What is Less Expensive Electricity or gas?

When it comes to powering your home, you have two fuel types to choose from – electricity and gas. While both options have their pros and cons, we imagine you’re most interested to know which one is the cheapest. Unfortunately, the answer to that question isn’t simple, but we’re going to give it a go anyway.

Before we get into it, let’s first explain a little about electricity and gas. Households can purchase gas in two forms – natural gas, which is drawn from the mains gas network, and liquefied petroleum gas (LPG), which is delivered in large tanks that have to be replaced every now and again.

Natural gas is the more common of these two fuel options, particularly in Victoria, New South Wales, South Australia, and Western Australia. Gas can be incredibly effective and affordable, however, it has limited utility and is only suitable for water heating, space heating, clothes drying, and cooking.

Electricity, on the other hand, has a lot more applications and can be used for all the above purposes and more. So while many homes do not have a natural gas connection, practically every home needs electricity. The question then is, should you stick with electricity only, or is it cheaper to opt for both electricity and gas?

Electricity customers are charged per kilowatt-hour (kWh) of electricity consumed. Households will also need to pay a ‘daily supply charge’ to cover the distributor’s cost of transporting the electricity to your home. The rates you pay for electricity will depend on your state and distribution network. Typical electricity usage rates for each state are as follows:

Queensland: 20c/kWh

Victoria: 20c/kWh

New South Wales: 23c/kWh

Tasmania: 25c/kWh

Western Australia: 29c/kWh

South Australia: 32c/kWh

Keep in mind that the usage rates listed are relatively standard for a ‘single-rate’ tariff and those customers on time-of-use or block tariffs may be charged notably different rates. Daily supply charges are between 75c and $1.30 per day, again depending on location and the tariff type. You need to pay supply charges regardless of how much power you actually use. For low-usage households, supply charges will make up a higher proportion of your overall costs. Its vice versa is you are a high-usage household.

Natural gas customers are charged per megajoule (MJ) of natural gas consumed. Again, this is in addition to the fixed ‘daily supply charge’, which is generally between 65 and 85 cents per day. Once again though, this varies considerably depending on your state and distribution network. Typical gas usage rates are:

Victoria: 2.5c/MJ

Tasmania: 3.5c/MJ

New South Wales: 4c/MJ

South Australia: 4c/MJ

Queensland: 5c/MJ

Western Australia: 15c/MJ

As you can see, natural gas only costs a few cents per megajoule. The above rates assume a single rate tariff, however, it is common for gas tariffs to operate on a ‘block-rate’ basis whereby the rate increases incrementally as you use more gas.

So gas is the cheapest option, right? Well, yes, but that’s not the whole story. Sure, a megajoule of gas is considerably cheaper than a kilowatt-hour of electricity, but a kWh is also a lot more energy than an MJ. For example, a typical electric oven consumes about 2.3kWh of electricity, while a typical gas oven will use approximately 12MJ per hour.

Assuming an average electricity usage rate of 25c/kWh and an average gas rate of 4c/MJ, an electric oven will cost 58c per hour to run, while a gas oven will cost 48c per hour. Although that appears to be a negligible difference at face value, the savings of gas, in this case, could save you considerably over time.

While gas appliances are cheaper to run, they are generally more expensive to purchase in the first place. For example, a brand-new electric oven will generally cost anywhere from $400 to $1,500 while a gas oven will set you back between $900 and $2,000. This means that the choice of electricity or gas is essentially a decision between whether you want to save money today or later down the track.

If you are an avid cook or you like to blast the heater, then it may work out cheaper overall to install gas appliances, provided you have a natural gas connection. It is important to keep in mind that you will be paying two daily supply charges if you have both an electricity and natural gas connection. This means you should only opt for gas if you know that you will use enough so that the usage rate savings exceed the additional supply charge.

If you like the idea of natural gas, but you don’t have a pre-existing connection, then you will need to organize a connection with your local gas distribution network. The price for gas connections can be anywhere from a few hundred to a few thousand dollars, depending on the network and the complexity of the work that needs to be performed.

If you’re nowhere near a mains network, your only option may be LPG. Also keep in mind that if you are renting, you will need your landlord’s permission before installing any gas connections or appliances.

To see if you are eligible for a mains natural gas connection, contact your gas distributor.

Keep in mind of course that not all appliances are made equal. For example, in this article, we assessed the running cost of standalone heaters, however, you can probably expect to pay a bit less on electricity if you own a reverse-cycle air conditioner or heat pump. In addition, be sure to keep an eye out for the energy efficiency star rating of an appliance. The more stars that an appliance has, the less electricity or gas it needs to run. While energy-efficient models are often more expensive to purchase upfront, you can potentially save in the long term thanks to reduced running costs.

Gas is generally cheaper than electricity, so provided you have a natural gas connection it will often work out cheaper to opt for gas over electricity wherever you can. However, if you only have electricity, then the choice between the two fuels becomes a little less clear.

If a gas connection is available and you can afford to spend a little more on gas appliances, then switching to gas could potentially save you money in the long term – provided you use enough of it to justify your investment. Since it will take time for gas savings to justify the installation cost, then it isn’t recommended for customers who don’t plan on remaining at the same property long. Ultimately, the decision between electricity and gas comes down to your personal circumstance.