The Real Cost of Hot Water: Electric vs Gas vs Heat Pump vs Solar

Hot water is one of those bills almost nobody thinks about until the tank dies on a winter morning — and yet it quietly works out to around a quarter of the average Australian home's energy use, making it one of the biggest single energy uses in the home. The catch is that how you heat your water matters enormously: two households of the same size, using the same amount of hot water, can pay wildly different amounts each year depending on whether they have an old electric tank, a gas unit, or a modern heat pump. This guide puts real numbers on that gap, explains why the four common systems cost what they do to run, and shows what you stand to save — and spend — by switching. The aim is a clear, honest reference on hot water running costs in Australia you can use to make a confident decision.

Why hot water is such a big bill

Heating water takes a lot of energy. Physics doesn't care which appliance you use — raising the temperature of a few hundred litres of water, day in and day out for showers, dishes and laundry, is simply energy-intensive. That's why hot water lands as around a quarter of a typical household's energy bill and is consistently one of the biggest single energy uses in the home.

Because the job is fixed, the only real lever you have over the cost is the efficiency of the appliance doing the heating — how much usable heat you get out for every dollar of energy you put in. That single factor is what separates a $1,500-a-year running cost from a near-free one. Get the appliance right and you can cut this line on your bill dramatically without changing a single shower.

It helps to picture where the energy actually goes. Most of it does useful work — warming the water you draw from the tap. But a meaningful slice is lost two ways: as standing losses, where heat seeps out through the tank walls between uses (every storage system, electric or gas, leaks heat 24 hours a day whether anyone showers or not), and as conversion losses, where the energy source isn't turned into heat at 100% efficiency. A gas burner sends some heat up the flue; an electric element is the rare case that converts almost all the electricity it draws into heat, which sounds good until you remember that electricity itself is an expensive way to buy energy. Understanding those two loss pathways is the key to understanding why the four systems below diverge so sharply on cost.

The four options compared

There are four mainstream ways an Australian home heats its water, and the running-cost gap between them is large and consistent. The table above sets out the estimated annual figures for a household of four, but it's worth walking through what each one means in practice.

Electric storage — the most expensive

A conventional electric storage unit heats water with a resistive element, much like a giant kettle sitting inside an insulated tank. It's cheap to buy and dead simple, which is why so many older homes have one. But it's also the most expensive system to run by a wide margin — an estimated $1,200–$1,500 a year for a household of four. The reason is brutal arithmetic: every unit of electricity it draws becomes roughly one unit of heat and nothing more. There's no cleverness, no leverage. If your hot water comes from an old electric tank, it's almost certainly the single most expensive appliance in your house.

The mechanism is the same as a kettle or an electric heater: pass current through a high-resistance element and it gets hot, transferring that heat into the surrounding water. It works, it's reliable, and it converts nearly all the electricity into heat — but that's exactly the problem. There's no multiplier. You pay the full retail price of electricity for every kilowatt-hour of heat, and grid electricity is one of the dearest forms of energy a household buys. Add standing losses from the tank sitting hot all day, and you have the worst-case combination: expensive fuel, no efficiency leverage, and continuous heat leak. The one thing that softens it is tariff timing, which we come to below.

Gas storage — the middle ground (plus a supply charge)

A gas storage unit burns natural gas (or LPG) under the tank. It costs an estimated $400–$600 a year to run — far cheaper than electric storage, which is exactly why gas became the default in so many Australian homes. But gas comes with a string attached that the headline running cost doesn't capture: a daily supply charge you pay just to stay connected to the gas network, whether you burn much gas or not. If hot water is your last or only gas appliance, that fixed daily charge is effectively part of your hot-water cost — and it's a charge a heat pump avoids entirely.

The reason gas runs cheaper than electric storage isn't efficiency — it's the price of the fuel. A gas burner is, if anything, less efficient at the point of use than an electric element: some of the combustion heat escapes up the flue and is lost. But a unit of energy delivered as gas has historically cost far less than the same unit delivered as grid electricity, and that price gap is wide enough to more than cancel out the flue losses. So gas wins on running cost through cheaper fuel, not cleverer engineering. That distinction matters, because it's also why gas can't compete with a heat pump: once an appliance gets three to five units of heat per unit of energy, no amount of cheap fuel burned one-for-one can keep pace. And the supply charge is the quiet kicker — a fixed cost that doesn't shrink no matter how little you use, and one that grows more painful as households drop their other gas appliances.

