Hot water accounts for up to a third of household energy use. And with energy prices continuing to rise, who can afford to send money down the drain? If you want to cut your electricity use by up to 70%, a heat pump is the right move to make. However, the higher initial cost of heat pump hot water systems can make homeowners hesitant to make the change.
In this article, we break down the real costs, look at the available rebates and consider whether heat pumps deliver on their cost-saving and efficiency promises, so that you can decide if a heat pump is a wise investment for your home.
Heat pump hot water systems work like refrigerators, but in reverse. Unlike electric or gas hot water systems that heat cold water and store it in a tank, or heat it on demand as it flows through a system, heat pumps only use a small amount of energy to drive a compressor and a fan. The rest of the system uses ambient heat to warm water by moving heat energy from the surrounding air to the water through a refrigeration cycle.
Here’s a quick breakdown of exactly how they work:
Heat pump hot water systems can last for up to 15 years with proper maintenance and are available in split systems (like reverse-cycle air conditioners) or integrated units (which look like a typical hot water system).
We’ve calculated this breakdown of costs based on a 4-person household.
In Australia, 250-315L heat pump systems cost around $3,500–$5,500 installed, with the units themselves starting from around $2,500. Installation can be as little as $800, although this will depend on your existing set-up and whether you can put your new system in the same location.
Invest in a heat pump, and you can expect to save $450-$750 per year compared to an electric system and $150-$300 a year compared to the cost to run a gas hot water system.
To calculate how long it will take a new heat pump hot water system to pay for itself, take the upfront cost and subtract any government rebates you may be eligible for to ascertain the true cost. Then divide this by your annual savings.
For example: Upfront cost $4,200 – $1,100 rebate = $3,100 (Net Cost). $3,100 divided by $650 annual savings = 4.77 years payback period.
While it can cost between $200-$300 for annual servicing of a gas hot water system, a heat pump system is relatively low maintenance as it only requires a professional service once every 3-5 years. These typically cost from $150-$250. In between services, homeowners can ensure their heat pumps stay in good working order by cleaning the air filters and keeping the outdoor unit free of debris. This makes heat pumps a winner when it comes to maintenance costs.
In the past decade, wholesale gas prices have more than tripled. This may mean that since you last purchased a hot water system, the cost to run it has increased substantially.
The government recognises that rising energy costs put significant strain on household budgets. Therefore, as the country attempts to lower its greenhouse gas emissions to net zero by 2050, financial incentives to switch to more sustainable systems have become available at both the federal and state levels.
Small-scale technology certificates (STCs) reduce the upfront cost of installing eligible renewable energy systems and appliances, like heat pumps and solar panels. When you install these renewables, a certain number of STCs are created based on the system’s brand, size and your location. The value of these typically ranges from $1000-$1400, and they are usually applied by retailers as a point-of-sale discount, so there is no out-of-pocket cost to consumers.
As the rebate is gradually being phased out, it’s best not to delay your decision for too long, as it reduces each year until 2031.
A Sydney homeowner pays $4200 for a heat pump water heater, and $1200 worth of STCs are applied by the retailer. They are also eligible for a $400 rebate from the Energy Saving Scheme. With these $1600 worth of savings, the actual cost of their heat pump drops from $4200 to $2600.
While STCs are generally applied directly by the retailer, you will need to check your eligibility for other schemes with them directly. To make the process of claiming rebates easier to understand, check out our full guide on ‘How To Claim Rebates‘.
The coefficient of performance is a measure of how effectively a heat pump uses electricity to move heat. For example, if a heat pump uses 1kW of electricity to provide 4kW of heat, its COP will be 4.0. This means that it’s 400% efficient because you’re getting 4 times as much heat energy as you’re putting in using electricity.
By comparison, a 4kW electric hot water system uses 4kW of electricity to generate 4kW of heat to the water. Its COP is 1.0. However, it can’t exceed this number because it’s not moving heat, it’s simply creating it.
So, where an electric system is 100% efficient, a heat pump is 400% efficient. This makes it a clear winner when it comes to energy efficiency.
So, heat pumps perform more efficiently, but what does this look like in terms of energy usage? Where you’re currently using 4,000-6,000 kWh annually for an electric system, a heat pump can slash this to 1,500-2,500 kWh annually. This means a drop of up to 75% in CO2 emissions.
In terms of temperature performance, heat pump technology has come a long way in recent times, with the systems now much more capable of working optimally even in cold weather. However, because a heat pump’s ability to extract heat from the air decreases as temperatures drop, you may require a model with a booster if you live somewhere where temperatures regularly drop below freezing.
Because highly efficient heat pumps move thermal energy, the ideal scenario for their use is to eliminate the need for non-renewable energy. By using renewable energy from rooftop solar panels, hot water becomes essentially free.
Higher upfront cost
But rebates can reduce the gap to $500-$1,500, and systems can pay for themselves in as little as 4 years.
Climate considerations
Efficiency drops 15-25% below 0°C. However, most Australian climates are ideal and hybrid models are available for extreme climates
Slower recovery time
Heats 270L in 4-6 hours compared to 30-45 minutes for gas. However, this is still faster than an off-peak electric system.
Installation requirements
Need outdoor space with proper ventilation, but this can be achieved with a professional assessment and strategic placement.
Potential noise
Range of 40-50dB for modern units, but it’s not normally a problem if installed away from bedrooms.
The ideal Australian climates for heat pump systems are those warm-temperate cities with mild winters, such as Brisbane, Sydney, and Perth. In Melbourne and Adelaide, heat pumps may lose some efficiency in winter and in alpine regions and parts of Tasmania, hybrid systems may be more effective.
To find the best location for your heat pump, follow our handy checklist:
Unlike solar hot water systems that require extensive roof space and adequate sunlight, heat pumps can often replace electric systems with little fuss. They don’t require an existing gas line, and they can often be placed in the same location as your old electric system, provided it fulfils the above requirements.
If you have limited roof space or it doesn’t receive an adequate amount of sunlight, it’s not feasible to have a solar hot water system installed. This is where heat pumps have an advantage. They offer consistent performance all year round, and they also cost significantly less to purchase and install than solar systems.
If maximising your long-term savings is a priority and you have excellent solar access, then a solar hot water system might be the best option for your home.
The short answer is yes, for most Australian households. The numbers don’t lie. Rebates can significantly lower the cost of a new heat pump, and as energy prices continue to climb, they are the most affordable, energy-efficient and eco-friendly for many Australian households.
Heat pumps are poised to become the dominant source of hot water for Australian households so don’t get left behind, start saving today with these steps:
Ready to make the switch? Visit the Same Day Hot Water Service website for a free, no-obligation quote on a heat pump and see how much you could save with government rebates.