Choosing a Hot Water Heater in Australia

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Water heater

In terms of home appliances, hot water heaters take up a lot of our total energy consumption and are an important part of our everyday lives. Whether you want to know the difference between a gas or electric water heater, or find out about renewable water heater options, or find out how much it will cost to replace your old water heater, keep reading below to find out more.

Types of Water Heaters

Choosing the correct type of water heater depends on a number of factors. There are gas or electric water heaters, storage or instant water heaters, solar heaters, and heat pump water heaters. The water heater you choose will have its own installation and running costs associated with it, and it’s important to compare different types of water heaters, as over 20% of our annual energy bill goes toward heating the water for our home.

Gas or Electric Water Heaters

Choosing a gas or electric hot water heater depends on the connection you have available at your house. If you don’t already have a gas connection, it can be very expensive and time-consuming to have all the pipes and lines installed to your home and generally isn’t worth it for a gas water heating system.

Both gas and electric water systems are available as instantaneous systems, or storage systems. The most energy efficient hot water systems are instant gas hot water heaters while electric systems, either instant or storage, are not only more expensive but also less energy efficient.

Storage or Instant Water Heaters

Traditional hot water tanks, also known storage hot water systems, do exactly what they say. They heat your household’s water up and store it throughout the day. Traditional storage hot water systems can only heat a certain amount of water at a time. If you’re taking a shower and run out of hot water, you’re going to need to wait for the tank to fill up again or finish your shower cold.

Unlike storage hot water systems, instant hot water heaters will heat the water as you need it. Instant (or continuous) hot water systems can maintain the flow rate of hot water indefinitely. Unlike traditional hot water tanks that store your household’s heated water, instant hot water systems never run out of hot water no matter how many people are using it.

Both gas and electric models are available for storage and instant hot water systems. Gas instant hot water systems are widely considered the best available option as you’re highly unlikely to run out of hot water using this model, and gas heating is still considered the cheaper option when compared to electricity.

Heat Pump Water Heaters

Heat pump water systems use renewable energy to heat your water. Unlike solar hot water systems, which require direct energy from the sun, heat pumps absorb ambient warmth from the air and use it to then heat your water. While these systems do use electricity, they are far more efficient than electric storage or instant hot water heating systems.

Solar Water Heaters

Solar water heaters are another type of hot water system that relies on renewable energy from the sun to heat. Heat collectors are installed onto the roof of your house to capture solar energy, which is then used to heat water as it travels through copper pipes. Most solar water heaters come with a gas or electric booster, to ensure continued hot water even when the sun isn’t shining.

Water Heater Installation Cost

Hot water heaters are an investment, and the costs vary greatly depending on the type of water heating system and energy efficiency. While less efficient models might be cheaper to purchase upfront, going with a more efficient, but also more expensive, model will probably end up saving you more during its lifetime. When factoring in total costs, remember that installation expertise can significantly impact the project's success and long-term efficiency. Consider exploring options with qualified installers who can guide you through the process.

Hot Water System Price
Type of Hot Water SystemAverage min. PriceAverage max. Price
Solar – Roof Mounted (electric boost)$3600$4800
Solar – Split System (electric boost)$3900$6000+
Solar – Split System (gas boost)$4900$6800+
Heat Pump$3300 (160 L)$4600 (315 L)
Electric – Storage$450 (25 L)$1900 (400 L)
Electric – Instant$660$1400
Gas – Storage$850 (135 L)$1700 (360 L)
Gas – Instant$750$1800

Source: Australian Hot Water

Water Heater Running Costs

When it comes to traditional water heating systems, approximately 20% of our annual energy is spent on heating water for residential use (only surpassed by 40% going towards home heating and cooling). Various factors can affect how much we pay, per year, on water heating, such as the type of fuel the hot water heater uses, the tariff type (for electric water heaters), how many people live in the house, and the energy efficiency of the water heater. Below is an example of the varying costs associated with water heating, for an average Melbourne household. Estimated prices will vary depending on where you live, but no matter the state, it’s clear to see which type of hot water system annual costs, when compared to other systems.

