On this page:

• Electric hot water systems (including heat pumps)
• Gas hot water systems
• Solar hot water systems
• How much is a hot water system?
• How much do they cost to run?
• Switching from gas to electric hot water

When you’re deciding on a new hot water system, one of the key decisions is whether it should be powered by electricity, gas or the sun. Even in the case of solar hot water, there’s still usually a decision between a gas or electric booster element.

Electricity and gas each have their pros and cons for hot water systems, in terms of running costs, efficiency, installation and environmental impact. We’ll take you through the key points to help you make the right choice for your home.

For many Australian homes, the answer comes down strongly in favour of an electric or solar system, but instantaneous gas systems still have some advantages in certain situations.

Electric hot water systems (including heat pumps)

There are three types of electric hot water system.

Conventional resistive electric hot water systems use electricity to heat an element in the water tank, like an electric kettle.

Heat pump hot water systems are a more efficient form of electric storage tank system that work on the same principle as a fridge or air conditioner, by extracting heat from the air and using it to heat the water tank.

Instantaneous (or continuous flow) electric hot water systems heat water only when the hot tap is turned on. They can require a high current draw and the electricity usage will be charged at whatever tariff applies at that time of day.

Pros

• Can be powered by electricity from renewable sources (solar panels or green power).
• For most homes it’s best suited to storage tank systems, but instantaneous electric systems are available.
• Heat pump hot water systems are very energy-efficient and suitable for many homes.
• Government rebates and incentives usually only apply to solar hot water and electric heat pump systems, though gas-boosted solar hot water systems are eligible as well.
• While electricity prices are currently high, they are expected to fall in future as cheaper renewable energy enters the grid.
• Installing your own solar panel system makes electricity very cheap (especially after the solar panel system has paid for itself).

Cons

• Conventional resistive electric hot water systems are not very energy-efficient, and can be expensive to run if they aren’t using cheap electricity (daytime solar or night-time off-peak) or if you don’t time your hot water usage wisely.
• Instantaneous electric hot water systems require a lot of power and may need to be installed at each hot water outlet rather than a centralised system. Also the larger systems may need three-phase power, which most homes don’t have.
• If electricity is from non-renewable sources, the environmental advantage is reduced.
• Maintenance every few years is needed for tank systems to check valves and potentially replace the sacrificial anode rod (a metal rod inside the tank which attracts minerals and other impurities that would otherwise corrode the tank – the anode corrodes instead, ‘sacrificing’ itself).

Electric hot water systems can work well if paired with a solar PV system and a timer or ‘diverter’ to make maximum use of cheap solar electricity. But be aware that you may need a significant amount of solar power to run one of these hot water systems as well as the rest of your home.

Gas hot water systems

There are two types of gas hot water system.

Storage tank gas hot water systems store the hot water in a tank, and reheat the tank as needed.

Instantaneous (or continuous flow) gas systems heat water only when the hot tap is turned on. They tend to use more gas while actually heating, but less overall than a tank because they only use gas when needed.

Pros

• Instantaneous (continuous flow) gas systems are effective and reasonably efficient for small households or as a standalone system powering a remote part of the house.
• Gas isn’t usually charged by time of use, so your hot water usage can be more flexibly timed, and gas hot water system storage tanks can be a bit smaller (as refilling and heating costs the same regardless of the time of day).

Cons

• Gas is a fossil fuel, i.e. a non-renewable resource.
• You can’t create your own cheap supply unlike with electricity, and gas prices are expected to remain high.
• Gas appliances create health risks in the home, with indoor air pollution from carbon monoxide, nitrogen dioxide and particulates. This is less of a risk for most gas hot water systems as the systems are almost always outdoors. But if the system is installed indoors, it must be vented to the outside to remove toxic fumes.
• Gas storage tank systems run a pilot flame continuously, meaning they are always using some gas.
• Gas systems must be maintained regularly for similar reasons as for electric tank systems (including replacing the sacrificial anode periodically), but also to make sure the system is operating correctly and not releasing toxic fumes (especially if installed indoors).

Solar hot water systems

A solar hot water system has rooftop panels that collect heat from the sun and use it to heat water. The water is stored in a tank, either at rooftop next to the panels, or elsewhere in the home. 

Solar hot water systems usually also have a booster element for days that are sunless, colder or when all the hot water has been used up. The booster may be an electric element or a gas burner.

While solar hot water systems are usually very cheap to run, they can get expensive if the collector panels fail or the household hot water usage is too much for the system to handle. In these cases the booster will kick in more often than expected.

You may find out the hard way (via an energy bill) that your hot water has mainly been heated by electricity or gas, rather than the sun. It pays to keep an eye on the system and to keep it well maintained.

Our solar hot water buying guide explains these systems in more detail.

How much is a hot water system?

These are indicative costs only and don’t include installation.

