

Choosing a heating system can significantly affect a home's running costs. Heat pumps, natural gas boilers and oil-fired boilers use different technologies and have different efficiencies, installation costs and maintenance requirements.

Which option is more economical?

The answer cannot be determined simply by comparing electricity, gas and heating oil prices. We must calculate how much useful heat each system delivers for the money spent.

This Thermosphere.gr guide compares the three options using consistent assumptions and worked examples.

Important: All energy prices and efficiency figures in these examples are hypothetical. They are not current market quotations, supplier offers or guaranteed savings.

1. Why Must We Compare the Same Amount of Heat?

A fair comparison requires each heating system to meet the same demand.

Consider a home requiring 12,000 kWh of useful space heating per year.

A heat pump uses electricity to transfer heat into the building. Natural gas and oil boilers produce heat through combustion.

The amount of purchased energy is not necessarily equal to the amount of useful heat delivered.

2. Heat Pump: Calculating Annual Costs

The basic formula is:

Electricity consumption = Annual useful heat / Seasonal performance factor

Assume:

• Annual useful heat demand: 12,000 kWh.

• Hypothetical installed-system seasonal performance factor: 3.5.

• Hypothetical variable electricity price: €0.20/kWh.

Electricity consumption:

12,000 / 3.5 = approximately 3,429 kWh.

Annual variable energy cost:

3,428.57 × €0.20 = €685.71.

The value of 3.5 is an assumed actual seasonal system performance factor, not a guaranteed manufacturer SCOP.

3. Natural Gas: Calculating Annual Costs

A natural gas boiler converts fuel energy into heat.

The calculation must use a seasonal efficiency figure consistent with the basis on which fuel energy is measured.

Assume:

• Useful heat demand: 12,000 kWh.

• Hypothetical seasonal boiler efficiency: 90%.

• Hypothetical variable gas price: €0.09/kWh of fuel energy.

Required fuel energy:

12,000 / 0.90 = approximately 13,333 kWh.

Annual variable energy cost:

13,333.33 × €0.09 = €1,200.

In real calculations, it is important to establish whether energy and efficiency figures are expressed on a lower or higher heating value basis. Inconsistent bases must not be mixed.

4. Heating Oil: Calculating Annual Costs

Oil heating costs depend on fuel energy content and seasonal system efficiency.

Assume:

• Useful heat demand: 12,000 kWh.

• Hypothetical seasonal efficiency: 85%.

• Illustrative fuel energy content: 10 kWh per litre.

• Hypothetical oil price: €1.30 per litre.

Required fuel energy:

12,000 / 0.85 = approximately 14,118 kWh.

Required oil volume:

14,117.65 / 10 = approximately 1,412 litres.

Annual variable energy cost:

1,411.76 × €1.30 = €1,835.29.

Actual fuel energy content varies with fuel properties. System efficiency also depends on boiler condition, burner adjustment, maintenance and operating conditions.

5. Annual Heating Cost Comparison

For an identical annual useful heat demand of 12,000 kWh:

These are illustrative calculations, not a comparison of current energy tariffs.

Fixed charges, maintenance, repairs and installation costs are excluded.

6. Cost per kWh of Useful Heat

This is one of the most useful comparison metrics.

Cost of useful heat = Purchased energy price / Seasonal efficiency

For the same example:

This explains why a heat pump can have lower running costs even when electricity is more expensive per purchased kWh than gas.

7. When Might Natural Gas Be More Economical?

Natural gas can remain competitive when:

• An efficient gas boiler is already installed.

• Replacement costs are high.

• The heat pump would operate at relatively low seasonal efficiency.

• The electricity-to-gas price ratio favours gas.

The condition and remaining service life of existing equipment matter when evaluating an investment.

8. When Might a Heat Pump Be More Economical?

A heat pump often offers an advantage when:

• The building has relatively low heat losses.

• The heating system operates at low flow temperatures.

• Equipment is correctly sized and commissioned.