Water Heater System Running Costs*
Type of water heaterAnnual estimated energy cost
2 people - 90 liters/day
Annual estimated energy cost
4 people - 150 liters/day
Natural gas - Storage$290 - $350$410 - $475
Natural gas - Instant$230 - $260$265 - $420
Electric - Storage$575 - $700$820 - $1115
Electric - Instant$585$970
Solar - Natural gas boosted$45 - $60$85 - $110
Solar - Electricity boosted$130 - $270$250 - $470
Heat pump$130 - $300$185 - $460

Source: Sustainability Victoria. Annual estimate costs vary depending on efficiency and electricity tariff (if applicable)

Energy Efficiency with Water Heaters

All gas water heaters (both storage and instantaneous), as well as electric storage water heaters, must meet the Minimum Energy Performance requirements under Australia law. However, it is important to know that these regulations do not require water heaters sold in Australia to display an energy rating label and energy labels found on gas water heaters are not overseen by the government.

Gas Water Heater Energy Efficiency Labels

Gas water heaters are sold with an energy efficiency label, which is not regulated by the government but rather by industry groups. This energy efficiency label is generally out of six stars, with each star indicating a higher energy efficiency rating, however some modern gas water heaters may be efficient beyond six stars as technology outpaces the labelling industry.

When comparing the efficiency of gas water heaters, each additional star represents a 7% increase in efficiency. A four-star gas water heater is only 73% efficient, while a six-star system is 87% efficient. Among the most current hot water systems, a seven-star label would mean a hot water system is 94% efficient. Today, it is increasingly mandatory for all newly built homes to have a water heater of at least five stars.

Hot Water System Rebates

If you’re considering a new hot water system, you might be eligible for a hot water system rebate through the state or federal government. The type of system, and where you live, will affect what hot water rebate is available to you.

Small-scale Technology Certificates

Small-scale Technology Certificates (STCs) are a federal initiative which sets out to make small-scale renewable technology more affordable and accessible to the average Australian through the Renewable Energy Target. These certificates can be used for any small-scale (under 100kW) renewable technology including solar PV systems, heat pumps, and solar hot water systems.

It’s most common to assign these small-scale certificates to your accredited installer, who will give you a point-of-sale discount on your renewable energy system. These certificates are calculated based on the size of your system, how much energy is saved through the renewable energy generated, and the amount of time left on the Small-Scale Technology Certificate initiative.

Victorian Hot Water System Rebates

Victoria leads the way when it comes to energy rebates and rebates for energy efficient household appliances including two rebates for hot water systems. If you’re a Victoria resident, you could get up to $1,000 to go towards a new, energy efficient or renewable water heater.

Victorian Solar Homes Program Hot Water Rebate

The Victorian Solar Homes program provides solar energy rebates to Victorian residents interested in solar energy, which includes solar hot water systems. The Victorian Solar Hot Water Rebate gives up to $1000 to eligible households to replace their current hot water system with a solar replacement. In order to be eligible you must:

  • Be the owner-occupier of the property valued at under $3 million
  • Have a combined taxable income of less than $180,000
  • Be replacing a hot water system that is at least three years old from the date of purchase
  • Not be the beneficiary of any other Victorian Solar Homes rebate
  • Purchase a solar hot water system or heat pump from the approved list of products

If you fit into the eligibility requirements for the Victorian Solar Hot Water rebate, your first step is to shop around for quotes. Make sure you advise your solar retailer you will be applying for the rebate.

Victorian Energy Upgrades

The Victorian Energy Upgrades program is designed to give Victorian households access to discounted, energy efficient, products and home appliances including hot water systems. In order to benefit from the Victorian Energy Upgrades program, you must work with an accredited provider or tradesperson and advise them that you will be applying for the rebate.

The amount you could save through the Victorian Energy Upgrades program on a new water heater depends on the previous heater you had, and what you’re upgrading to.

Victorian Energy Upgrades Rebate for Water Heating Systems
Previous water heater (to be removed)New water heater (to be installed)Indicative rebate*

Inefficient electric water heater

Gas storage water heater$238 - $578
Gas instantaneous water heater$272 - $578
Electric boosted solar water heater$425 - $697
Heat pump water heater$306 - $493
Gas boosted solar water heater$493 - $799
Inefficient gas water heaterEfficient gas boosted solar water heater$119 - $157

*Rebates vary depending on the size and type of the system being installed

South Australia Retailer Energy Productivity Scheme (REPS)

Previously known as the Retailer Energy Efficiency Scheme, the Retailer Energy Productivity Scheme (REPS) is an initiative through the South Australian government that helps households and businesses access free or discounted energy efficient appliances such as hot water systems.

The Retailer Energy Productivity Scheme is available through participating energy retailers and providers, not only the energy retailer providing electricity and gas to your home. If you’re interested in REPS, you can get in contact with any major energy provider to find out what might be offered to you.


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