Choosing the best location for your heat pump hot water system is crucial for its performance, efficiency, and longevity. Unlike conventional electric or gas water heaters that generate heat, a heat pump operates by extracting heat from the surrounding air and transferring it to the water.
Poor placement leads to reduced energy efficiency, excessive operational noise, and even premature compressor wear or failure.
This guide will focus on the key factors determining optimal placement and examine whether an outdoor or indoor setup is best suited for maximising your system’s efficiency and lifespan.
Heat pump water heaters don’t generate heat directly like a gas burner or electric hot water system element. Instead, they work a bit like a reverse air conditioner. The system draws in heat from the surrounding air, even when the air feels cool. A compressor then amplifies that heat and transfers it through a coil system to warm the water in your storage tank.
Because heat pump systems rely on ambient air temperature, airflow around the unit directly impacts Coefficient of Performance (COP). The warmer and more stable the air temperature, the higher the COP (efficiency), which means lower energy use and faster water heating.
This is why placement is so important. If a heat pump is installed in a tight or enclosed area where air circulation is poor, it won’t operate as effectively. In short, it needs unrestricted airflow.
On top of this, the compressor and fan generate a low-level hum during operation, so there are slight noise factors to consider. Finally, condensate water forms as part of the heat exchange process, which needs proper drainage.
Living in Australia, chances are your heat pump hot water system will be installed outdoors. In fact, around 95% of Australian heat pump installations are external.
Outdoor installation is the most efficient and practical option for most Australian homes. With access to ambient air, the unit can freely draw and circulate air around the compressor, which maximises heat absorption and overall efficiency (COP).
Noise is also far less of a concern outdoors because the gentle hum of the compressor and fan disperses naturally, not echoing off walls. Installation is simpler too, with no need for costly ventilation ducting. And finally, condensate drainage is straightforward, as water can easily be directed to the ground or a nearby drain.
Installers typically follow these clearances (check your model’s manual for exact specs) for optimal performance:
While heat pumps are designed to handle Australia’s weather conditions, these guidelines can greatly improve performance and longevity. Ideally, the unit should be installed in partial shade to avoid prolonged direct sunlight, which strains the compressor over time. Installing it under an eave or pergola provides added protection from this, as well as heavy rain and hail.
A solid, weather-resistant foundation, such as a raised concrete or composite base, keeps the system stable and prevents water damage. Finally, it’s important to position the unit away from exhaust vents, as these circulate warm, moist air that interferes with the heat pump’s efficiency.
When deciding where to install your modern heat pump, the side of the house is usually the spot, especially if it has northern or eastern exposure to make the most of ambient temperatures. Moreover, positioning the unit near laundry or bathroom walls helps minimise the length of hot water pipes, which in turn reduces both heat loss and energy use.
Ground-level installation allows easier access for maintenance and avoids the added cost and complexity of elevated platforms. Follow these simple guidelines and your outdoor heat pump will operate efficiently and reliably for many years.
Now, you might be wondering, what about the other 5% of systems installed indoors? While indoor installations are rare in Australia, there are a few specific cases where they make sense.
In alpine or high-altitude areas such as the NSW Snowy Mountains, where outdoor temperatures often drop below 5°C, a sheltered indoor setup can help maintain system efficiency.
Furthermore, as population density increases and more people live in apartments or townhouses, we are also installing heat pumps in these dwellings for obvious reasons. Additionally, sometimes there are aesthetic or heritage restrictions, as some properties prohibit visible external units for visual or preservation reasons.
Installing a heat pump indoors is far more complex than simply placing it in a laundry or garage. Because these systems depend on airflow to extract heat, proper ventilation is essential. A ducted setup for both air intake and exhaust is required, which can significantly increase installation costs.