Heat pump — cheap to run

A heat pump hot water system is the quiet revolution here. Instead of generating heat directly, it moves heat from the surrounding air into the water tank, using the same refrigeration cycle as your fridge or a reverse-cycle air conditioner. Because it relocates ambient heat rather than creating it from scratch, it does the same job for a fraction of the energy — an estimated $300–$400 a year. That's roughly a third of what an electric storage unit costs to run, with no daily gas supply charge to pay. For most homes, it's the cheapest standalone way to heat water. You can read more about how the technology works on our heat pump hot water hub.

Mechanically, a heat pump runs a refrigerant through a cycle: a fan draws in ambient air, the refrigerant absorbs heat from that air even when it feels cold, a compressor squeezes the refrigerant to concentrate that heat to a higher temperature, and a heat exchanger then dumps it into the water tank. The electricity isn't being turned into heat directly — it's powering the compressor and fan that move heat that's already in the air for free. That's the whole trick, and it's why the same appliance can deliver several units of heat for one unit of electricity. The trade-off is more moving parts than a dumb element, and slightly lower output in genuinely cold weather, but for the overwhelming majority of Australian homes the running-cost win is decisive. For a full breakdown of installed prices and what drives them, see our heat pump hot water cost guide.

Heat pump on solar — near-free

The standout line in the table is a heat pump paired with rooftop solar, at an estimated $50–$100 a year. That figure looks almost too good to be true, but the logic is simple. A heat pump uses so little electricity that, if you schedule it to run in the middle of the day when your panels are producing, you can heat your water almost entirely on solar power you'd otherwise export for a few cents. The result is hot water that costs next to nothing to produce. If you already have solar, adding a heat pump is close to a no-brainer on running cost alone.

The synergy is worth spelling out because it compounds two advantages. First, the heat pump's low draw means a modest rooftop array can comfortably cover it during daylight. Second, the electricity it does use is the cheapest electricity you have — self-consumed solar that would otherwise be exported for a token feed-in rate. Stack a high COP on top of near-free daytime power and the running cost falls almost to the floor; what's left is mostly the small amount of heating that happens outside daylight or on heavily overcast days. This is the single best running-cost outcome available to an Australian home, and it's the reason solar households should treat a heat pump as the obvious next step rather than an upgrade to deliberate over.

Why the differences are so large

The four-fold gap between the cheapest and most expensive option isn't marketing — it comes down to two physical realities.

Efficiency and COP

The first is efficiency, measured for heat pumps as the Coefficient of Performance, or COP. An electric element has a COP of 1: one unit of electricity in, one unit of heat out. A heat pump typically runs at a COP of around 3 to 5, meaning it delivers three to five units of heat for every unit of electricity it draws. In plain terms, a heat pump uses roughly a third of the electricity of an old electric element to heat the same water. That's the entire reason its running cost collapses from $1,200–$1,500 down to $300–$400. Gas sits in the middle because, while gas energy is cheaper per unit than electricity, a gas unit is still essentially burning fuel one-for-one and losing heat through the tank walls and flue between uses.

It's worth noting that COP isn't a fixed badge number — it shifts with conditions. A heat pump pulls more heat from warm air than cold, so the same unit posts a higher COP on a mild Brisbane afternoon than on a frosty Canberra morning. The 3-to-5 range already accounts for this spread across Australian conditions, which is why we quote a range rather than a single figure. The practical takeaway is that even at the bottom of that range, on a cold day, a heat pump is still three times more efficient than the element it replaces. The leverage never disappears; it just narrows a little when the air is cold.

