Space heating cost: gas price hike brings factor price equalization theorem under focus

ISLAMABAD: With a massive increase in natural gas and electricity prices, the cost of space heating of both energy sources in winters is now almost equal, forcing middle-class to increasingly rely on warm clothes.

One primary reason for people opting for gas as primary source of energy for space heating is its lower price relative to electric heaters: an energy efficient electric heater has a market price of Rs20,000 and Invertor technology based air-conditions which can be used for both heating and cooling have a market price of more than Rs150,000, subject to specifications and models of various brands whereas gas heaters are available at a comparatively low price of Rs18000 in the market.

A variable step by step scenario was developed to examine the impact of gas and electricity consumption for space heating at the domestic level. For explicating base analysis, the unit rate of electricity and gas consumption at the domestic level was taken in real terms as notified by National Electric Power Regulatory Authority (NEPRA) for Islamabad Electric Supply Company (IESCO) and Oil and Gas Regulatory Authority (OGRA) respectively for domestic slabs categories.

The fixed cost included in bills like meter rent, fuel price adjustments, TV fees and other taxes imposed by different Distribution Companies in their respective jurisdictions are not included in this analysis. Gas consumption by two different types of conventional heaters i.e. single plate and double plate gas heater were selected based on their availability and demand in the local market. The gas consumption by conventional heater for an operational time of 8 hours daily for 30 days was calculated.

Similarly, the invertor based Air-Conditions and energy efficient electric heaters in the market were taken to calculate the electricity consumption for space heating at a certain time period. Energy consumption by electric heaters was taken for the same operational time as specified for the gas heater.

Invertor AC (1 ton) consumes around 216 units in 30 days with eight hours at a cost of Rs5862 whereas the bill of electric heater using 360 units monthly for eight hours will be Rs11530.

With respect to gas, after November 1, 2023 notification of a gas tariff increase, the rate for non-protected categories rose from 29 percent to 172 percent.

The rate is Rs241 per cubic meter (m3) for consumers using 51-200 cubic meters (m3). For example, if the consumption is 100 m3, the monthly bill will be calculated at Rs24,100 based on this rate.

Consumers who are using 201-300 m3 are paying Rs371.42 per m3, resulting in a monthly bill of Rs37,142 for 100 m3.

Consumers falling in the 301-400 m3 range will be charged Rs501.74 per m3, leading to a monthly bill of Rs50,174. Consumers who use 400 m3 are paying Rs632.06 per m3, resulting in a monthly bill of Rs63,206.

A gas heater typically consumes gas ranging from 0.5 to 3.5 m3 per hour depending on efficiency. Natural gas consumption for geysers ranges from 0.6 to 2.5 m³/hr.

For unprotected categories, tariff increases progressively with higher income households paying higher tariff. The fixed monthly charges for non-protected customers has been raised from Rs1,000 to Rs2,000.

Muhammad Arif, former Member (Gas) OGRA told Business Recorder that it is difficult to give a definitive answer without knowing a specific situation and needs. Comparing the costs of both gas and electricity based on an individual usage pattern also depends on appliance efficiency, he added.