As Australia heads into the 2026 winter, the question of whether gas or electric heating offers better value is more critical than ever for households managing rising cost-of-living pressures. The direct answer is clear for most: modern reverse-cycle air conditioners (heat pumps) are significantly cheaper to run than ducted gas heating or traditional electric resistance heaters this winter. This advantage is amplified by falling wholesale electricity prices in 2026 and generous state-based rebates for energy-efficient electric upgrades.
The Current Energy Landscape: Winter 2026
Australia’s energy market is in flux. Wholesale electricity prices across the National Electricity Market (NEM) fell to six-year lows in Q2 2026, averaging $74/MWh, largely due to a rapid increase in home battery installations and warmer weather reducing gas demand. This downward pressure on wholesale costs is translating into lower Default Market Offer (DMO) and Victorian Default Offer (VDO) prices for many consumers from July 1, 2026.
For households on flat rate standing offers, electricity prices in New South Wales are set to fall by 3.4% to 5.0%, and in South East Queensland by 7.2%. Victoria will see average annual residential bills drop by around 5.0%. South Australia, however, is an outlier, with residential flat rate standing offer prices increasing by a modest 1.4%.
Conversely, natural gas prices have generally seen increases in recent years, driven by rising wholesale costs and network tariff adjustments. As of June 2026, average gas usage rates range from 2.45c/MJ in Queensland to 3.05c/MJ in South Australia, alongside daily supply charges.
“Wholesale electricity prices fell across the country… to lows not seen since June 2020, helped by warmer than average weather and reduced demand for natural gas space heating in most states.”
The Contenders: Heating Options Compared
Understanding the efficiency of different heating technologies is key to determining running costs.
Electric Heating Options
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Reverse Cycle Air Conditioners (Heat Pumps): These are the undisputed champions of energy-efficient heating. Instead of generating heat, they transfer heat from the outside air into your home (even in cold weather). Their efficiency is measured by Coefficient of Performance (COP), typically ranging from 3.0 to 6.0, meaning they produce 3 to 6 units of heat for every unit of electricity consumed.
- Running Cost: A 3.5kW output reverse-cycle system can cost as little as $0.28 – $0.45 per hour to run in states like NSW and Victoria.
- Initial Cost: A quality split-system reverse cycle AC can range from $1,500 to $4,000 installed, depending on size and brand (e.g., Mitsubishi Heavy Industries Avanti, Daikin Lite Series).
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Electric Panel Heaters / Oil Column Heaters: These operate on a 1:1 efficiency ratio (100%), converting all electricity directly into heat. While effective for small, isolated spaces, they are far less efficient than heat pumps for larger areas.
- Running Cost: These are the most expensive to run, typically costing $0.50 – $0.99 per hour for a standard 2.4kW unit. Running a plug-in electric heater for 6 hours a night over winter in NSW could cost around $474.
- Initial Cost: Generally low, from $50 to $300 for a portable unit.
Gas Heating Options
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Ducted Gas Heating: This provides whole-home heating through a central unit and ductwork. Modern systems are highly efficient, often rated 4 to 6 stars, meaning 85-95% efficiency.
- Running Cost: An efficient ducted gas system can cost $0.50 – $0.80 per hour to run, or approximately 11c to 15c per kWh equivalent for natural gas. For a typical Melbourne home, this could be $0.56-$1.01 per hour based on current gas rates.
- Initial Cost: Installation costs for ducted gas heating typically range from $3,000 to $10,000 depending on home size and complexity.
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Flued Gas Heaters / Gas Log Fires: These provide radiant and convective heat to a single room and are generally more efficient than unflued options, with efficiencies ranging from 65-85%.
- Running Cost: A 5kW flued gas wall furnace might cost $0.32 – $0.43 per hour based on typical gas rates.
- Initial Cost: From $1,500 to $6,000 installed.
Cost Comparison: Which is Cheaper to Run?