In some cases, commercial-grade ventilation fans are also needed to move enough air through the system. Soundproofing is often recommended too, as the compressor and fan can generate noticeable noise that’s amplified in enclosed areas. Additionally, condensate must be drained to a floor waste or plumbing outlet. Finally, the room must meet the manufacturer’s clearance requirements to ensure safe airflow and allow for service access.
As you can imagine, these extra installation costs add up.
For most Australian homes, indoor installation is neither practical or economical:
In short, indoor installations are possible but primarily reserved for specific site constraints or colder regions where sheltered operation can be advantageous. It’s important to note, however, that even with the higher upfront costs associated with indoor installation, a heat pump remains significantly more energy efficient than a conventional electric storage system, offering potential savings in the long term.
While we may be repeating ourselves with some of these, it’s worth drilling home the information when it comes to heat pumps.
Ambient temperature directly affects a heat pump’s efficiency. Optimal performance (COP 3.5–4.5) occurs between 18–25°C, while colder conditions below 10°C reduce efficiency (COP 2.0–2.5). That said, in warm climates like QLD, NT, and northern NSW, almost any outdoor location works.
But in cooler regions such as TAS or alpine Vic/NSW, northern exposure and frost protection are essential. Coastal homes should use corrosion-resistant models to withstand humidity and salt.
Heat pumps typically generate 45–55 dB of noise, similar to a normal conversation. To keep this at a minimum, position units at least 3m from bedroom windows and avoid corners or alcoves that echo and amplify sound. It’s also worth checking local council noise regulations, particularly for townhouses. And consider your neighbours’ windows if units are near property boundaries.
Follow manufacturer guidelines on space and clearance requirements. Typically, 300–600mm on the sides and 600mm+ at the front is required. Adequate airflow prevents short-cycling and overheating, and clearance ensures technicians can access panels for maintenance. Avoid tight side passages or under-deck locations that restrict airflow or service access.
Heat pumps produce 5–20L of condensate daily. But you can capitalise on this by directing the flow to a garden bed. Otherwise, a stormwater system, or floor waste, will suffice. But avoid areas where water could pool and undermine the base.
Install within 5–8m of existing hot water pipes to minimise heat loss. Access to a dedicated 20–30 amp electrical circuit is required, which may increase installation costs slightly. But proper positioning here is critical for both performance and safety.
Unfortunately, there are plenty of installers who claim to be heat pump experts but make critical mistakes. We know this because we’re called in to fix them!
Such errors can significantly reduce system performance or even void warranties.
Here are the most common heat pump installation mistakes we see:
Avoiding these mistakes by hiring a fully licensed installer experienced in heat pumps ensures your hot water tank runs efficiently and lasts as long as it should.
We understand our readers come from all over Australia, so placement advice needs to reflect your unique regional climate. Here are the differences for optimal performance.
Outdoor locations generally work well due to warm ambient temperatures year-round. Prioritise partial shade to avoid afternoon western sun if possible, and consider cyclone-rated mounting if you’re near the coast.
For the bulk of the population, northern or eastern exposures are ideal to capture morning warmth. Coastal installations should have marine-grade coatings to prevent salt corrosion. If you’re in Victoria and Tasmania, avoid exposed southern-facing locations, if possible.
As previously discussed, these regions may require inside installation. But if you do opt for outside, northern wall placement will maximise sun exposure. Frost protection may also be required (some models include defrost cycles), and insulated pipe lagging is recommended for cold mornings. Finally, a slightly larger capacity unit may be needed to compensate for lower COP in cold conditions.
With hot summers and cold winters, balance is key: provide shade during summer while allowing sun access in winter. Ground-level units in dusty areas should be protected against debris and cleaned to maintain efficiency and longevity.
The key takeaway is that correct location directly affects running costs by maximising COP efficiency, as well as minimising noise and extending the system’s lifespan. Because placement also impacts warranty and long-term performance, this is definitely not a DIY job. Professional advice and installation are strongly recommended.
For general hot water system location advice across all types, see our complete guide: installation location.