• Seasonal performance remains high.

• Electricity costs are competitive relative to fuel costs.

However, no single savings percentage applies to every building.

9. When Might Keeping an Oil Boiler Make Sense?

Keeping an existing oil heating system may be considered when a building is used infrequently, replacement costs are disproportionately high or technical constraints make conversion difficult.

This does not necessarily mean oil has lower running costs.

The decision should consider total ownership costs and expected years of use.

10. How Do Changes in Electricity Prices Affect the Result?

Keeping the assumed seasonal performance factor at 3.5:

These calculations assume an unchanged annual useful heat demand of 12,000 kWh.

Real costs also change if seasonal performance differs.

11. The Break-Even Electricity Price

We can calculate the electricity price at which the variable cost of useful heat from a heat pump equals that of a natural gas boiler.

Break-even electricity price = Heat pump seasonal performance × Gas price / Boiler efficiency

Using the assumed values:

3.5 × €0.09 / 0.90 = €0.35/kWh.

In this example, the heat pump has lower variable energy costs when electricity is priced below €0.35/kWh.

This threshold does not account for fixed charges, maintenance or investment costs.

12. What About Installation Costs?

A heat pump installation may require:

• Outdoor and potentially indoor equipment.

• Hydraulic components and pipework.

• Electrical work.

• Radiator or emitter modifications.

• Commissioning and control adjustments.

New gas and oil installations also have equipment and infrastructure costs.

Payback calculations should compare the incremental upfront cost of one option relative to the alternative, rather than arbitrarily comparing total installation costs.

13. How Does Maintenance Affect Total Cost?

Different heating technologies have different maintenance requirements.

Heat pumps require checks of system operation, hydraulic components and equipment condition in accordance with manufacturer instructions.

Combustion boilers also require combustion-related inspections, burner maintenance and flue system checks.

Actual maintenance quotations should be included in a full ownership-cost comparison.

14. Five Common Comparison Mistakes

Mistake 1: Comparing electricity prices directly with oil prices per litre.

The units are different. Convert them to cost per kWh of useful heat.

Mistake 2: Treating a single COP value as annual efficiency.

COP applies to specific operating conditions and does not represent an entire heating season.

Mistake 3: Ignoring boiler efficiency.

Not all purchased fuel energy becomes useful heat.

Mistake 4: Omitting additional charges.

Variable energy costs do not always represent total running costs.

Mistake 5: Presenting hypothetical payback as guaranteed.

Actual payback depends on capital investment, usage, energy prices and maintenance costs.

15. Frequently Asked Questions

Is a Heat Pump Always Cheaper to Run?

No. Heat pumps can offer substantial savings, but the outcome depends on seasonal efficiency, energy tariffs and installation conditions.

Should I Replace a Working Gas Boiler?

An individual economic assessment is needed. Running-cost savings must be compared with the additional investment.

What Information Is Needed for an Accurate Comparison?

Annual useful heat demand, expected or measured seasonal performance, energy tariffs, installation costs and maintenance expenses.

Can a Heat Pump Work with Existing Radiators?

Yes, provided radiator capacity and required water temperatures are suitable. This should be verified through a technical assessment.

Conclusion

A meaningful comparison between heat pumps, natural gas and heating oil must use the same amount of useful heat.

In our hypothetical example, with 12,000 kWh of annual heating demand, the heat pump has the lowest variable energy cost.

This does not automatically make it the most economical investment for every home.

A sound decision combines building heat-loss assessment, real energy tariffs and total-cost calculations.

Technical References and Further Reading

• EN 14825 — Seasonal performance calculations for heat pumps.

• EN 14511 — Heat pump testing and rating.

• European Commission — Commission Delegated Regulation (EU) No 811/2013 on the energy labelling of space heaters and combination heaters.

• European Heat Pump Association (EHPA) — Technical resources on heat pump performance.

• Official manufacturer technical data for boilers and heat pumps.

Thermosphere.gr — Technical knowledge for heating and building systems.