Solar self-consumption

The second reality is solar self-consumption. Exported solar power usually earns you only a small feed-in tariff — often just a few cents per unit. Electricity you use from your own panels, on the other hand, is effectively free, because it offsets power you'd otherwise have to buy. A heat pump's low energy draw is small enough that a typical rooftop solar system can cover most of it during daylight hours. So the trick isn't just owning solar — it's timing the heat pump to run while the sun is up, turning would-be export into self-consumed, near-free hot water. Combine a high COP with daytime solar and you arrive at that $50–$100 figure.

Tariffs and timers: the lever most people miss

Efficiency is the biggest lever, but it isn't the only one. When an appliance draws power can change its running cost almost as much as how efficiently it uses it — and this is where electricity tariffs and built-in timers come in.

Many electric storage units in Australia run on a dedicated off-peak (controlled-load) tariff: the network only powers the element during overnight hours when grid demand is low, in exchange for a cheaper per-unit rate. That's why an old electric tank isn't always quite as ruinous as its peak-rate cost would suggest — though even on off-peak rates it remains the dearest of the four systems, because cheaper electricity used one-for-one still can't beat an appliance that multiplies its energy three to five times. The figures in the table above reflect typical tariff arrangements rather than worst-case peak rates.

For a heat pump, the timing lever points the opposite way — toward the middle of the day. A model with a built-in timer (most quality units have one) can be set to heat during daylight so a solar household soaks up its own generation, or during a cheap daytime "solar soak-up" tariff window if one is available. The same hardware can therefore land anywhere between the $300–$400 standalone figure and the $50–$100 solar figure depending purely on scheduling. Getting the timer right is free, and it's one of the few hot-water decisions that costs nothing to optimise. Because tariff structures, feed-in rates and controlled-load arrangements vary widely by network and retailer, the most reliable way to see how they play out for your specific situation is to run your own numbers rather than rely on the typical case.

Household size, usage and climate

The running-cost ranges in this guide assume a household of four with typical usage, but real homes vary, and it's worth understanding which way the figures move for yours.

The biggest single driver is simply how much hot water you use. A larger household, or one with teenagers and long showers, draws more litres and pushes costs toward the top of each range; a couple or a single-person home uses less and lands toward the bottom. Crucially, this scaling applies to every system, so it doesn't change the ranking — a heavy-use heat pump still costs a fraction of a heavy-use electric tank. More usage actually widens the dollar gap between systems, which makes the efficient option even more compelling for larger families.

Climate matters too, and it cuts in a specific direction. A heat pump extracts heat from ambient air, so in colder regions it works a little harder and its effective COP dips slightly, nudging running costs up. In warmer parts of Australia it sails along at the top of its efficiency range. This is the one area where electric and gas storage are relatively indifferent to climate — they don't depend on air temperature — but the effect is modest, and even in cold climates a heat pump remains far cheaper to run than the alternatives. Climate is a reason to choose a well-specified unit and place it sensibly, not a reason to dismiss the technology.

How long each system lasts — and what it costs to keep running

Running cost is only part of ownership. Lifespan and maintenance shape the long-run picture too, and they differ meaningfully between the four systems.

An electric storage tank is mechanically about as simple as an appliance gets — an element, a thermostat and an insulated tank — so there's little to go wrong, and the main maintenance item is occasionally replacing the sacrificial anode that protects the tank from corrosion. Left unattended, the tank eventually rusts through and fails, usually after a decade or so. The flip side of that simplicity is that when it does fail, it tends to fail completely and without warning — the classic cold shower on a winter morning.

A gas storage unit adds a burner, a flue and a gas control valve to the same basic tank, so there are a few more components that can need attention, plus the same anode and corrosion considerations. It also carries the ongoing presence of a combustion appliance in or near the home, with the venting requirements that come with that.

A heat pump is the most mechanically sophisticated of the four — it has a compressor, a fan, refrigerant and a heat exchanger — and that complexity is the honest counterpoint to its low running cost. There are more parts that can eventually wear, the fan can be audible, and periodic checks (clearing the air intake, inspecting the refrigerant circuit) keep it running at peak efficiency. Quality units are built to last well within the ten-to-fifteen-year horizon most households plan around, but the maintenance conversation is real and worth having before you buy. Solar doesn't change the hot-water hardware at all — the heat pump itself is the appliance — so its lifespan and maintenance profile are simply the heat pump's; the panels are a separate system with their own long life. For help matching a durable, well-supported unit to your home, our roundup of the best heat pump systems is the place to start.

