Heat Pump vs Gas Furnace Operating Costs in Colorado: The Honest Math

Heat pumps are more efficient than gas furnaces. Gas is cheaper than electricity in Colorado. So which actually costs less to run?

The answer depends on temperature, efficiency, and rates. Here's the math.

First, let's understand what we're comparing.

Natural gas is measured in therms. One therm contains about 100,000 BTU of energy.

Electricity is measured in kilowatt-hours (kWh). One kWh contains about 3,412 BTU of energy.

So 1 therm of gas contains roughly 29 times more energy than 1 kWh of electricity.

If gas and electricity cost the same per unit, gas would win easily. But they don't, and efficiency changes everything.

A gas furnace can't convert 100% of gas into heat. Some goes up the flue.

AFUE (Annual Fuel Utilization Efficiency) measures furnace efficiency:

• 80% AFUE furnace: 1 therm = 80,000 BTU delivered
• 95% AFUE furnace: 1 therm = 95,000 BTU delivered

Heat pumps don't create heat. They move it from outside to inside. This lets them deliver more heat energy than the electricity they consume.

COP (Coefficient of Performance) measures heat pump efficiency:

• COP 2.0: 1 kWh = 6,824 BTU delivered (2x the energy input)
• COP 3.0: 1 kWh = 10,236 BTU delivered (3x the energy input)
• COP 4.0: 1 kWh = 13,648 BTU delivered (4x the energy input)

COP varies with outdoor temperature. Warmer = higher COP. Colder = lower COP.

Let's use current Colorado rates:

• Gas: roughly $1.10 per therm
• Electricity: roughly $0.14 per kWh

And compare a 95% AFUE gas furnace to a heat pump at various COPs. This is an example. Costs vary by house, system size, and brand.

To deliver 100,000 BTU of heat:

On the flat rate, the crossover point is about COP 3.5. Above that, the heat pump costs less. Below that, gas costs less. At $0.14 per kWh the heat pump beats gas only near COP 4 and loses at COP 3 and below.

What changes on Xcel time-of-use

Xcel's residential time-of-use rate charges a base $0.06792 per kWh off-peak and $0.18331 on-peak in winter (October through May), before the $7.10 monthly service charge, riders, fees, and taxes. On-peak is 5 pm to 9 pm Monday through Friday; the other 20 hours of every weekday, plus weekends and holidays, are off-peak.

A heat pump home on time-of-use runs the heat pump mostly in those off-peak hours, and the break-even moves with the rate (roughly 25 times the per-kWh price, at $1.10 per therm and 95% AFUE). Xcel's published base off-peak winter rate is $0.068 per kWh before riders and fees; at any effective off-peak rate under about $0.10 per kWh the break-even is COP 2.5 or lower, which is where the 25 degrees F setpoint comes from.

This is the key question, and it depends on temperature.

Modern cold climate heat pumps (Mitsubishi, Bosch, etc.) typically deliver:

Translation:

• Above about 40 degrees F: Heat pump is cheaper or break-even on either rate plan (COP 3.5 and up)
• 25 degrees F to 40 degrees F: On the flat rate gas is cheaper by a small margin (COP around 3, about $1.37 vs $1.16); on time-of-use with the heat pump running mostly off-peak, the heat pump is still the cheaper fuel
• Below about 25 degrees F: Gas is cheaper on either rate plan (COP 2.5 and under)

In Denver, average winter temperatures are:

• December: 37 degrees F high / 18 degrees F low
• January: 43 degrees F high / 18 degrees F low
• February: 44 degrees F high / 20 degrees F low

Most of your heating hours are in the 20-45 degrees F range, where a cold climate heat pump runs at COP 2.5 to 4. At the $0.14 flat rate that only beats gas at the top of that range; on time-of-use it beats gas across most of it. The sub-17 degrees F hours exist, but they're a minority of total heating demand.

A common concern: "Do heat pumps really work when it gets cold in Denver?"

