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Not all hot water systems are created equal. Water heating methods, reliability, energy efficiency, eco-friendliness and costs can vary from system to system.

We’ll explain the different types, their pros and cons, and compare the results.

What are the main types of hot water systems in Australia?

According to the Australian government, there are four main types of hot water systems in the Australian market.1

Electric hot water systems

Electric hot water systems are usually more expensive than gas water heaters to run. However, electric storage systems have the lowest up-front installation costs compared to other systems. Instantaneous electric hot water systems may have higher up-front costs but may also be more energy efficient

You may like to check your bill to see if you have a controlled load tariff or contact your energy provider to confirm this. If your system is configured to work with this option, it can help you save money on electricity, as electric water heaters generally consume high amounts of energy.

Electric hot water system

Gas hot water systems

There are two types of gas hot water systems that use either natural gas or liquified petroleum gas (LPG). A gas continuous flow system (also known as instantaneous) uses piped natural gas and is generally considered the most efficient as it heats water as needed. A gas storage system heats the water and then stores it for later use. However, gas storage and instant hot water systems still need electricity to power the thermostat and control panel.

An LPG system is more expensive but is still an option for a gas system if your home isn’t eligible for natural gas.

Gas hot water system

Heat pump hot water systems

A heat pump hot water system works like a refrigerator or air conditioner, except it heats cold water with outside air and a little electricity. A heat pump can be noisy and expensive to install; however, they’re typically more energy-efficient than electric hot water systems and can save on running costs.

Heat pump hot water system

Solar hot water systems

A solar hot water system can be expensive to install. However, purchasing a new hot water system run by solar power can significantly reduce your energy consumption and save you money by using the sun instead of electricity to heat the water in your system’s storage tank.

As the most environmentally friendly option, a solar hot water system may also come with a government rebate, depending on where you live.

If the weather is rainy or overcast for a few days, you won’t run out of hot water, as most models come with a booster or backup service (using electricity or gas) that kicks in if or when needed. This can be a manual switch, a timer or if the thermostat in the tank falls below a certain temperature.

The electricity used by solar hot water systems is charged at the same rate as that used by electric hot water systems, but you may not have to pay anything to power your solar system if the sun is shining.

Solar hot water system

Storage water heaters vs continuous/instantaneous water heaters

All hot water systems use one of two types of systems to heat water. A storage water heater heats and stores water in an insulated tank and provides an instant hot water service in large amounts. Alternatively, a continuous flow/instant hot water system uses electricity to heat water as needed. Therefore, continuous flow/instantaneous systems are generally more energy-efficient and cheaper to run, but are smaller in size than storage units.

What should I consider when buying a hot water system?

First and foremost, you need to consider space. If you don’t have roof space, installing a solar hot water system will be difficult.

While electric hot water systems can be installed inside, heat pump and gas hot water systems must be installed outside the household, which can be an issue in apartments or units.

Regarding size, storage hot water heaters and solar water heaters are sized according to the number of people in the home. In contrast, continuous flow or instantaneous systems are sized according to the number of hot water outlets in the home.

Now, let’s compare costs, efficiency and eco-friendliness.

ElectricGasHeat PumpSolar
Up-front costsGenerally, the cheapest hot water system to buy and install.Slightly more expensive than electric.Slightly more expensive than gas.Typically, the most expensive to purchase and install.
Energy efficiencyStorage electric hot water systems use the most energy compared to other systems; however, modern energy-efficient appliances can sometimes alleviate this.Gas hot water systems can vary, so you should take note of the gas energy rating.While they use a small amount of electricity, they’re much more efficient than traditional electric and gas water systems.Although these systems are boosted by electricity or gas for backup, they’re the most efficient type of water heating systems.
Greenhouse gas emissionsHigh. However, it can be lessened if the electricity is sourced from renewable energy sources like hydro.While this system still emit greenhouse gases, it’s cleaner than electric.Heat pump water heaters use 60-75% less energy than conventional electric hot water system.2Solar is a renewable energy source, which is the best environmental choice.
Source: Sustainability Victoria.1

N.B.: Energy efficiency may differ between brands, while energy costs and rebates vary from state to state and retailer to retailer.

Frequently asked questions

What’s the best hot water system?

