What Is Best Energy Option?

What is the best energy option – natural gas, electricity, both? Before addressing that question let’s consider the residential sector of the economy.

How Significant is Residential Energy Consumption Relative to Other Sectors of the Economy

The predominance of energy consumed in the United States is used in the transportation and industry sectors of the economy. The residential sector of the economy uses 15 percent of the energy consumed in the United States. U.S. Energy Information Administration (EIA)

Within the residential sector, the primary sources of energy are electricity and natural gas. Electricity is the fastest growing source of energy in new homes. Fortunately, coal is not a significant source of residential energy consumption (mostly used in New England). It is worth noting however that natural gas is a primary source of electricity generation, so its contribution as a source of residential energy is understated here. U.S. energy consumption by source and sector, 2023

In summary, residential housing is a significant user of energy in the United States and natural gas and electricity are the primary sources of energy. Natural gas and electricity are often used in tandem. While there has been growth in renewables as a source of residential energy, there has been minimal change in renewables as a percentage share of residential energy consumption. Further, coal and petroleum usage is in decline and, with rare exceptions, are not realistic choices for future residential installation.

Where Is Energy Used in a Home?

The primary use of energy in a home is for heating, cooling and water heating. Together they account for 70 percent of total energy use. Of course, percentages vary by type of home and by region of the country. In the North, heating is the primary consumer of energy. In the South, air conditioning is the primary use of energy.

How Can Price Influence the Choice of Energy Source?

One consideration when deciding what source of energy to use to heat a home is the price of energy. There are two considerations:

1.      What is the relative cost of energy today?

2.      How will energy costs change in the future?

The literature is mixed regarding which form of energy is more cost-effective. In part, differences in opinion depend on the state in which one lives. Natural gas prices range from 11.0 dollars per MCF in Montana to 26.6 dollars per MCF in Florida (Hawaii is an outlier at 53.5 cents). Electricity prices range from 10 cents per KwH in Nebraska to 31 cents per KwH in Rhode Island. Average Gas Bill? (2024)     Electric Power Monthly (EIA)

Furthermore, there is not a direct correlation between electricity prices and natural gas prices. For example, in Michigan and Alaska gas prices are low and electricity prices are high. By contrast, in Missouri and Oklahoma gas prices are high but electricity prices are low.

Some states have the double whammy of having high gas and high electricity prices. These states include Hawaii, Rhode Island, and New Hampshire. States with low gas prices and low electricity prices include Idaho and South Dakota.

In summary, the relative cost of electricity can vary by state and the choice of energy source is dependent on these relative differences.

There are other factors that influence the choice of energy source, Including:

• Mobile homes use electricity to meet all energy uses.

• Heating oil is primarily used in the northeast.

• Rural areas tend to use propane for heating and cooking.

• Electricity is the primary energy source for houses in the South where heating is less important and cooling is more important.

• As of 2020, 13 percent of houses used electric heat pumps for heating and cooling. Use of energy in homes (EIA)

How Will the Cost of Electricity and Natural Gas Change in the Future?

As your stockbroker tells you, “Past performance is not necessarily an indicator of future performance.”  However, it might be informative to look at trends in pricing for natural gas and electricity.

During the six-year period from 2014 to 2020, residential gas prices across the United States increased only 2 percent. For the same period, residential electricity prices increased only 5 percent. Prices were amazingly stable.

However, for the three-year period from 2020 to 2023, residential natural gas prices increased 40 percent and residential electricity prices increased 22 percent. These are dramatic price increases given years of stability. Electric Power Monthly USEIA  U.S. Price of Natural to Residential Consumers USEIA

Will these dramatic increases in energy costs continue? I am not an expert and expert opinion is varied. I will say that there is anecdotal evidence that the demand for electricity will increase dramatically as bitcoin and AI data compute demands for electricity grow exponentially. Indeed, corporations like Meta and Microsoft are seriously considering developing their own nuclear power plants to meet their need for electrons.

If so, is natural gas a better source of low-cost energy in the future? Not in my state. Nicor Gas provides natural gas to 2.2 million residential, public sector and business customers in my home state of Illinois. According to the Citizens Utility Board, “Nicor has received a total of about $724 million in rate hikes since 2018: $93 million in 2018, $168 million in 2019; $240 million in 2021 and $223 million in 2023, they are requesting $308 million this year.” The current request would increase the customer charge by about 20 percent. Citizens Utility Board

What Can Be Done in Response to Likely Energy Price Increases

The logical response would be to reduce energy consumption and find alternative sources of energy that cost less than natural gas and electricity from these utilities. There are many options for reducing energy consumption for existing and new homes including insulation, double- and triple-pane windows, and energy efficient appliances. Alternative energy sources for existing and new homes include solar electricity, geothermal heat pump heating and cooling, and solar water heating.

While any one of these initiatives will reduce energy costs, the opportunity to build a new home allows one to consider a “net zero” energy option that incorporates all these initiatives and others. It is hard to envision a “net zero” home that is heated by natural gas. An electrified home where the primary source of electricity is solar panels and battery storage is the best option for a “net zero" home.

I intend to build a “net zero” home. Natural gas is not an option for me. My heating, ventilation, air conditioning, cooking, washing, and drying will all be electric. I still have options for energy generation. For example, I will install solar panels to generate electricity. I will install a geothermal heat pump to collect energy from the ground.

My Community Actively Encourages My “Net Zero” Decision

I am building my home in Oak Park, Illinois. In 2023 the Oak Park Board of Trustees developed a “Climate Ready Oak Park” plan with several goals. The two most significant of these goals for homeowners are to:

• Decrease community-wide greenhouse gas emissions by 60% by 2030.

• Achieved community-wide net zero greenhouse gas emissions by 2050.

The Village issued several suggestions for homeowners about how to reach these goals, including: Suggestions for Homeowners

• Weatherize and electrify your home.

• Switch to solar.

• Convert your plants to native species.

• Travel clean (walk, bike, use public transportation)

• Compost

The most significant of these “suggestions” for me is the regulatory requirement that all newly constructed homes be electric, which effectively prohibits the installation of natural gas. The Village of Oak Park is the first city in the Midwest to implement such a regulation. Berkley, San Francisco, Denver, Seattle, and New York have implemented similar regulations. In response, several states have implemented bans on regulations that require the electrification of new homes (and the Village of Oak Park is being sued). Given these conflicts, the issue is in great flux. Fortunately, local architects and engineers are fully aware of the rules in your community and state.

Summary

I chose to build a “net-zero” home powered by solar panels and geothermal energy. I did so in recognition of several factors: 

• Residential energy is a significant percentage of total energy consumption in the United States.

• Natural gas and electricity are the prime sources of residential energy.

• The cost of electricity and natural gas has increased rapidly recently and seems likely to increase in the future.

• A zero-energy home will have stable and minimal ongoing energy costs.

• A natural gas home won’t be a zero-energy home, but a solar home can be.

In addition (but not discussed, because of political uncertainty), there are incentives (as of May 2025) that reduce the payback period for installing solar and geothermal energy to levels commensurate with other investments.