Upfront cost versus running cost

If the heat pump is so cheap to run, why doesn't every home have one? Because the trade-off is upfront cost. A heat pump costs more to buy and install than a like-for-like electric or gas unit. A mid-range system typically runs $2,800–$4,000 installed before rebates. An electric storage tank, by contrast, is cheap to buy — which is precisely the trap. The cheapest system to buy is the most expensive to run, and over the life of the unit the running cost dwarfs the purchase price.

This is the central tension in any hot-water decision: a low sticker price today versus a high bill every year for the next decade. For an appliance you'll keep for ten to fifteen years, the running cost is what matters most — and that's where the heat pump's case is strongest.

The ten-year picture

The clearest way to settle the upfront-versus-running argument is to extend it over the life of the appliance. Take a ten-year horizon — comfortably within the lifespan of any of these systems — and combine what you pay up front with what you pay to run it each year.

An electric storage unit is cheap to buy but, at an estimated $1,200–$1,500 a year, accumulates somewhere in the order of $12,000–$15,000 in running costs alone across a decade. A heat pump costs more up front — $2,800–$4,000 installed before rebates — but at $300–$400 a year it racks up only around $3,000–$4,000 in running costs over the same period. Even adding the full installed price on top, the heat pump's ten-year total sits well below the electric tank's running cost by itself. Apply Victorian-style rebates that stack to around $2,600 off the install, and the gap turns into a rout: most of the upfront premium evaporates, and you're left comparing a small one-off cost against many thousands of dollars in avoided bills.

The gas comparison is closer on running cost — roughly $4,000–$6,000 over ten years — but remember to add that daily supply charge to the gas column for every one of those days, a fixed cost the heat pump simply doesn't have. And a heat pump on solar, at $50–$100 a year, accumulates only a few hundred dollars in running costs across the entire decade; for a household that already has panels, the ten-year maths is barely a contest. These are deliberately broad ranges built from the figures above, not a quote — but the shape of the result holds across every reasonable assumption: the more efficient the system, the better it looks the longer you own it. To put your own usage, tariff and current system into the calculation rather than relying on ranges, estimate your savings with our calculator.

Rebates and payback

Rebates change the maths considerably. In Victoria, for example, several programs can stack on top of each other to take a serious bite out of the upfront price — potentially up to around $2,600 off a single installation. On a mid-range $2,800–$4,000 system, that can mean paying only a fraction of the headline figure out of pocket.

Once you factor rebates in, the payback period — the time it takes for the running-cost savings to repay the extra you spent up front — is typically a few years rather than a decade, and it's shortest of all when you're replacing an old electric tank or running the heat pump on solar. After that, every year of low running costs is money in your pocket. To put your own usage and current system into the maths rather than relying on a range, you can estimate your savings with our calculator. Rebate amounts and eligibility change regularly and vary by state, so always confirm the current figures with the issuing authority before you commit. To compare specific systems and their installed prices, see our roundup of the best heat pump systems.

It's worth seeing clearly what rebates do to the trade-off rather than just the price. The whole upfront-versus-running tension exists because the efficient appliance carries a higher sticker price. A rebate attacks that tension directly — it shrinks the one disadvantage the heat pump has, while leaving its running-cost advantage completely intact. In effect, rebates buy down the upfront premium so you reach the years-of-low-bills part of the story sooner. That's why the case for switching is strongest in states with generous, stackable incentives, and why timing a purchase around current rebate programs can matter as much as choosing the unit itself.

What switching actually saves

The headline most homeowners care about: switching an electric storage system to a heat pump commonly saves around $900–$1,200 a year. That's the difference between a $1,200–$1,500 running cost and a $300–$400 one, year after year. It's one of the largest single energy savings available to an average household, and it requires no change to how you live — same showers, same laundry, just a far more efficient appliance doing the work.

