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Why most water heater advice gets it wrong
Walk into a hardware store or scroll a buying guide and water heaters get ranked on the price tag. Cheapest tank wins, job done. That's exactly the wrong lens, because a water heater isn't a one-off purchase. It's a 10-to-15-year commitment to a running cost, and the running cost dwarfs the purchase price.
The other thing the guides skim over is the rebate. The federal and state incentives that make a heat pump affordable aren't a nice-to-have bonus, they're the whole reason the upfront comparison looks the way it does. Leave the rebate out of your sum and you'll talk yourself into the cheapest box on the shelf, which is the one that quietly costs you the most.
How the real cost of a water heater works
There's only one number that matters, and it's not on the box. It's the total cost of ownership: what you pay to buy and install it (after any rebate) plus what you pay to run it for as long as you keep it. Two systems with the same price tag can be thousands of dollars apart on that measure.
The four systems, and where the money goes
A heat pump pulls warmth out of the air, so it's the cheapest to run, around $300 a year, and it cops the biggest rebates. Solar hot water heats with roof collectors and a booster for cloudy days, cheap to run but dearer to install. Gas sat in the middle for years, but rising gas prices and the daily supply charge have eaten its lead. Electric storage is dirt cheap to buy and the most expensive to run, around $750 to $1,100 a year, because it turns power straight into heat one-for-one.
Rebates and controlled load: the two levers
Two things bend the maths. First, rebates: federal STCs take roughly $800 to $1,500 off a heat pump or solar system up front, and state schemes (the Victorian Energy Upgrades program, the NSW Energy Savings Scheme, ACT rebates) can add a few hundred more. Second, controlled load (a cheaper overnight rate, often called Tariff 31 or 33) softens the cost of an electric tank by heating it off-peak. It helps, but even on controlled load a heat pump usually still comes out cheaper to run.
10-year cost of ownership: do the whole sum
This calculator stacks the upfront cost (after rebates) on top of the running cost over the years you keep the system. Watch the cheap electric tank climb past the dearer heat pump once you count more than a few years. Every figure also appears in the table below.
Water heater total cost of ownership
Upfront (after rebate) plus running cost. Edit the inputs.
Illustrative figures: heat pump net upfront ~$2,800 after rebate / ~$300 a year; solar ~$4,500 / ~$320; gas ~$1,800 / ~$650; electric storage ~$1,500 / ~$900. Running cost scales with your power price. Real prices and rebates vary by product and state, check before you buy.
Worked example (the calculator's default). Over 10 years, at typical rates, with rebates applied:
| System | Upfront (after rebate) | Running (10 yrs) | Total |
|---|---|---|---|
| Heat pump | ~$2,800 | ~$3,000 | ~$5,800 |
| Solar (electric boost) | ~$4,500 | ~$3,200 | ~$7,700 |
| Gas storage | ~$1,800 | ~$6,500 | ~$8,300 |
| Electric storage | ~$1,500 | ~$9,000 | ~$10,500 |
The electric tank is cheapest to buy and dearest to own by a mile, roughly $4,700 more than the heat pump over ten years. The "expensive" heat pump is the cheap option once you do the whole sum.
How Aussies overpay without realising it
The cheap electric tank feels like a win at the checkout. Then it quietly bills you an extra $500 or more every year for a decade. You saved at the register and lost at the meter.
Plenty of households never claim the STC discount or their state rebate, often because they bought in a rush. That's $1,000 or more handed back to nobody.
It was, a decade ago. Rising gas prices and the daily supply charge mean a heat pump usually beats it now, but the old assumption lingers and costs people money.
If you're stuck with electric storage for now, not putting it on a controlled-load tariff means you're paying full peak rates to heat water overnight for no reason.
The insider insight: the rebate is doing a job
Here's what's really going on behind those rebates. Governments aren't handing out money on a heat pump because they're feeling generous. They're using the rebate as a lever to fix a known trap: left to the sticker price, households default to the cheap electric tank, which is the worst long-term deal and the heaviest load on the grid. The STCs and state schemes exist to close the upfront gap so the cheap-to-own option becomes the cheap-to-buy option too.
Once you see the rebate that way, the play is obvious: it's a discount designed to be claimed, so claim it. The household that treats the rebate as central to the decision, not an afterthought, ends up with the cheapest system to own and a smaller power bill for the next ten years. The one who shops on the sticker walks straight into the trap the rebate was built to prevent.
There's a timing angle too. A heat pump runs best when you can soak up cheap or solar power in the middle of the day, so pairing one with a timer (or rooftop solar) squeezes the running cost down even further. The tank that heats on free midday sun is about as cheap as hot water gets in Australia.
What you should actually do
| Do this | Why it works |
|---|---|
| Compare on 10-year total cost, not the sticker | Running cost dwarfs the purchase price, and it flips the ranking, as the calculator shows. |
| Make a heat pump your default replacement | Cheapest to run and best subsidised, so cheapest to own in most homes. |
| Line up your rebate before you buy | STCs plus state schemes can take $1,000+ off, but you need an accredited installer and a bit of lead time. |
| If you're stuck with electric for now, get on controlled load | Heats the tank at the cheap overnight rate instead of full peak. |
| Pair a heat pump with a daytime timer or solar | Soaks up cheap midday or rooftop power and trims the running cost further. |
| In VIC, NSW, SA, QLD, ACT: compare plans against the DMO/VDO | Retail competition lets you lower the rate your hot water is charged at. |
In Western Australia (Synergy) and the Northern Territory (Power and Water) there's no retailer to switch to, but federal STCs still apply, so a heat pump is still the smart long-term call. For the panic-replacement angle, see our hot water system guide, and for how the tech works, our heat pump guide.
Why this matters right now
With gas staying dear across the eastern states and heat pump rebates still generous, the gap between the cheap-to-buy tank and the cheap-to-own heat pump is as wide as it's ever been. And because hot water is such a big slice of the bill, getting this one decision right does more for your power costs than almost anything else around the house.
The takeaway: don't shop on the sticker. Add up ten years of running costs, claim the rebate, and the dearest-looking water heater turns out to be the cheapest one to live with.
Frequently asked questions
Current figures — last updated 2026-06-13
All values in AUD and Australian units. Volatile figures change; check your own quote and rebate before relying on them.
| Hot water share of the average bill | ~20–25% |
|---|---|
| Heat pump running cost (family of four) | ~$300/year |
| Solar (electric boost) running cost | ~$250–$400/year |
| Electric storage running cost | ~$750–$1,100/year |
| Heat pump efficiency (COP) | 3–4 units of heat per unit of power |
| Federal STC discount (heat pump / solar) | ~$800–$1,500 upfront [verify: current STC value] |
| State rebate top-ups (VIC VEU, NSW ESS, ACT) | several hundred $ [verify: your state scheme] |
| Controlled-load tariff (electric tank) | off-peak rate, often Tariff 31/33 [verify: your network] |
| Reference price (NSW, SA, SE QLD / VIC) | AER DMO / ESC VDO [verify: current value] |
Sources: energy.gov.au, Clean Energy Regulator (STCs), Victorian Energy Upgrades, NSW Energy Savings Scheme, AER (DMO), ESC Victoria (VDO), manufacturer specifications.