Gas Or Electric Appliances: What's Cheaper?

Wellington woman Emily O'Connor is stuck in a rut that will be familiar to many owners of geriatric appliances.

Her gas hot water cylinder is 25 years old and at some point, it will "explode", she said.

When it does, she would also like to ditch her old gas heater.

She said she wanted to stop burning gas at home, "for cost and environmental reasons".

But electric replacements were expensive.

A hot water heat pump was out of her price range.

A standard electric hot water cylinder would mean re-jigging her home to make space (the aging gas one lives outside).

She would keep the gas hob for now because it hardly used any gas anyway.

"That'll be the last thing I do," she said.

"The obvious and cheapest option", she said would be sticking with gas appliances - a conundrum that may sound familiar to the 300,000 other New Zealand households relying on gas for cooking, heating or hot water.

Many of these households are at a crossroads, and not necessarily for climate reasons, but over cost.

Aging appliances

Research for the Energy Efficiency and Conservation Authority (EECA) found more than a third of household appliances are more than a decade old, meaning they may need to be replaced within a few years.

Given a new appliance was expected to last 15 years, every decision locked in household bills for over a decade, EECA said.

Researchers for clean energy charity Rewiring Aotearoa crunched the numbers on gas versus electric options for EECA, for a typical household, over the 15-year life of an appliance, taking into account the higher upfront cost of many electric options.

Gas comes in two ways: pipelines and bottles.

Compared with using piped gas heating, hot water, and cooking, a fully electric home could save almost $11,000 over 15 years for upfront costs and energy bills, the study found.

Compared with using bottled LPG for heating, hot water, and cooking, a fully electric home could save almost $20,000 over the same period, it concluded.

"Running your home off gas is significantly more expensive than running it off electricity," Rewiring Aotearoa chief executive Mike Casey said.

"If you're looking at a fully gas home of heating, water heating and cooking you're looking at about $2700 a year in energy bills. It's about $2100 a year if you electrify all those machines," he said.

Casey said going electric was cheaper even after paying interest on new appliances at a rate of 5.5 percent a year. Some lenders will finance clean energy fit-outs at as little as 1 percent, he says.

Heating and hot water made the biggest difference, because cooking (whether gas or electric) uses comparatively little energy.

A hot water heat pump, while more expensive to buy, gave particularly good savings for bigger families of four or so people, because they use more hot water.

Despite the small savings, the report suggested people might still consider an electric cooktop over a gas stove, for two reasons.

The first is that if the cooktop is the last gas appliance in a piped gas household, getting rid of it could save the owners or tenants paying monthly gas network fees. These fixed charges make up roughly 40 percent of the average gas bill.

The second reason was health. The report said homeowners might pick electric cooktops to avoid the respiratory and health risks of burning gas inside the home, which studies have linked to asthma and other health problems.

The report said Aotearoa was one of the first countries to hit what it called the electrification "tipping point", where electrifying an average home was cheaper than choosing fossil fuels.

Fix-up costs

For households like O'Connor's, there are barriers to taking advantage of lower long-term bills for electricity.

One is that not all households can afford the upfront cost of switching, if the electric appliance costs more to start with.

Another is that, if you already have gas, it can cost money to remodel, close off gas pipes and remediate the area, what some reports call "make good" costs.

Rewiring Aotearoa did not factor that in, though it did factor in installation costs.

Costs vary widely, but one report for the Ministry for Business Innovation and Employment suggested it might be as much as $500 to $2000 depending on the home and appliances needing disconnection.

The Climate Change Commission's draft advice said it was cheaper for households to install heat pumps. Photo: 123RF

The Climate Change Commission included 'make good' costs in its recent draft advice to the government on weaning off fossil fuels.

It concluded it would not be economical for some gas-burning households to switch to electric appliances until around 2035 - although it also said it stacked up now, for other gas-using households.

There was no doubt going electric made sense for anyone building a new home, it concluded.

"Our analysis for new homes shows that it is already cheaper for households to install heat pumps for space and water heating than to install and use fossil gas," the draft advice said.

"By 2035, the difference is even greater with a home that installs fossil gas paying an additional $1880/year compared with one that installs a heat pump."

Locked in?

New Zealand is still connecting thousands of newly-built homes a year to networks of gas pipes.

There were 24,000 new connections from 2016 to 2021, according to the Commerce Commission.

Casey said it "makes no economic sense" for these homes to connect.

Projections of future gas prices vary, but multiple modelling reports show gas prices heading up over the coming decades.

One report for the gas industry looked at four scenarios and estimated gas prices could go up 20-40 percent by 2035.

Others project it could be higher, particularly further out.

Electricity prices are also expected to rise in the short term, but these are expected to fall again as the supply of low-cost renewable power grows.

Electric appliances use less energy to achieve the same amount of heat, which also helps lower energy bills.

The risk of committing a generation of new home buyers to paying rising energy bills prompted the Climate Change Commission to suggest the government set an end date for connecting new housing to gas.

The argument is that new gas connections are setting people up for increasing prices, which some won't be able to afford. Since getting new appliances and closing off gas ones can also be expensive, this could lock people in.

Casey said gas could seem cheaper to connect to initially.

