Explore Energy

Are all hot water systems created equally?

Well no, they’re not. 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,1 there are four main types of hot water systems on the Australian market:

Electric hot water systems

Electric hot water system

Electric hot water systems are usually more expensive than gas water heaters to run. However, they have the lowest up-front installation costs, compared to other systems. If you buy one of these systems, look for a high star rating (five stars) because lower star rating systems can be inefficient and lose heat when not in use.

If you have an electric hot water system and you’re configured for it, discuss controlled load tariffs with your energy provider – this can help you save money on electricity, as heating systems generally consume high amounts of energy.

Gas hot water systems

Gas hot water system

An efficient gas hot water system is considered more energy-efficient and cost-effective than an electric hot water system.2 There are multiple types of gas hot water systems, but an instantaneous (continuous flow) system that uses piped natural gas is generally considered the most efficient.

Heat pump hot water systems

Heat pump hot water system

A heat pump hot water system works like a fridge or air conditioner except it makes water hot 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.

Solar hot water systems

Solar hot water system

A solar hot water system can be expensive to install; however, they can significantly reduce your energy consumption and end up saving you money in the long run. Solar hot water systems are charged the same as electric hot water systems, but it uses less electricity since some of the heating is done through solar.

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

Is the sun not shining? Don’t worry, most models come with a booster or back up service (electricity or gas) service that’ll kick over if, or when needed. This can be a manual switch or a timer.

Storage water heaters vs continuous/instantaneous water heaters

A storage water heater heats and stores water in an insulated tank. Alternatively, a continuous flow/instantaneous hot water system heats water when you need it rather than storing it and chewing up energy to maintain its temperature. Therefore, continuous flow/instantaneous systems are generally more energy-efficient and cheaper to run.

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, then 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 of the household, which can be an issue in apartments or units.

When it comes to size, storage hot water heaters and solar water heaters are sized according to the number of people in the home, while 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.

Electric Gas Heat pump Solar
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 buy and install.
Energy efficiency Storage electric hot water systems use the most energy compared to other systems.Gas hot water systems can vary, 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 back up, they’re the most efficient type of water heating system.
Greenhouse gas emissions High. However, it can be lessened if the electricity is sourced from renewable energy sources like hydro.While this system still emits greenhouse gases, it’s cleaner than electric.Heat pump water heaters use 70% less energy than conventional electric hot water system.4Solar is a renewable energy source – which means it’s terrific for the environment.
Source: Sustainability Victoria.3
N.B. energy efficiency may differ between brands, while energy costs and rebates differ from state to state and retailer to retailer.

What is the most efficient water heating system?

As mentioned, gas is generally cheaper than electric. In addition, electric hot water systems generally use the most energy – although with modern energy-efficient appliances, this is not set in stone. Solar hot water systems (boosted by natural gas) are considered the most efficient and cheapest system. Heat pump water systems and gas water systems (instantaneous with natural gas) are also efficient and a viable option.

Frequently asked questions

What’s the best hot water system?

There’s no hot water system that is the ‘best’, as this will differ per household. However, there are water systems that are more energy-efficient and are likely to be cheaper to run like solar and heat pump water systems, except 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, especially if certain family members have longer showers (you know the ones).
  • The number of bathrooms, sinks, tubs etc. If your home has multiple bathrooms or an extra kitchen, plus dishwashers, you may need a larger hot water system.
  • Peak or off-peak. 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. Why? because the water heats during night/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.

So, 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.

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

Learn more about peak and off-peak electricity.

What is the Wels rating?

Short for ‘Water Efficiency Labelling and Standards’, the Wels rating is an Australian initiative designed to help consumers understand the water efficiency of products like hot water systems, dishwashers and washing machines. Operating on a six-star rating system, the more stars, the more water-efficient the product.

Do hot water systems have energy ratings in Australia?

The energy rating label (like the Wels rating) is a six-star rating system for energy consumption. There is also a gas rating label for gas appliances. For hot water systems, heating water takes a certain amount of energy depending on the type, brand and method, so it’s a handy marker for consumers.

Compare electricity and gas plans today!

If you’re weighing up hot water systems, you’re probably also weighing up energy providers. And why not, there might be a better option for you and switching won’t interrupt your supply.

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


  1. Your home. Australian Government. https://www.yourhome.gov.au/energy/hot-water-service. 2013. Accessed September 2020.
  2. Sustainability Victoria. https://www.sustainability.vic.gov.au/You-and-your-home/Save-energy/Hot-water/Choose-a-hot-water-system/Gas-hot-water-systems. Accessed September 2020.
  3. gov.au. Household. Hot water systems. https://www.energy.gov.au/households/hot-water-systems. Accessed March 2021.

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