Xcel Energy’s new electric space heating rate reduces operating costs for Minnesota ASHP owners
While numerous incentives and financing options are available to reduce upfront cost challenges with air source heat pumps (ASHPs), the cost to operate the electric HVAC equipment throughout the winter compared to a natural gas furnace has remained a challenge for many. Due in part to the analysis and recommendations provided by Center for Energy and Environment (CEE), a revised electric space heating rate will be available to Xcel Energy’s Minnesota electricity customers in October 2025, just in time for the start of Minnesota's heating season.
What is an electric space heating rate?
Electric space heating rates, such as the one offered by Xcel Energy, provide a lower cost of electricity to customers primarily heating their homes using electricity. This could mean a hybrid system consisting of an ASHP paired with a natural gas or propane furnace, or it could be an all-electric heating system. An all-electric system could be composed of an ASHP paired with an air handler and supplemental electric resistance heat strips. This rate is a discount applied to a whole home’s electric use from October–May.
When utilities bill customers, part of the charge covers system and operations costs. Customers who primarily heat their homes with electricity — especially those using hybrid heat pumps — consume much more electricity than average but don't add proportionally more strain to the grid infrastructure. Under traditional rate structures, they pay far more than their fair share of system costs. Electric heating customers can use 1.6 to 6.8 times more electricity and could pay up to seven times more toward system costs compared to those with gas furnaces and standard air conditioners. Offering special electric space heating rates helps ensure these customers aren’t unfairly overpaying for their utility’s system and operations costs.
How do electric space heating rates help save money?
Historically, natural gas has been a less expensive fuel source than electricity for home heating. While making the switch to an electric ASHP will reduce your household’s carbon footprint, the swap doesn’t always save money compared to running a traditional natural gas furnace for heating. While utility rebates and government incentives can help bring down the purchase price of an ASHP, signing up for an electric space heating rate can slash operating costs as well.
“This new rate creates a scenario in which there is no longer a value proposition for purchasing a traditional A/C unit when the time comes for replacement. There is no reason to buy an air conditioner any longer in Xcel Energy territory,” explains Rabi Vandergon, Initiative Manager for the MN ASHP Collaborative. With adequate incentives already in place to cover installation costs, he says that new electric space heating rates now make it “operationally more cost-effective to use the heat pump both for cooling and to displace some natural gas use in the heating season.”
The new electric space heating rate offers 42% savings compared to the standard winter rate. To see how much special utility rates could save you, use our cost of heat comparison resource to estimate the annual energy costs of operating a heat pump with different system configurations, utilities, and rate types.
How to enroll
There is no cost to the customer to enroll in the rate, and no metering equipment needs to be installed. To enroll in this rate, call Xcel Energy Customer Service at 1-800-895-4999 and let them know that you have an ASHP and would like to switch to the Electric Space Heating Rate (use this specific language). From there, they can make the change in their billing system.
To learn more about why electric space heating matters, follow the links below.
Why do electric space heating rates matter? | Center for Energy and Environment