"People just do not know the cost or they're fixated on upfront cost, so they're pushing bills into the future," he says.

But gas and oil lobby group Energy Resources Aotearoa chief executive John Carnegie said there was no reason to limit people's choice, and it should be up to households to decide what energy they want and if it's worth it.

"Our research tells us people love natural gas and they want to keep on using it. And actually, despite recent reports, a lot of people tell us the set-up costs (of going electric) are more expensive," Carnegie said.

However, EECA chief executive Marcos Pelenur said its research found people did not always have good information about what their future bills would be.

"Our research found overall awareness of potential cost and energy and emissions savings are low," he said.

"If your hot water tank in the house breaks down, people tend to go for a like-for-like replacement and make much faster choices," he said.

He said the goal was to prepare people for when their appliances needed replacing, not rush them into making decisions.

"We're not advocating to go and throw out perfectly good working appliances," Pelenur said.

Climate confusion

EECA's study found there was confusion about the climate impacts of gas - known for a long time as 'natural' gas.

It's a fossil fuel.

"One-third of households couldn't identify that electricity was a cleaner source of energy for us in New Zealand," Pelenur said.

People tended to underestimate the proportion of electricity made from renewable sources such as hydro, solar and wind (at least four-fifths), the study found.

Although generating electricity involves burning gas and coal, it heats the planet significantly less than burning gas directly.

That's partly because of the greater efficiency of heat pumps and other electric appliances, and partly because the grid is mainly run on renewable power, and the mix is getting cleaner over time.

The gas industry says it, too, has ways to get cleaner - for example, blending in a proportion of 'green' gas, such as biomethane from landfills.

Gas network provider Firstgas plans to try blending biogas from food waste into its fossil gas and delivering it to homes this year via its pipelines.

It said it would like to see green gas grow to feed all household demand.

The fossil fuel industry also says carbon capture and storage - where carbon emissions are caught and stored permanently underground - will allow some gas users to keep burning fossil fuels, while negating the heating impact.

Experts debate how feasible these plans are, at least for replacing widespread gas use.

But independent reports generally agree that even if these plans take off, they won't make gas cheaper than electricity.

The Climate Change Commission chose not to include biogas when it modelled how New Zealand could reach zero carbon, saying it wasn't clear there'd be enough at a low enough price to compete with electricity.

Who gets the gas?

It's been known for a long time that New Zealand's gas fields were in their decline phase, though the pace of the recent supply drop may have come as a surprise to many.

It's possible, but not guaranteed, that National's reversal of Labour's exploration ban will unlock new gas fields.

Official briefings to the new government, however, suggest oil companies' appetite for exploration could turn out to be low.

New Zealand doesn't import gas, so it has to ration what it has until people and businesses have installed alternatives.

And the goal of both National and Labour-led governments has been to phase out fossil fuels, aside from a small amount of residual use.

It's generally agreed that a planned transition would be better than a chaotic one, where gas runs out before people have installed alternatives.

So, high-level conversations are happening about who needs gas, how much they need and how much they'll be willing to pay for it - including an effort started under Labour to make a Gas Transition Plan.

According to consulting company Deta managing director Jeff Smit, households had it comparatively easy, compared to some industries. That's because they virtually all had the choice to switch.

With output from Taranaki's offshore gas fields running down faster than expected, he said, companies were turning to consultants like him to help them work if they could electrify or find another alternative.

Smit said household gas and electricity generation would always be the priority when gas supplies ran low, while "industry runs the risk of not getting gas".

"We're 27.5 percent down on gas supply this year and it's continuing to fall," he says.

"It's not about saving the planet any more, it's about saving business."

But not all industries could switch, yet, he said.

"If you think about a factory drying milk powder, all it has to do is receive steam and where that steam comes from is entirely flexible, so it's a relatively simple process," Smit said.

"Where you run into challenges is where gas is integrated into the plant ... steel is one of these," he said.

"It's not just switching out a boiler, it's replacing the whole factory. For me, those sort of situations require gas for longer than others."

Asked about the status of the Gas Transition Plan, and the future of household gas connections, Energy Minister Simeon Brown declined an interview and did not directly answer those questions. He blamed the lack of gas on Labour (which banned offshore exploration) and said the government would restore "energy security".

"The government is supportive of the use of gas in our energy system, as well as the role of biogas and carbon capture and storage," Brown said in a statement.

Former Labour energy minister Megan Woods, however, said National had dropped all work she started into stable, renewable replacements for gas and coal. She said there had not been a significant gas find since 2012, long before Labour's offshore oil and gas exploration ban.

'Electrify everything in your life that you don't love'

None of this particularly helps people like O'Connor, stuck in the labyrinth of difficult choices.

O'Connor said there was no shortage of advice from people wanting to sell her appliances, but there was a shortage of independent help.

Casey said he hoped Rewiring Aotearoa's work could start to change this, and get people thinking about their choices more actively.

He said people could choose their own priorities, whether that meant keeping a gas stove or a classic petrol racecar.

"We want you to electrify everything in your life that you don't love," he said.

"We're here to make the economic argument. Keep driving your racecar, but maybe look at electrifying your gas hot water."