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Current figures (2026)
- A hot water system lasts about 10 to 15 years and usually fails suddenly, leaving 24 to 48 hours to replace it (source: industry data).
- Annual running cost, family of four: heat pump about $200 to $350; solar with electric boost about $250 to $400; gas in between; electric storage about $750 to $1,100 (source: industry analysis).
- Federal STCs cut about $800 to $1,500 off a heat pump or solar hot water system, applied upfront; VIC, NSW and the ACT add $500 to $1,000 in state rebates (source: industry data).
- In Victoria, replacing an electric storage tank with a heat pump can drop the out-of-pocket cost to under about $3,000 after rebates (source: energy.vic.gov.au).
- Hot water is about 20 to 30% of the average household energy bill (source: energy.gov.au).
Why most hot water replacement advice gets it wrong
Most advice assumes you are calmly comparing systems. Reality is the opposite: the hot water system replacement decision is almost always made in a hurry, with cold showers as the deadline, which is exactly when people default to whatever is fastest to install. That is usually a like-for-like swap, and if the old unit was an electric storage tank, the new one is too. The decision that should weigh ten years of running cost gets made in an afternoon on the basis of who can come tomorrow.
The second blind spot is treating the rebate as an afterthought. The federal and state incentives that make a heat pump affordable need an accredited installer and a little lead time, which you do not have in an emergency. Decide in advance and the rebate is yours; decide in a panic and you often forfeit it.
The hot water system options, by running cost
There are four common systems, and they differ far more in running cost than in the hot water they deliver. The order below is what matters when you choose.
Heat pump hot water
A heat pump hot water system pulls warmth from the air to heat the water, delivering three to four units of heat per unit of electricity, so it is the cheapest type to run at about $200 to $350 a year and attracts the largest rebates. It is the default smart replacement for an electric tank.
Solar hot water system
A solar hot water system heats water with roof collectors and a gas or electric booster for cloudy days. Running cost is low, about $250 to $400 a year, and it suits sunny climates with a suitable roof. It costs more to install and the booster type affects the bill.
Gas hot water system
A gas hot water system, storage or continuous flow, heats water by burning gas. Once the mid-cost default, it has been overtaken by heat pumps as gas prices rise and the daily gas supply charge adds up. It still suits homes already on gas with no easy electric path.
Electric hot water system
An electric hot water system of the resistive storage type is the cheapest to buy and the most expensive to run, about $750 to $1,100 a year, because it converts electricity to heat one-for-one. It is the system most often installed in a panic and the one most worth avoiding for a planned replacement, unless budget is the only consideration.
What could you save by switching?
Pick the system you have now to see its indicative annual running cost, what a heat pump would cost instead, and the yearly saving. The same figures appear in the table beneath.
Hot water replacement savings estimator
Indicative annual running cost, family of four, compared with a heat pump at about $280 a year.
Indicative only. After STC and state rebates, a heat pump's out-of-pocket cost can fall under about $3,000 in some states. Source: industry analysis, energy.vic.gov.au.
| System | Running cost/year | Rebates? | Verdict for replacement |
|---|---|---|---|
| Heat pump | about $200 to $350 | Yes, largest | Best default choice |
| Solar | about $250 to $400 | Yes | Great in sunny climates |
| Gas | mid, rising | Limited | Only if already on gas |
| Electric storage | about $750 to $1,100 | No | Avoid unless budget-only |
The insider insight: decide now, install later
The hot water industry runs on emergencies, because a household with no hot water will pay for speed over efficiency every time. The way to beat that is to separate the decision from the installation. Work out now, while your system still works, which replacement you want and which rebates you qualify for, and keep the name of an accredited heat pump or solar installer on the fridge. Then when the old unit fails, you are not choosing under pressure; you are placing an order you already decided on, rebate included. The few minutes spent deciding in advance can be worth hundreds of dollars a year for the life of the new system, simply because you were not cornered into another electric tank.
What you should actually do
If your hot water system is over about ten years old, decide its replacement now rather than later. For most homes that is a heat pump, the cheapest to run and the best subsidised; solar is excellent in sunny climates with a suitable roof. Avoid defaulting to another electric storage tank, and keep gas only if you are already on it with no easy electric path.
Confirm the STC discount and your state rebate with an accredited installer in advance, so the paperwork is ready when you need it. If you do face an emergency, ask whether a heat pump can still be fitted with the rebate before agreeing to a like-for-like swap. Because the running cost rides on your rate, households in VIC, NSW, SA, QLD and the ACT can compare plans against the DMO or VDO reference price. For a fuller comparison of the systems themselves, see our water heaters guide, and for how the heat pump technology works, our heat pump guide.
The bottom line
A hot water system replacement is a ten-year decision usually made in a day. The way to win it is to choose before the old unit fails, so you can pick the system that is cheapest to run, claim the rebate, and avoid the panic swap to another electric tank. Decide now; install when you must.
Frequently asked questions
Which hot water system is cheapest to run?
A heat pump hot water system, at about $200 to $350 a year for a family of four, because it moves heat from the air rather than making it. Solar with a booster is next at about $250 to $400. An electric storage tank is the most expensive at about $750 to $1,100.
When should I replace my hot water system?
Ideally before it fails, once it is around ten years old, so you can choose the cheapest-to-run system and claim rebates rather than panic-buying. Systems usually fail suddenly, leaving only a day or two, which pushes people into a like-for-like swap.
Is a solar hot water system worth it?
In sunny climates with a suitable roof, yes. Running cost is low at about $250 to $400 a year, with a gas or electric booster for cloudy spells. It costs more to install but attracts rebates, and the booster type affects the running cost.
Should I replace an electric hot water system with the same thing?
Usually not. Resistive electric storage is the most expensive type to run, around $750 to $1,100 a year. A heat pump uses the same electricity three to four times more efficiently and, after rebates, can cost only a little more to install. Avoid the like-for-like swap if you can.
What rebates apply to hot water system replacement?
The federal STC scheme cuts about $800 to $1,500 off a heat pump or solar system, applied upfront by the installer, and VIC, NSW and the ACT add $500 to $1,000 in state rebates. In Victoria, replacing an electric tank with a heat pump can drop the out-of-pocket cost under about $3,000.
Are gas hot water systems still worth installing?
Less than they were. Rising gas prices and the daily gas supply charge have eroded their cost advantage, and a heat pump usually beats them on running cost. A gas hot water system mainly suits homes already on gas with no easy electric alternative.
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