The most common question we receive is how different hot water systems compare. It makes sense: this single decision will dictate your energy overheads, environmental impact, and daily comfort for the next 10 to 15 years.
Since it represents a significant long-term investment, it’s important to understand how the options stack up against one another. Generally, Australian homes fall into one of four categories:
In this guide, we provide a side-by-side comparison of upfront costs, long-term savings, and performance metrics to help you determine which system is truly the best fit for your home and local climate.
Let’s delve into the four main types, giving you an overview of their core technology, typical costs, and what you can expect performance-wise.
This is the most common system found in many older Australian homes. Electric hot water systems use an internal heating element to warm a tank of stored water. Think of it as a giant kettle.
They have the lowest upfront cost,typically $800 – $1,500. However, they are the most expensive to run. Annual energy costs can often reach $1,000 – $1,300 due to inefficient use of electricity.
Gas systems heat water either in a storage tank or instantaneously on demand. They primarily use a gas burner rather than an electric element to generate heat. As such, these units require either a natural gas connection or LPG bottles to function.
With a moderate upfront cost at roughly $1,500 – $2,500, gas hot water systems have lower annual running costs, around $600 – $800, than electric storage. Like electric systems, they have been a traditional mid-range choice for many households.
Solar systems are the environmentally-friendly and efficiency-minded option. They use roof-mounted thermal collectors to heat water directly from the sun, storing it in an insulated tank (on the ground). A gas or electric booster provides backup on cloudy days.
Being a renewable energy source, they offer the lowest ongoing running costs at around $150 – $350 per year. Conversely, they have the highest initial purchase and installation price at about $4,000 – $7,000+ due to roof work, extra materials and your plumbing setup. Keep in mind that in the long run, it will offset the cost and then some.
Heat pump systems are continuing to rise in popularity. They work like a refrigerator in reverse, extracting ambient heat from the outside air to warm the water in its tank.
Highly efficient, they use 60-75% less electricity than a standard electric system. This results in very low running costs of $250 – $450/year. However, like solar, they come with a higher initial investment of $3,500 – $5,500 but do pay for themselves over time.
Here is a quick comparison table of the main hot water systems available in Australia.
| Feature | Electric Storage | Gas (Storage/Instant) | Solar Thermal | Heat Pump |
|---|---|---|---|---|
| Upfront Cost | $800 – $1,500 | $1,500 – $2,500+ | $4,000 – $7,000+ | $3,500 – $5,500 |
| Running Cost/Year | $1,000 – $1,300 | $600 – $800 | $150 – $350 | $250 – $450 |
| Efficiency | Very Low | Moderate | Very High | Very High |
| Best For | Tight initial budget, low hot water use | Homes with cheap gas, high/instant demand | Sunbelt regions, long-term eco-investment | Most Australian homes, excellent all-rounder |
What you can see from this comparison is a clear pattern: the cheapest system to buy is the most expensive to run, and the cheapest to run is the most expensive to buy.
As such, the heat pump sits in the operational sweet spot.
Heat pumps avoid the crippling running costs of electric storage while requiring a far lower upfront investment than solar, with comparable long-term savings. But unlike solar, heat pump performance is consistent year-round in most Australian climates, not being affected by cloudy or rainy weather. They also don’t require a specific roof orientation.
This combination of mid-range initial cost, very low operating costs, and reliable efficiency makes the heat pump an increasingly popular choice across the majority of Australian households.
That said, let’s hone in on the heat pump and really nail down whether it’s a great choice for your home. No system is perfect, so understanding the pros and cons is important.
A heat pump’s primary benefit is major savings, a key driver for customers. You’ll save $600-850 a year compared to an electric system and $200-500 a year versus gas, making up the initial cost over time. Moreover, heat pumps significantly reduce household emissions and work efficiently in most Australian climates, even in cooler temperatures, despite extracting warm air.
You should also factor in substantial government rebates ($1,200-2,000), which will help with the upfront cost. Finally, heat pumps pair perfectly with rooftop solar to use free, clean energy.
The main trade-off is the higher upfront cost, which you’ll be looking at anywhere between $3,500-$5,500. You’ll need outdoor installation space, and it requires a more complex installation than a standard electric unit. They produce low fan noise, roughly equivalent to a quiet conversation. Finally, you should also know that it takes 2-4 hours to reheat a full tank.
Considering the above, heat pumps aren’t typically suitable for:
The Verdict: As a rule of thumb, for 75% of Australian homeowners with some outdoor space, heat pump hot water systems are the best long-term investment for your hot water.
Another major factor making heat pump water heaters increasingly popular in Australia is substantial government rebates.
Australians can access Small-scale Technology Certificates (STCs). This gives you an instant upfront discount of $600-$1,500 when buying an eligible heat pump.
Then, depending on where you reside, you can stack the STC with state-based rebates:
These rebates effectively drop the installed cost from $3,500-$5,500 down to a more accessible $2,300-$3,500.
Most accredited installers handle the paperwork automatically. Ensure your installer is Clean Energy Council accredited and keep your receipts for verification.
You might now have an idea which system is right for you, but in case you’re still sitting on the fence, here’s how to choose.
Again, a hot water heat pump is the best choice for approximately 75% of Australian homeowners.
This suits existing gas homes where instant supply is non-negotiable.
This suits homeowners with the ideal roof and sunny climate.
This suits 10% of situations where other options are impossible.
Yes. Modern models are specifically engineered for Australian conditions and operate efficiently down to -10°C to -15°C. Since most populated regions rarely drop below 5°C—even on Melbourne’s coldest days—performance is reliable year-round.
The investment pays off quickly. Compared to an old electric system, you’ll save $600-$850 annually on your energy bill. Combined with $1,200-$2,000 in rebates, most systems pay for themselves within 3-4 years, then deliver pure savings for the rest of their 12-15 year lifespan.
Sound levels range from 40-55 decibels (dB), similar to a library or quiet conversation. Premium brands like Sanden or Reclaim operate near-silently, while more budget-friendly models may be audible when you’re standing nearby.
It’s an ideal pairing. A heat pump uses 60-75% less power than a standard electric system. By setting its timer to heat during peak sunlight, you can effectively produce free hot water from your solar energy.
No. Installation requires a licensed plumber and electrician. DIY installation voids the manufacturer’s warranty and makes you ineligible for thousands of dollars in government rebates.
While cheaper upfront, a standard electric storage system will add $700-$1,000 to your annual power bill. Over ten years, that’s $7,000-$10,000 in wasted energy costs. A heat pump, costing around $2,500 after rebates, starts saving you money within a few years.
The data is clear: for the vast majority of Australian homeowners, a heat pump hot water system is the most cost-effective, efficient, and future-proof investment.
There’s a reason why heat pumps are rapidly gaining in popularity – they deliver the lowest 10-year total cost of ownership, far outperforming rivals in long-term savings. This is due to their excellent efficiency (60-75% energy savings), proven reliability in all Australian climates, and substantial government rebates ($1,200-$2,000).
The total ownership costs over 10 years are as follows:
Your Savings:$6,200 by choosing a heat pump.
Ready to make the smart choice? Your next decision is choosing the right brand, model and friendly, professional installers for your home.
Compare Top Heat Pump Brands in Australia, or get a personalised quote from Same Day Hot Water Service today.