Cost Guide
Gas vs Electric Heating Ontario 2026: Cost Comparison
Current OEB gas rates, Ontario hydro rates, and real operating cost data for gas furnaces, electric baseboards, and heat pumps. Updated with the 2025 carbon tax removal and 2026 rate changes.
Key Takeaways
- Gas furnace heating costs $1,000 to $1,500 per year for a typical Ontario home. Electric baseboard costs $2,000 to $3,500 per year for the same home.
- An air-source heat pump costs $800 to $1,400 per year to operate, making it competitive with gas and far cheaper than electric resistance heating.
- The carbon tax on consumer fuels was removed in April 2025, saving gas-heated homes about $300 per year.
- Ontario's Ultra-Low Overnight (ULO) rate of 3.9 cents/kWh makes overnight electric heating significantly cheaper for homes that can shift load.
- Over 10 years, a heat pump with rebates typically costs $5,000 to $10,000 less than maintaining a gas furnace when equipment replacement is included.
Current Ontario Energy Rates (2026)
Before comparing systems, you need to understand what you are paying for energy. Ontario has two separate rate structures for electricity, and natural gas pricing has multiple components.[1][2]
Electricity Rates
Ontario homeowners choose between Time-of-Use (TOU), Tiered, or Ultra-Low Overnight (ULO) pricing:[1]
| Rate Plan | Off-Peak / Tier 1 | Mid-Peak / Tier 2 | On-Peak |
|---|---|---|---|
| Time-of-Use (TOU) | 9.8 cents/kWh | 15.7 cents/kWh | 20.3 cents/kWh |
| Tiered | 10.3 cents/kWh (first 1,000 kWh) | 12.5 cents/kWh (above 1,000 kWh) | N/A |
| Ultra-Low Overnight (ULO) | 3.9 cents/kWh (11pm-7am) | 12.9 cents/kWh (mid-peak) | 39.1 cents/kWh (4pm-9pm) |
The ULO plan is particularly interesting for electric heating. If you can heat your home primarily overnight (using thermal mass, heated floors, or a heat pump with a buffer tank), the 3.9 cent rate is extraordinarily cheap. At that rate, electric heating costs less than gas.[1]
Natural Gas Rates
Natural gas pricing in Ontario is more complex than electricity. Your bill includes a supply charge, delivery charges, and a fixed monthly customer charge:[2][3]
| Component | Rate |
|---|---|
| Gas Supply | 10.17 cents/m³ |
| Delivery (first 100 m³) | 8.74 cents/m³ |
| Delivery (next 150 m³) | 8.39 cents/m³ |
| Delivery (over 250 m³) | 7.47 cents/m³ |
| Monthly Customer Charge | $27.69 to $28.91 |
The average Ontario household uses approximately 2,400 cubic metres of natural gas per year.[2] As of 2026, annual gas bills have decreased by about $68 compared to 2025, reflecting both lower commodity costs and the carbon tax removal.[6]
Annual Heating Cost Comparison
Here is what each heating system costs to operate for a typical 2,000 square foot Ontario home with average insulation. These numbers assume roughly 85 to 100 GJ of annual heating demand, which is standard for southern Ontario's climate zone:[7][8]
| Heating System | Annual Cost | Monthly (Heating Season) | Efficiency |
|---|---|---|---|
| Gas Furnace (96% AFUE) | $1,000-$1,500 | $150-$225 | 96% |
| Gas Furnace (80% AFUE) | $1,200-$1,800 | $180-$270 | 80% |
| Electric Baseboard | $2,000-$3,500 | $300-$525 | 100% (but COP 1.0) |
| Air-Source Heat Pump (COP 2.5-3.5) | $800-$1,400 | $120-$210 | 250-350% |
| Ground-Source Heat Pump (COP 3.5-5.0) | $500-$900 | $75-$135 | 350-500% |
| Electric Baseboard + ULO Rate (overnight) | $800-$1,400 | $120-$210 | 100% at 3.9c/kWh |
The standout finding: a heat pump at standard Ontario hydro rates costs about the same to operate as a gas furnace. At ULO overnight rates, it is the cheapest heating option by a wide margin.[4]
Carbon Tax Removal: Impact on Gas Costs
The federal carbon tax on consumer fuels was removed effective April 2025.[6]This eliminated a charge of $0.1244 per cubic metre on natural gas. For a household using 2,400 m³ per year, the savings are approximately $300 annually.
Before the removal, the carbon tax was projected to reach $170 per tonne of CO2 by 2030, which would have added roughly $0.33 per cubic metre to gas bills. That trajectory is no longer in effect, which narrows the operating cost advantage that heat pumps were expected to have over gas furnaces.
However, natural gas commodity prices remain volatile and subject to global market forces. Ontario gas rates have fluctuated significantly over the past decade. Electricity rates, set by the OEB, tend to be more predictable.[2]
10-Year Total Cost of Ownership
Operating cost is only part of the picture. When you factor in equipment purchase, installation, maintenance, and available rebates, the total cost of ownership over 10 years looks like this:
| System | Equipment + Install | 10-Year Operating | Rebates | 10-Year Net Total |
|---|---|---|---|---|
| Gas Furnace (96%) | $4,000-$6,500 | $10,000-$15,000 | $0 | $14,000-$21,500 |
| Air-Source Heat Pump | $8,000-$15,000 | $8,000-$14,000 | $5,000-$7,500 | $10,500-$21,500 |
| Ground-Source Heat Pump | $25,000-$40,000 | $5,000-$9,000 | $7,500-$12,000 | $22,500-$37,000 |
| Electric Baseboard | $2,000-$5,000 | $20,000-$35,000 | $0 | $22,000-$40,000 |
The air-source heat pump, after rebates, is competitive with a gas furnace over 10 years. The lower end of both ranges overlaps. The heat pump becomes the clear winner in homes with higher heating loads (larger homes, colder regions) because the COP advantage compounds.[4]
Ground-source (geothermal) has the lowest operating costs but the highest upfront investment. Even with substantial rebates, the payback period is typically 10 to 15 years, making it most suitable for homeowners planning to stay long-term.
