A heat pump hot water system uses a fan and refrigeration cycle to extract heat from the surrounding air, concentrate that heat and transfer it into water stored in an insulated tank.
Rather than generating heat directly with an electric element, it moves heat that already exists in the surrounding air, using less energy in the process. The idea can sound strange at first, but it runs on the same principle as a fridge, just in reverse.
This is exactly how a heat pump hot water system works, and it’s a different process to how gas and electric hot water systems work, though the end result is the same.
Think of a heat pump as a fridge running backwards. A fridge pulls heat out of its cabinet and dumps it into your kitchen; a heat pump hot water system pulls heat out of the air outside and dumps it into your tank instead. It’s the same idea behind a reversible heat pump air conditioner, sometimes called a split system air conditioner, just aimed at water rather than a room.
Most homes in Australia run on air source heat pumps, since our climate suits them well. You’ll occasionally hear about ground source heat pumps too, sometimes called a geothermal heat pump, which pull heat from the ground or a nearby body of water rather than the air. They’re a rarer sight on a typical block and tend to turn up on larger, multi-residential jobs instead.
None of that outside air ever gets near the water sitting in your tank. A refrigerant carries the heat between the two, drawing it from the outdoor air and moving it through a sealed circuit. Electricity still comes into it, running the fan, the compressor, the control board, and on some models, a circulation pump or booster.
But because most of the actual heat comes from the air rather than an electric element, heat pump water heaters use a lot less power than a standard electric storage system and get much better energy efficiency. A heat pump also skips the rooftop panels a solar hot water system relies on, so shading or roof space isn’t something you need to worry about.
| Part | What it does |
| Fan and evaporator | Draws outside air across a coil holding cold liquid refrigerant, letting heat move from the air into the refrigerant. |
| Refrigerant | Not what directly heats your water. It’s the carrier, transporting heat energy around the sealed circuit as it changes between liquid and gas. |
| Compressor | The main point where electrical energy is used. It compresses the refrigerant into hot gas, raising both its pressure and temperature. |
| Condenser or heat exchanger | Where heat crosses from the hot refrigerant into the stored water, either through an external heat exchanger, a coil, or a tank-wrapped condenser design, the water acts as the heat sink for the whole cycle, absorbing the energy the refrigerant has picked up from the air. |
| Expansion valve | Drops the refrigerant’s pressure and temperature again, so it can return to the evaporator and repeat the same process, absorbing more heat. |
| Storage tank and controls | The insulated tank holds the heated water and is monitored by a thermostat and temperature sensors. A control board manages timer settings, the refrigeration cycle, an optional electric booster, and condensate drainage. |
Step 1: Ambient air is drawn in. The fan pulls surrounding air through the unit. Even air that feels cool still holds usable heat energy, though the amount available and the system’s efficiency change with the ambient air temperature.
Step 2: The refrigerant absorbs heat. As air passes across the evaporator coil, heat transfers into the refrigerant, which evaporates from a liquid into a low-pressure gas. Cooler air is released from the unit as exhaust.
Step 3: The compressor raises the temperature. The compressor draws in the refrigerant gas and compresses it, raising both pressure and temperature. This is one of the main stages where the system draws power, and the compression process itself generates a small amount of additional heat on top of what was extracted from the air.
Step 4: Heat transfers into the water. The now hot refrigerant flows through the condenser or heat exchanger, transferring heat into the water. The refrigerant and the household water stay in separate, sealed circuits throughout, and the stored water becomes progressively hotter.
Step 5: The refrigerant returns to a liquid. Having released its heat, the refrigerant cools and condenses back into a high-pressure liquid.
Step 6: The expansion valve resets the cycle. The expansion valve reduces the refrigerant’s pressure, cooling it further so it can return to the evaporator and absorb ambient heat again. The cycle repeats until the tank reaches its target temperature.
What you might notice during a normal cycle:
| Stage | What happens inside the system | What you may notice |
| Air intake | Fan draws air across the evaporator | Fan noise and cooler exhaust air |
| Compression | Compressor raises refrigerant pressure and temperature | A low mechanical hum |
| Heat transfer | Heat moves into the stored water | Tank temperature rises gradually |
| Condensation | Moisture collects from the air passing through | Water draining from the condensate line |
| Defrost | Frost is cleared from the evaporator when needed | A brief change in operating sound |
| Booster mode | Electric element assists in certain conditions | Higher electricity use during that cycle |
As one of our installers puts it, the part customers misunderstand most is the water underneath the unit. Nine times out of ten it’s normal, not a fault.
