The electricity to gas price ratio has fallen from over 5 in 2021 to around 3.8, and will be around 3.3 under the UK government's Energy Price Guarantee from October 2022, according to research published by Nesta on 25 October 20221. The ratio compares the price of electricity with the price of gas and is described by Nesta as crucial in comparing the running costs of a heat pump with those of a gas boiler1.
Nesta reports that the price of gas to UK households has increased by around four times over the last 12 months, while electricity prices have increased by around 2.5 times1. Because gas has risen faster than electricity, gas boilers have become relatively more expensive to run1.
"The ratio of electricity to gas prices - which is crucial in comparing the costs of running a heat pump to a gas boiler - is now at around 3.8, compared to over 5 in 2021."
The practical effect depends on how efficiently a heat pump runs. Nesta says seasonal performance factors (SPFs) for well-installed heat pumps are typically between 2.7 and 3.2 at present1. It groups heat pump efficiencies as follows1:
| Heat pump efficiency | SPF range |
|---|---|
| Good | 2.76 to 3.28 |
| Moderate | 2.5 to 2.76 |
| Poor | 2.24 to 2.5 |
On that basis, Nesta states that a well-installed heat pump is likely to have lower running costs than a gas boiler for the next three to four years, and that even heat pumps with below average efficiency should have similar or lower running costs to a gas boiler1. It adds that efficient heat pumps are likely to remain competitive with gas boilers on running costs until around 20271.
Beyond that point the picture depends on policy. Nesta says the latest forecasts suggest gas prices will begin to fall substantially after 2025, which will make the electricity to gas price ratio rise once again1. In scenarios where levies are removed from electricity and the electricity market is "decoupled", Nesta says efficient heat pumps remain competitive with gas boilers on running costs for most years out to 20371. The Energy Price Guarantee is set to influence the ratio for the next two years, after which Nesta expects market forces to return1.
Why it matters for households
The ratio between electricity and gas unit prices is the number that decides whether an electrically driven heat pump costs more or less to run than burning gas. A lower ratio narrows the gap that a heat pump has to close through efficiency. For a household, the running cost comparison turns on the efficiency of the specific installation, not on the fuel alone, which is why Nesta separates good, moderate and poor performance bands1. Households on gas can read the ratio as a measure of how much of the gas boiler's previous cost advantage has eroded; households already heating with electricity face a different calculation, since they are not comparing against a gas boiler at all. The ratio is also not fixed: it moved sharply in 2022 because gas prices rose faster than electricity prices, and Nesta expects it to move again once gas prices fall1. That makes the ratio a live variable in any assessment of a home's exposure to gas prices, rather than a settled figure.
What happens next
Nesta states that the Energy Price Guarantee will influence the electricity to gas price ratio for the next two years, and that gas prices are forecast to begin falling substantially after 2025, which would push the ratio back up1. It sets out that in scenarios where levies are permanently shifted off electricity bills and the electricity market is effectively decoupled, efficient heat pumps remain competitive with gas boilers on running costs for most years out to 20371. No further dated steps are given in the source.