Yes. Modern cold climate heat pumps with HSPF ratings of 10 or higher are designed to operate down to -13 degrees F. During the 2022-2023 arctic blast that hit Colorado, heat pumps across the Front Range held their own.

The key is proper sizing. An undersized heat pump will struggle and rely on expensive electric resistance backup. A correctly sized cold climate unit maintains efficiency even when temperatures drop into single digits.

At UniColorado, we've installed hundreds of these systems across the Denver metro. They work. The spec sheets match what we see in the field.

See how these numbers apply to your home. Compare actual operating costs with real equipment performance data. For a broader estimate across system types, our energy calculator covers heating and cooling costs by efficiency tier:

On the flat rate, gas costs less to run for most of a Colorado winter. At $1.10 per therm and $0.14 per kWh, a 95% furnace beats the heat pump at COP 3 and below, which covers everything from about 40 degrees F down.

On the flat rate the heat pump wins only on the mildest heating days. Above about 40 degrees F, COP climbs toward 4 and the heat pump delivers heat for less than gas. On time-of-use, with the heat pump running mostly off-peak, it stays the cheaper fuel down to about 25 degrees F.

Over a full heating season, a heat pump on its own costs more to run than a 95% furnace on the flat rate. The gap widens if the system is undersized and leans on electric resistance backup, which costs more per unit of heat than either.

This is why we install dual fuel. The heat pump takes the mild days and shoulder seasons, the furnace takes the rest, and the changeover we program (about 25 degrees F, the time-of-use break-even) can move as rates change. Our expectation for a dual-fuel install is combined winter utility dollars roughly 5 to 10% lower than the old furnace alone, and summer cooling roughly 15 to 20% lower than an old AC. That is what we see from our installs, not a guarantee.

The case is comfort, cooling, the rebate-adjusted price, and a hedge on gas prices:

1. A hedge on gas prices. Colorado's Clean Heat Plan is pushing electrification. Gas rates may rise. A heat pump lets you shift heating to whichever fuel is cheaper that year. If your gas bill keeps climbing, a heat pump hedges against further increases.
2. You get AC included. A heat pump provides cooling too. If you'd need AC anyway, the incremental cost for heating is much lower.
3. Rebates reduce upfront cost. With the Xcel rebate and the Colorado state heat pump discount, a heat pump can cost similar to a furnace + AC combination.
4. Comfort. A modulating heat pump runs long, low cycles instead of the on-off blasts of a single-stage furnace, so room temperature swings less.
5. No combustion. No carbon monoxide risk, no gas leaks, no combustion byproducts in your home.
6. The math may shift. If electricity rates drop or gas rates rise (both plausible), heat pumps become clearly cheaper. You can't retrofit a furnace to run on electricity.

If you want the best of both worlds:

Dual fuel (also called hybrid heating) pairs a heat pump with a gas furnace. The heat pump runs above a changeover setpoint and the furnace carries the load below it. The setpoint is an operating-cost decision, not an equipment limit: cold climate heat pumps heat well below zero, but gas is the cheaper fuel there at today's rates.

This gives you:

• The heat pump above the changeover, plus cooling all summer
• Gas below the changeover, where it costs less to run on either rate plan
• A changeover you can move as rates change

The system switches automatically based on outdoor temperature. We typically program the changeover at about 25 degrees F, roughly the break-even (COP 2.5) for a home on Xcel time-of-use running the heat pump mostly off-peak; on the flat rate the break-even sits closer to 40 degrees F, and the setpoint is adjustable.

The downside: higher upfront cost (you're buying both systems). If your current furnace is racking up repair bills, replacing it alongside a heat pump in a dual fuel setup makes more sense than sinking more money into fixes.

The numbers above are averages. Your actual costs depend on:

• Your home's insulation and air sealing
• Your specific heat pump's efficiency curve
• Your thermostat settings
• Whether you're on time-of-use electric rates
• How cold your specific winter is

Want to see the math for your home? Contact UniColorado for a free assessment. We'll show you projected operating costs for your specific situation. No pressure, just numbers.