Heat pump systems come in two configurations. An integrated system combines the heat pump and storage tank into one outdoor unit, giving a smaller footprint and simpler installation.
A split system separates the heat pump mechanism from the tank, connected by refrigerant or water lines, offering more flexibility around noise, space or tank placement, and sometimes allowing the tank to sit in an indoor space such as a laundry while the outside unit stays outdoors.
Neither is universally better. If you’re replacing an existing system, the right choice depends on your property.
A conventional electric storage system passes electricity through a resistance element that generates heat directly, the same way an electric kettle works. A heat pump instead uses most of its electricity to move heat from the air into the water rather than generating it, using less energy overall and consuming much less power. A gas storage system, by contrast, loses a good deal of energy as waste heat through the flue.
The Australian Government notes that heat pump water heaters can use around 30% of the energy required by a conventional electric system, and NSW Government guidance points to reductions of up to 75%, though actual savings depend on the model, climate, household demand, and installation.
Coefficient of performance, or COP, describes how much heat a system delivers for the electricity it uses. A COP of 4 means the system provides roughly four units of heat for every one unit of electricity, under the test or operating conditions stated by the manufacturer. Most heat pumps sit somewhere between a COP of 3 and 5.
It doesn’t mean the system creates energy from nothing. That extra heat is collected from the surrounding air, and COP shifts with air temperature, water temperature, and how the system is being run. Treat any single COP figure as a guide for that model under those conditions, not a fixed number that applies to every day of the year.
Heat pump water heaters don’t run constantly. Temperature sensors detect when the tank needs reheating, and the cycle runs until the target temperature is reached. Many households schedule heating during warmer daytime hours, since the system reaches high efficiency faster in warm climates than during a cold night. If you have rooftop solar, a timer can align the heat pump with your solar generation, effectively using stored hot water as a form of thermal battery.
Some models use an electric booster during unusually high demand or in cold areas during winter. Frost on the evaporator can trigger an automatic defrost cycle, and condensate draining from the unit is a normal part of how the system extracts heat.
A handful of factors influence how well heat pump hot water systems perform day to day:
Once you get how the cycle works, choosing a system comes down to a few practical checks:
Get those right, and the rest tends to sort itself out.
Getting the right model, the right size and the right installation is what determines how well that refrigeration cycle performs in your home. Same Day Hot Water Service supplies heat pump hot water systems Australia-wide and installs them across our service areas, from compact integrated units to high-output split systems, so you get an energy-efficient water heater suited to your household.
If you’d like help comparing heat pump hot water systems or want advice on what suits your home, climate and household, call us on 1300 721 996 or get in touch through our website.
Yes. Electricity powers the compressor, fan, controls and, depending on the design, a circulation pump or backup element. A standard electric element generates heat directly through resistance, while a heat pump uses that electricity for moving heat from the air instead, which is the whole efficiency advantage of heat pump water heaters.
Yes. A heat pump water heater can operate using ordinary household electricity. Rooftop solar is optional, though a timer may let the system heat water while your solar panels are generating surplus electricity.
Air still holds thermal energy at low temperatures, but the system generally has to work harder as the outside air temperature drops, since it’s moving heat rather than generating heat directly. Cold-climate models may use specialised refrigerants, defrost cycles or backup elements, and performance limits vary by model.
The compressor increases the pressure of the refrigerant gas, which raises its temperature and generates heat through the compression process itself. That hot refrigerant then releases its heat through the condenser or heat exchanger, warming the water in the storage tank.
The exhaust air feels cooler because the water heater has removed some of its heat. Water near the unit is often normal condensation collected from humid air, though unexplained pooling around the tank or plumbing should still be checked.
Heating time depends on tank size, water heater output, incoming water temperature, outside air temperature and the operating mode selected. It varies by model, so it’s best to check the specifications for the system you’re considering rather than assume a single figure applies across the board.