The ULO Opportunity
Ontario's Ultra-Low Overnight rate of 3.9 cents per kWh is a game-changer for electric heating. At that rate, heating with a heat pump costs roughly $400 to $700 per year, less than half the cost of gas.[1]
To take full advantage, you need a system that can shift most heating to overnight hours:
- Heat pump with buffer tank: The heat pump runs overnight, heating a large water tank. The stored heat is distributed throughout the day.
- Radiant floor heating: Concrete slab floors act as thermal batteries, absorbing heat overnight and releasing it slowly during the day.
- Well-insulated homes: Homes with good insulation and air sealing hold heat longer, reducing daytime heating demand.
The trade-off: ULO's on-peak rate (39.1 cents/kWh from 4pm to 9pm) is nearly double the standard TOU on-peak rate. If your heating system runs significantly during peak hours, ULO may cost more, not less. Evaluate your usage patterns before switching.
Which System Should You Choose?
There is no single best answer. The right choice depends on your specific situation:
| If Your Situation Is... | Best Option | Why |
|---|---|---|
| Existing gas furnace in good condition | Keep it, plan for heat pump next | Gas is cheap to operate. Replace with a heat pump when the furnace reaches end of life. |
| Gas furnace needs replacing now | Air-source heat pump | With HRS rebates, net cost is similar to a new furnace. Lower operating costs going forward. |
| Electric baseboard heating | Heat pump (highest priority) | You qualify for up to $7,500 in HRS rebates. Operating costs drop 50 to 65%. |
| New build or major renovation | Ground-source or cold-climate ASHP | Lock in the lowest lifetime cost. Ground-source is most cost-effective when installed during construction. |
| Rental property or short hold | Lowest upfront cost | Gas furnace or baseboard depending on existing infrastructure. Payback period matters more than efficiency. |
Rate Projections: Where Are Gas and Hydro Headed?
Nobody can predict energy prices with certainty, but the trends matter:
- Natural gas: With the carbon tax removed, short-term gas costs are stable. However, global LNG demand, pipeline constraints, and commodity market volatility mean gas prices can spike. Ontario has seen gas cost swings of 30% or more between years.[2]
- Electricity:Ontario's electricity grid is undergoing significant expansion to meet projected demand from EVs, heat pumps, and population growth. The IESO's planning outlook projects increased generation capacity but also increased costs over the next decade.[5]
- Heat pump adoption: As more Ontario homes install heat pumps, economies of scale are driving down equipment costs. Installation prices have already fallen 10 to 15% from their 2023-2024 peaks.
The safest long-term bet: a system that can use multiple energy sources. A heat pump with a gas furnace backup (a dual-fuel system) gives you the flexibility to use whichever energy source is cheaper at any given time.[4]
Frequently Asked Questions
Is gas or electric heating cheaper in Ontario in 2026?
Natural gas remains the cheapest way to heat most Ontario homes in 2026, costing roughly $1,000 to $1,500 per year for a typical 2,000 square foot home with a high-efficiency furnace. Electric baseboard heating costs $2,000 to $3,500 per year for the same home. However, an air-source heat pump can heat for $800 to $1,400 per year because it moves heat rather than generating it, making it competitive with gas.
How much does it cost to heat a house with gas in Ontario?
At current 2026 Enbridge rates, heating a typical Ontario home with a 96% AFUE gas furnace costs roughly $1,000 to $1,500 per year, or about $150 to $225 per month during the heating season. The exact cost depends on home size, insulation quality, thermostat settings, and winter severity.
Are heat pumps worth it in Ontario with the current electricity rates?
Yes, for most Ontario homes. A cold-climate air-source heat pump delivers 2.5 to 3.5 units of heat per unit of electricity consumed, which makes it competitive with gas furnace costs even at Ontario hydro rates. With federal HRS rebates of up to $7,500 and provincial incentives, the upfront cost gap has narrowed significantly.
What happened to the carbon tax on natural gas in Ontario?
The federal carbon tax on consumer fuels was eliminated effective April 2025. This removed approximately $0.1244 per cubic metre from residential natural gas bills. For a typical Ontario household using 2,400 cubic metres per year, the removal saves roughly $300 annually.
Should I switch from gas to electric heating?
Switching from gas to electric baseboard heating would increase your costs significantly. However, switching from gas to a heat pump is increasingly competitive, especially with current rebates covering $5,000 to $7,500 of the equipment cost. The best approach depends on your home, your current equipment age, and whether you plan to stay long-term.
- Ontario Energy Board Electricity Rates
- Ontario Energy Board Natural Gas Rates
- Enbridge Gas Understanding Your Bill
- Natural Resources Canada Heating and Cooling With a Heat Pump
- Independent Electricity System Operator Ontario Planning Outlook
- Government of Canada Carbon Pollution Pricing
- Ontario Financial Accountability Office Home Energy Costs in Ontario
- Statistics Canada Energy Use in Residential Sector