To provide a clear comparison, let’s look at the estimated hourly running costs for heating a medium-sized living area (e.g., needing 3.5kW of heat output) in a typical Australian home in 2026. These figures are based on average market electricity tariffs (around 28-35c/kWh, varying by state) and gas usage rates (2.45-3.05c/MJ).
| Heater Type | Efficiency (Approx.) | Typical Power/Fuel Input | Estimated Running Cost Per Hour (AUD) |
|---|---|---|---|
| Reverse Cycle Air Con | 300-600% (COP 3-6) | 0.85-1.5 kW | $0.25 - $0.45 |
| Ducted Gas Heating (4-star) | 85-95% | 15-20 MJ/hr | $0.50 - $0.80 |
| Electric Panel/Oil Heater | 100% | 1.5-2.4 kW | $0.50 - $0.99 |
Conclusion: An efficient reverse-cycle air conditioner (heat pump) is unequivocally the cheapest heating option to run in Australia for winter 2026, often costing half that of ducted gas heating and significantly less than traditional electric resistance heaters.
Maximising Your Savings: Rebates & Efficiency Upgrades
The initial upfront cost of a new heating system can be a barrier, but various government rebates and energy efficiency programs in 2026 can substantially reduce this.
State-by-State Rebates for Efficient Heating
- New South Wales: The NSW Home Energy Saver Program, launched in June 2026, offers zero-interest loans of up to $15,000 for energy-saving upgrades, including reverse-cycle air conditioning and heat pumps. A separate discount of up to $4,000 for lower-income households is also expected later in 2026. For heat pump hot water systems, the NSW Hot Water Upgrade Incentive (part of the Energy Savings Scheme) offers up to $640 when replacing an electric system, stackable with federal Small-scale Technology Certificates (STCs) for a combined saving of $900-$1,350.
- Victoria: The Victorian Energy Upgrades (VEU) program provides upfront rebates for eligible heat pump hot water systems and reverse cycle air conditioning. These can be combined with the Solar Victoria Hot Water Rebate (up to $1,000, or $1,400 for Australian-made systems) for heat pump hot water, potentially leading to total savings of up to $2,030. Note: From July 1, 2026, the income threshold for the Solar Victoria Hot Water Rebate reduces from $210,000 to $150,000.
- Queensland: The popular Climate Smart Energy Savers program, which offered rebates up to $1,000 for energy-efficient appliances, is closed to new applications as of July 2026 due to being over-subscribed. Queenslanders primarily rely on federal STCs for heat pump hot water systems.
- South Australia: The Retailer Energy Productivity Scheme (REPS) requires energy retailers to provide discounts on upgrades like efficient reverse-cycle air conditioning and heat pump hot water systems. These rebates vary by retailer and are more targeted towards Priority Group households from 2026.
For a comprehensive overview of all available state-based support, refer to our guide on Australian Energy Rebates in 2026: Your State-by-State Guide After Federal Relief Ends.
General Energy Efficiency
Beyond heating systems, improving your home’s overall energy efficiency is crucial. This includes proper insulation, draught-proofing, and efficient window coverings. These measures reduce the amount of heating (or cooling) required, lowering the running costs of any system. You can explore rebates for these improvements in our guide: Unlock $1,500+ Winter Savings: Your 2026 Australian Insulation & Draught Proofing Rebate Guide.
Don’t forget to regularly compare energy plans. Even with falling DMO/VDO prices, market offers can still provide significant savings. Tools like Energy Made Easy (for NSW, QLD, SA, TAS, ACT) and Victorian Energy Compare are invaluable resources. For more on choosing the right plan, see our guide: Choosing Your Australian Energy Provider in 2026: A Definitive Guide.
Environmental Considerations
Beyond cost, the environmental impact of your heating choice is increasingly important. Electric heating, particularly when powered by renewable energy (either from your rooftop solar or a renewable-focused energy retailer), has a significantly lower carbon footprint than burning natural gas. As Australia’s grid rapidly decarbonises with increasing solar and wind generation, the environmental benefits of electric heating will continue to grow.
Bottom Line
For Australian households looking to heat their homes affordably this winter 2026, efficient reverse-cycle air conditioners (heat pumps) are the clear winner in terms of running costs. While ducted gas heating remains a viable option, its operational expenses are consistently higher than heat pumps. Traditional electric resistance heaters are the most expensive and least efficient choice.
With declining wholesale electricity prices, new DMO/VDO rates reflecting these changes, and substantial state-based rebates available for heat pump installations, now is an opportune time to consider upgrading to an energy-efficient electric heating solution. Prioritise a modern reverse-cycle system, investigate all available state and federal rebates, and ensure your home is well-insulated to minimise your winter energy bills.