Switching from gas is a slightly different story. Gas was already cheaper to run than electric storage, so the running-cost saving on its own is smaller. But the comparison sharpens once you remember the daily gas supply charge. If hot water is your last gas appliance, going all-electric with a heat pump lets you disconnect from gas entirely and shed that fixed charge — a saving the running-cost figures alone don't show. If you're weighing this specific decision, our dedicated guide on heat pump vs gas hot water breaks down both the running cost and the supply-charge maths in detail.

To see the savings broken down further — and how usage and tariff change the picture — our heat pump hot water costs guide goes deeper on the numbers.

The environmental angle

Running cost isn't the only reason households are switching — emissions increasingly factor in too, and the direction of travel mirrors the cost story closely.

A gas unit burns fossil fuel on site, so it produces emissions directly every time it heats water, and there's no path for that to improve over the life of the appliance. An electric storage unit produces no emissions at the home, but it's only as clean as the electricity behind it — and because it draws so much power, its footprint tracks the grid's emissions intensity. The important point is that the grid is steadily getting cleaner as more renewable generation comes online, so an efficient electric appliance gets cleaner over time without you doing anything, whereas a gas appliance is locked in.

A heat pump compounds that advantage: it uses only about a third of the electricity of an electric element for the same hot water, so whatever the grid's emissions intensity, it produces a fraction of the footprint. And a heat pump running on rooftop solar approaches genuinely clean hot water, because the energy doing the work is generated on your own roof. Without putting invented numbers on it, the ranking on emissions lines up neatly with the ranking on cost — the more efficient and the more electrified the system, the lower its footprint, and the more it benefits from a decarbonising grid over the years you own it.

How we worked out these figures

In the interest of transparency, here's what sits behind the numbers in this guide and the table above.

The annual running costs assume a household of four with typical hot-water usage and typical electricity and gas tariffs. They are estimates for comparison, not quotes — your actual cost will vary with how much hot water you use, your specific tariff and feed-in rate, your local climate (heat pumps work a little harder in cold conditions), and the particular unit installed. The solar figure further assumes you have a working rooftop solar system and schedule the heat pump to run during daylight hours. Upfront prices and rebate amounts are indicative mid-range figures and change over time. We've deliberately used ranges rather than false-precision single numbers, because the honest answer for any given home is "it depends" — and the ranges above are where most households of four will land.

A few specifics worth stating plainly so the figures can be checked and compared. The COP range of around 3 to 5 for heat pumps reflects real-world performance across Australian climates rather than a single laboratory rating, which is why we treat it as a band. The ten-year ownership figures above are simply each system's annual running-cost range multiplied across a decade and, where relevant, added to the indicative installed price — deliberately rough, intended to show the shape of the long-run outcome, not to forecast a household's exact spend. The gas supply charge is referred to qualitatively rather than as a dollar figure because it varies by network and retailer; the relevant fact is that it exists, it's fixed, and a heat pump avoids it. And every dollar figure in this guide is drawn from the same consistent set of estimates, so the comparisons between systems are like-for-like even if any single number won't match a specific quote.

The point isn't to predict your bill to the dollar; it's to show the gap between systems, which is large, consistent and the basis for any sensible decision. Anyone is welcome to take these assumptions, apply their own tariff and usage, and arrive at a figure tailored to their home — the savings checker does exactly that.

The bottom line

Hot water is around a quarter of your energy bill, and the appliance you use decides how big that quarter is. On running cost, the order is clear: electric storage is the most expensive (an estimated $1,200–$1,500 a year), gas sits in the middle ($400–$600, plus a daily supply charge), a heat pump is cheap ($300–$400), and a heat pump on solar is close to free ($50–$100). The differences come down to efficiency — a heat pump's COP of around 3 to 5 means it uses roughly a third of the electricity of an old element — and solar self-consumption. Switching from electric storage to a heat pump commonly saves $900–$1,200 a year, and while the upfront cost is higher, rebates and a few years of payback tip the long-run maths firmly in the heat pump's favour. Over a decade — combining what you pay up front with what you pay to run it — the efficient system wins comfortably, and the lead only widens with rebates, solar and heavier hot-water use. Run the figures for your own household, confirm current rebates with the issuing authority, and when you're ready to compare real installed prices, get free quotes from accredited installers near you.