The $450/Year Savings
Hot water accounts for about 25% of household energy use. If you're heating it with gas, you're paying way more than you need to.
| System Type | Annual Running Cost | vs Gas Storage |
|---|---|---|
| Gas storage hot water | ~$655/year | Baseline |
| Gas instantaneous (continuous flow) | ~$450-550/year | Save $100-200 |
| Electric storage (resistive) | ~$800-1,000/year | +$150-350 |
| Heat pump hot water | ~$205/year | Save $450/year |
| Heat pump + solar/free window | ~$0-50/year | Save $600+/year |
Gas instantaneous systems are more efficient than storage tanks (no standing heat loss), but heat pumps still beat them by a wide margin — and with better energy plans, you can get to $0.
The Simple Math
Heat pumps use 75% less electricity than traditional systems to produce the same hot water. They're essentially air conditioners that heat water instead of rooms.
The "Instant" Gas Lie
Many Australian homes switched from gas storage to "instant" gas (continuous flow) to save money. But here's what they lost: truly instant hot water.
With a gas storage tank, hot water was always ready at the tap. With "instant" gas, you wait 30-60 seconds while cold water flushes through the pipes and the unit fires up. That's not instant — that's cold water down the drain every single time.
A heat pump gives you the best of both worlds: lower running costs than instant gas AND genuinely instant hot water like the old storage systems. You get back the convenience you lost, while paying even less than before.
The Hidden Bonus: Ditch the Gas Connection
If hot water is your only (or last) gas appliance, switching to a heat pump lets you disconnect from gas entirely. That eliminates the daily supply charge — typically $300-400/year — on top of your running cost savings. Combined with replacing gas heating, going all-electric can save you $700+/year in supply charges alone.
How Heat Pumps Work
A heat pump doesn't generate heat directly — it moves heat from the air into your water, like a reverse air conditioner.
Absorb Heat
Refrigerant absorbs heat from ambient air (works even in cold weather)
Compress
Compressor increases temperature of refrigerant
Transfer
Heat transfers to water in tank via heat exchanger
Why It's So Efficient
- 1kWh electricity in → 3-4kWh heat out (300-400% efficiency)
- Works in cold weather (down to -10°C for most models)
- Tank stores hot water — heat when power is cheap, use anytime
- No gas connection needed — one less utility bill
Stack Rebates for Up to $2,000 Off
Multiple rebates can be combined to dramatically reduce the upfront cost.
Victoria (Best Rebates)
| Rebate | Amount | Notes |
|---|---|---|
| Solar Victoria Hot Water Rebate | $1,000 | Main rebate |
| Australian-made bonus (from July 2025) | $400 | For eligible Australian-made systems |
| VEU scheme (gas replacement) | Up to $560 | When replacing gas hot water |
| Maximum total | Up to $1,960 | All rebates stacked |
NSW
- Energy Savings Scheme: $190-310 discount when replacing gas
- $500-1,000 when replacing electric storage
- Applied as upfront discount through participating retailers
South Australia
- STCs (federal): $750-1,050 depending on efficiency
- REPS: $1,000-1,300 if NOT connected to gas, or $300-450 if connected
- Potential total: $1,500-2,000+
Federal (All States)
- Small-Scale Technology Certificates (STCs): $750-1,050
- Value depends on system efficiency and your location
- Usually handled by installer and deducted from price
- Scheme reducing until 2030 — earlier = better rebate
Act Sooner = More Savings
The STC rebate reduces each year until it ends in 2030. A system installed in 2025 gets more STCs than the same system installed in 2028.
The $0 Hot Water Strategy
Like heating, hot water can run for essentially $0 with the right setup.
The Strategy
- 1. Timer on heat pump — set to run during peak solar (10am-2pm)
- 2. Solar powers heat pump directly — no grid draw
- 3. Tank stores hot water — heat during day, use anytime
- 4. Free charging windows — even without solar, plans like Origin (free 10am-3pm) or OVO (free 11am-2pm) mean $0 running cost
- 5. Battery backup — if cloudy and no free window, battery covers the ~500W draw
Why This Works
- Heat pumps only draw 500W-1kW when running
- A typical heating cycle is 2-4 hours per day
- That's only 1-4kWh — easily covered by a modest solar system
- The tank stores 150-300L of hot water — you don't need to heat on demand
Real Running Cost
| Scenario | Annual Cost |
|---|---|
| Heat pump on grid power (any time) | ~$205/year |
| Heat pump on off-peak tariff (overnight) | ~$80-120/year |
| Heat pump timed to solar generation | ~$20-50/year |
| Heat pump on free window (Origin/OVO) | $0 |
Origin offers free electricity 10am-3pm. OVO's "Free 3" plan offers free 11am-2pm.
The $20-50 for solar timing accounts for cloudy days. With a free window energy plan, you pay nothing even on cloudy days — perfect for renters or homes without solar.
ROI: 2-3 Year Payback
Heat pump hot water has one of the fastest paybacks of any home energy upgrade.
Victoria Example
| Item | Amount |
|---|---|
| Heat pump system cost (installed) | $3,500 - $5,000 |
| Solar Victoria rebate | -$1,000 |
| Australian-made bonus | -$400 |
| VEU rebate (gas replacement) | -$500 |
| Your cost after rebates | $1,600 - $3,100 |
| Annual savings vs gas | $450 - $600/year |
| Payback period | 2-3 years |
After payback, you're saving $450-600 every year for the 10-15 year life of the system. That's $4,500-9,000 in lifetime savings.
With Solar Timing
| Item | Amount |
|---|---|
| Gas hot water eliminated | $655/year |
| Heat pump running cost (solar timed) | $20-50/year |
| Net annual savings | $600-635/year |
Choosing a Heat Pump
Key Considerations
- Tank size: 150-200L for 1-2 people, 250-315L for 3-4 people, 315L+ for larger households
- Climate zone: Check minimum operating temperature for your area
- Noise: Heat pumps have a compressor — check dB rating if near bedrooms
- Warranty: Look for 5-10 years on tank, 5 years on compressor
- Timer: Essential for solar timing — most have this built in
Popular Brands in Australia
- Reclaim Energy: Australian-designed, eligible for $400 bonus in VIC
- Stiebel Eltron: German engineering, premium option
- iStore: Popular value option
- Rheem: Established brand with good service network
- Dux: Budget-friendly Australian option
Australian-Made Bonus
From July 2025, Victorian households get an extra $400 for systems with verified Australian-made components. Check eligibility with your installer.
Next Steps
1. Check your eligibility
Visit Solar Victoria to check eligibility and find approved retailers.
2. Get multiple quotes
Prices vary significantly. Get 2-3 quotes from Solar Victoria approved retailers.
3. Consider the full picture
Hot water + heating + battery = complete home electrification. Calculate your total savings across all upgrades.
Calculate Your Total Energy Savings
Hot water is just one piece. Add solar + battery to cover all your energy needs and see your total potential savings.
Calculate My Savings