• Electric storage tank system: $650–2500 
• Electric instantaneous system: $600–2000
• Electric heat pump: $2200–6800
• Gas storage tank system:  $1000–7000
• Gas instantaneous system: $700–3000
• Solar (regardless of booster type): $4000–8000

How much do they cost to run?

The cost of running a hot water system depends on three key things:

1.  Whether you’re using electricity or gas.
2. The type of heating technology, such as electric resistance, heat pump or solar.
3. Whether you’re using a storage tank or instantaneous system.

has calculated the typical running costs and greenhouse gas emissions for the various types of hot water systems. The running costs are based on gas prices as of mid-2024.

The tables below summarises the running costs and greenhouse gas emissions calculated by Sustainability Victoria for a typical Melbourne home of one to four using 90–150L of hot water per day, using a standard version of each type of hot water system. Gas costs are based on natural (reticulated) gas – using LPG cylinders is generally more expensive. Check the Sustainability Victoria site for the full details of .

Note that the actual running costs and greenhouse gas emissions could be quite different for your home. For example, households in other states can have different energy prices, and the electricity may come from a different mix of sources, which could change the amount of greenhouse gas emissions.

Switching from gas to electric hot water

There is a growing movement to switch away from gas appliances to electric equivalents, such as replacing a gas cooktop with an induction cooktop. There are a few reasons why this is happening.

Health concerns

As mentioned earlier, there are significant environmental and health concerns around using gas in the home.

Running costs

Electricity can be generated very cheaply if you have solar panels. In the long term, grid electricity is expected to become cheaper and cleaner.

But gas can only be bought from gas suppliers, and there are many market factors that are creating uncertainty about its long-term price. There’s that gas hot water systems will become the most expensive option by 2030.

Disconnecting gas altogether from your property also removes the need to pay the daily gas supply charge. If you’ve switched from a gas cooktop to induction, it may be worth looking into replacing the gas hot water system with a heat pump (for example) at some point.

Don’t forget that one of the best ways to save on the cost of hot water (in both the financial and environmental sense) is to just use less of it. Take shorter showers, install water-efficient showerheadsÌý(²¹²Ô»å toilets), and use your dishwasher rather than hand wash in the sink.

Points to consider if switching away from gas to electricity

• Government rebates and other financial incentives are available in some states for replacing a gas hot water system with a more efficient model, typically a heat pump or solar hot water system. To find incentives and rebates for hot water systems, check the . Select the state you live in and under “I am interested in these areas”, select “hot water”. Or just contact your state government.
• Replacing a gas storage tank with an electric or heat pump equivalent is generally doable, though it may require some extra electrical and plumbing work.
• If you have a gas-boosted solar hot water system, don’t forget this booster element – it may not be easy or possible to convert it to an electric booster.
• It can be difficult to replace an instantaneous gas system with an electric option, especially when there’s no easy location to install a storage tank, or if there’s not enough household power or space for an electric instantaneous system. Apartments in particular can face a lot of challenges in this area, due to having less space to work with.

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On this page:

• What is heat-pump technology?
• Main types of heat pumps
• How do heat pumps work?
• Why is heat-pump technology being used more and more?
• Reasons to install a heat pump
• Reasons not to install a heat pump

Heat-pump technology has existed for a long time, but over the past 30 years, you would’ve seen this term get used more and more. In a nutshell, heat pumps are a highly efficient way of moving heat from one place to another.

But how does this technology actually work? And given it’s not cheap, is it worth investing in? We explain the ins and outs of heat pumps so you can determine whether it’s right for your household.

What is heat-pump technology?

Heat-pump technology is currently used in a lot of different products, but the primary one you already have is in your kitchen: your fridge. Heat pumps are a very efficient way to move heat from inside the fridge to the outside, so it cools your food and keeps it safe for longer.

The other common heat-pump product you might have is an air conditioner, which will often have an outdoor unit (a compressor) which cools your indoor space by pumping chilled refrigerant to the indoor wall unit where it soaks up heat from the indoor air, and the cooled air is then blown back into the room. 

The warm refrigerant is then pumped back to the outdoor unit where the heat is blown into the outdoor air. The outdoor unit chills the refrigerant again and the cycle keeps on going.

Other less common products in Australia are heat-pump dryers and heat-pump hot water systems, both of which are quite expensive at the moment. But many states are offering rebates for heat-pump hot water systems, which will no doubt lead to an increased uptake over the next 20 years.

Main types of heat pumps

There are a variety of different types of heat-pump technology, but these are primarily related to where they source heat from: air, earth or water. 

Air-source heat pumps

Air-source heat pumps move heat from the air around them and put it into a source, and a common example would be heat-pump hot water systems. This type of technology is the most common type in residential Australia and is used in split-system reverse-cycle air conditioners as well, where the heat is moved from inside a building to the outside, or vice versa – moving heat from outside the house to inside.