No hot water system is the ‘best’, as this will differ per household. However, there are hot water units that are more energy-efficient and are likely to be cheaper to run, like solar and heat pump water systems; however, these systems typically have higher up-front installation costs and may not be suitable for those in apartments.

You may also consider greenhouse emissions when making your decision. The environment prefers solar, heat pump and even gas hot water systems over non-renewable electric powered systems.

In short, it all depends on what you’re looking for and can afford.

What size hot water system do I need?

Hot water systems typically vary in size from 100 to 400 litres. If you’re buying a new system, the size will depend on several factors, such as:

  • The number of people in the house. Predictably, more people in the home will increase water consumption and may require a larger water tank for your system.
  • The number of bathrooms, sinks and tubs. A larger hot water system may be the best option if your home has multiple bathrooms, an extra kitchen or dishwashers.
  • Peak or off-peak times. If you have an electric system connected to a controlled load tariff (during the night/early morning), you’ll need a larger system for the larger supply of hot water. This is because the water heats during the night and early morning and only boosts during the day.

What’s the difference between peak and off-peak?

Off-peak is the period when households and businesses are less likely to be using electricity, while peak times are when electricity is in high demand. Both off-peak and peak times differ by retailer.

To regulate demand on the electricity network during these busy times, energy providers price electricity differently in these periods to incentivise people to use less electricity during peak periods and save money during off-peak periods. Using your hot water system during off-peak times can help save on energy bills by running your system when you’re being charged at a lower rate.

However, if you don’t have an off-peak or controlled load tariff, you’ll pay the same price to heat up the hot water no matter what time of the day or night.

Learn more about peak and off-peak electricity.

What is the Wels rating?

The Water Efficiency Labelling and Standards (Wels) rating is an Australian initiative designed to help consumers understand the water efficiency of products like hot water systems, dishwashers and washing machines. It operates as a six-star rating system, where the more stars an appliance has, the more water-efficient it is.

Are there any incentives for getting a more energy-efficient hot water system?

A more energy-efficient hot water system may help you save on your energy bills. Several rebates are available to Australian households to upgrade their hot water system, depending on where you live and your household’s eligibility. The states with rebates include:

  • Victoria. The Solar Hot Water rebate is available to Victorian households to purchase a solar or heat pump hot water system, as long as you haven’t already received a rebate for solar panels or a solar battery.3
  • New South Wales. In NSW, this government incentive helps cover the cost of a more energy-efficient system. However, you need to pay a minimum deposit towards the new system and cover any installation costs. This rebate is part of the state’s Energy Savings Scheme.4
  • ACT. Rebates are available to help cover part of the cost of upgrading your hot water system as long as you have an energy plan with ActewAGL.5

Meredith O'Brien, Head of Energy

Top tips on hot water systems from our Head of Energy, Meredith O’Brien

  • If you’re going on holiday, turn your gas hot water onto holiday mode or completely off if you’re away for more than a couple of weeks.
  • If your hot water system is on a controlled load meter, set your dishwasher to run late at night – especially if it’s on a hot water cycle setting. The same goes for washing machine cycles using hot water. Shower late at night or very early in the morning, too.
  • If your solar hot water system has a boost setting, deploy it during overcast or rainy days or during winter, when more hot water might be required.

Compare electricity and gas plans today!

If you’re weighing up hot water systems, you’re probably also weighing up energy retailers. There might be a better option for you out there and switching your retailer won’t interrupt your supply.

Use our online comparison tool to get quotes and compare energy retailers. It’s a simple process: just enter some details, compare quotes and if you decide to switch, we can handle the paperwork. Compare now!


1 Your home, Australian Government. Hot water systems. Last updated 2020. Accessed March 2023.

2 Sustainability Victoria, Australian Government. Heat-pump hot water systems. Last updated October 2022. Accessed March 2023.

3 Solar Victoria. Hot water rebate. Last reviewed March 2023. Accessed March 2023.

4 Department of Climate Change, Energy, the Environment and Water, Australian Government. Bundled equipment upgrade incentives. Accessed March 2023.

5 Department of Climate Change, Energy, the Environment and Water, Australian Government. Energy-efficient electric water heater upgrade. Accessed March 2023.

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