Electrification can have many benefits. These include higher efficiency (because of the refrigeration cycle and less waste heat), lower GHG emissions (due to an increasingly green grid), and many non-energy benefits (such as reduced indoor air pollution). However, these benefits are often not realized because of cheap natural gas. Known as the “spark gap,” the relatively lower cost of natural gas compared to electricity is a major barrier to replacing fossil fuel equipment with electric. Let’s peer into the spark gap and see how it can be overcome.
The scatterplot below shows the average price of natural gas and electricity for residential customers by state in January 2025. In this month, residential customers in most states averaged between $8 and $16 per thousand cubic feet (Mcf) of natural gas and between 10 and 20 cents per kWh of electricity. The US average prices were $12 per Mcf and 16 cents per kWh. (Notice Hawaii in the upper right of the chart.)
Because electric equipment is often more efficient than natural gas equipment, the spark gap can be bridged if the prices of the two energy sources are not too far apart. However, sometimes this gap is too wide and it is not cost-effective to switch to electric equipment. Below is a chart that shows the net cost per MMBtu of switching from an 80% efficient natural gas furnace to a heat pump with a COP of 3.0.
The blue areas of the chart show the price combinations that are favorable for heat pumps (i.e., low electric prices, high natural gas prices) and the red areas show where it is not cost-effective. Note that the January 2025 US average of $16 per Mcf and 12 cents per kWh is slightly negative on a per MMBtu basis.
Utility electric rates can help mitigate this issue. As this article discusses, heat pumps typically use most electricity (for heating, at least) during off-peak periods such as overnight when it is coldest. Because of this, flat electricity rates (i.e., the same rate for all hours of the day) can penalize households with heat pumps compared to a time of use rate. Utilities can design rates that better match when heat pumps use electricity so that it incentivizes users to consume electricity when it is best for the utility while reducing the overall bill of the user. These alternative rate designs are especially helpful in states with cold climates and high electric prices like Minnesota.
Natural gas bills include two major components: the delivery charge (what it costs to deliver the gas through the utilities’ pipes to the home) and the supply charge (the cost of the gas itself).[1] Generally speaking, the delivery charge can be considered a fixed fee that stays the same regardless of how much natural gas is used while the supply charge varies depending on the amount of natural gas consumed. It is actually very hard to find out the typical breakdown between the two charges, although there is a lot of news about the very charges in Massachusetts and New York. Based on some publicly available information, it seems a reasonable estimate is that the delivery and supply charges each make up about half of the natural gas bill for an average home.
Because it is a fixed cost, the delivery charge portion of a home’s natural gas bill gets larger as a home uses less gas, which means that the average price per Mcf increases. That means the math when considering electrification may move from a red area of the chart above to a blue area. In other words, the spark gap decreases for each item a home shifts from natural gas to electric.
Here is a very rough example. According to 2020 EIA data, the average US home with natural gas spends $705 on the fuel per year. About two-thirds of that is for space heating. Because it is an "average home," we assume that the delivery and supply charges each make up half of that cost. If this average home swaps out their natural gas furnace with a heat pump, then it seems like their cost annual cost of natural gas should drop to $223, as shown on the bottom left section of the table below. However, this doesn’t take into account the delivery charge, which stays the same. Once factoring that in, the total bill would actually be $464, meaning that the average cost per Mcf of natural gas is now about double for the water heater and kitchen stove. This changes the math about electrifying those next pieces of equipment.
Granted this a simplifying example and the household would have to get over the initial spark gap. But it shows that the costs and benefits of decisions around electrification are not static. The economic case becomes more compelling as more appliances move away from natural gas until it does not make sense to be connected to a natural gas pipeline.
[1] There may be other charges as well, such as system benefit charges and other surcharges.