Ground source heat pumps

Less common in residential Australia, this heat pump (also known as a geothermal heat pump) moves heat from the ground into a source by laying cables or other collector type arrays to gather heat from the surrounding soil, either in shallow trenches (which takes up a lot of room) or a deep hole in the ground (which is expensive).

Water source heat pumps

Given the consistency of water temperatures, this can be the most efficient heat-pump technology. It takes the same process as ground source heat pumps, making use of cables laid into water to extract heat, but it’s rare that a property is located next to a constant flowing water source.

How do heat pumps work?

Unlike electrical resistance and gas-burning options, a heat pump does not generate heat. Instead it uses compressed and expanded refrigerant gas to capture heat and move it to another space.

It’s a fairly simple concept, which is why the technology has been around for so long, though there are several components to heat-pump technology and it’s become a lot more efficient over time, using better refrigerants.

And of course, one of the benefits of good insulation in your living space means you’ll need to use even less energy to run the heat pump, as it requires less energy to heat an already well insulated home.

Most heat pumps only act in one direction – they only heat, or they only cool. Reverse-cycle air conditioners have a reversing switch which means they can heat or cool.

This isn’t necessary for something like a fridge, where you only expect it to cool the compartment contents, so the heat pump moves heat from inside the fridge to outside the fridge (the coils at the rear).

Why is heat-pump technology being used more and more?

Since heat pumps are much more efficient than gas-powered or electrical-resistance technologies, the amount of heating or cooling you get is at least twice (and often three or four times) the amount of electrical energy you put into the unit. 

For example, an air conditioner powered by heat-pump technology will usually deliver three or more units (usually measured in kilowatts, or kW) of energy for heating or cooling compared to the one unit of energy required to run the air conditioner. 

That’s because it’s not simply using the electricity for heating. Thanks to the refrigerant gases in the heat pump, it’s actually utilising the free heat energy in the air itself. The heat that your heat-pump hot water system puts into the water tank mostly comes from the outdoor air.

Even on a fairly cold day, there’s plenty of available heat energy in the air (heat pumps can struggle in temperatures near zero or below, but there are models specially designed for cold areas). This is also why the compressor unit needs to be outdoors, or at least in a well-ventilated space.

Electrical resistance, like that of a portable heater or vented clothes dryer, will only get you a ratio of one unit of energy to one unit of heating or cooling energy, at best.

Gas is even worse than electrical resistance, as you get fewer units of energy compared to the amount of gas you’re putting into the product.

Because heat-pump technology is much more efficient, it can save you a lot of money, and combined with other energy-saving technologies like solar and battery technology, it can essentially wipe out a large portion of your energy bill.

Heating and cooling can make up 30–40% of your energy bill, so any change to a more efficient technology should save you money in the long run.

Reasons to install a heat pump

Cheaper energy bills

Do you like to save money on your energy bill? It’s generally a good reason to install a heat-pump system, whether that’s an air conditioner, dryer or hot water system. But that’s no reason to chuck out your existing system if it all works well, just that it’s worth considering when it’s time to replace it.

Combined with a solar and/or battery system, you can achieve cost-free heating and cooling, which is more difficult to do with electric resistance given the comparatively poor efficiency. 

One product to heat and cool

If you install reverse-cycle air conditioning you can both heat and cool, instead of relying on separate appliances for your seasonal needs. Another potential benefit of this type of air conditioner is that it acts as a dehumidifier as well (cooling the indoor air condenses some of the moisture out of it in the process).

No gas needed

If you have gas and are relying on it for heating (space and/or water), changing to heat pumps can get rid of most of your gas bill with the remainder only spent on cooking (if you have a gas cooktop). You could even decide to switch all your appliances to electricity at that time and eliminate your gas bill completely.

Rebates

At the moment, some Australian states and territories, including Victoria and the ACT, are offering rebates for these types of systems (particularly heat-pump hot water systems) to those who are eligible, cutting the sometimes extravagant costs of this tech in half or to hardly any outlay depending on which rebates you can get.

Reasons not to install a heat pump

Lack of space

If you’re in an apartment, semi or townhouse, you may not have space to install a heat-pump air conditioner or hot water system, so these may simply be out of reach for the moment. Over time we expect there will be technologies to replace existing instant gas systems for hot water, and smaller designs for smaller living spaces.

No insulation

If you have a draughty house, you may not reap the full benefits of a heat pump, as it tries to replace all the heat (or cool) that is leaking out of the house on a regular basis. The best way forward in this case is to seal the gaps and insulate your home first.

Electricity becomes even more expensive

Installing a heat pump might only keep you on par with electricity prices if they continue to exponentially increase, so lower bills are not a guarantee. However, gas prices could rise at the same time, so staying with gas heating won’t necessarily be a better option.

Expense of installation

If you’re unable to source rebates from your state, territory or the federal government, it might not make sense to buy and install a heat-pump system if the price is too high. You’ll need to make some calculations to see whether the investment makes sense, but even then, not everyone has a spare several thousand dollars to make an energy-efficient household.

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