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Are your energy bills making you think twice about running that hot shower? You’re not alone. Hot water systems can consume up to 30% of a typical household’s energy bill and represent one of the biggest energy expenses in Australian homes. Heat pump technology has revolutionised the market and promises the most important cost savings, while traditional gas and electric systems remain common choices.
We’ve taken a look at the analysed numbers and tested different systems for households of all sizes to help you understand the actual costs. Our comparison of heat pump systems with traditional options covers everything from energy efficiency ratings to peak versus off-peak rates, showing you exactly what you’ll pay. This piece will help you make a smart choice about the best hot water system for your budget and needs, whether you’re building a new home or replacing an old system.
How Heat Pumps Work vs Traditional Systems
Heat pump systems operate like a reverse refrigerator and extract heat from the surrounding air to warm your water. Traditional electric systems directly heat water, while heat pumps move heat from one place to another, making them more efficient by a lot. These systems typically use 60-75% less electricity than conventional electric hot water systems.
Energy Efficiency Ratings Explained
Energy efficiency ratings are vital indicators of a system’s performance and running costs. Gas system ratings depend on a standard consumption of 37.7 megajoules per day. Electric systems follow the Minimum Energy Performance Standards (MEPS). Heat pumps operate at efficiency levels up to three times higher than traditional electric systems.
System Lifespan Considerations
Different systems have varying lifespans:
- Heat pump systems: 15 years
- Electric systems: 10-15 years
- Gas systems: 8-12 years
Several factors affect these systems’ longevity:
- Water quality and mineral content
- Regular maintenance
- Quality of installation
Heat pumps excel in warm, humid climates, though their efficiency drops in colder conditions. The best performance comes from installation in well-ventilated areas with temperatures between 4.4°C and 32.2°C.
Annual Operating Cost Breakdown
Let’s break down your energy bills by looking at the actual costs of running different hot water systems.
Electricity Usage and Tariffs
A traditional electric storage system needs between 2-4 kWh per day for simple usage. From a cost point of view, an electric storage system uses about 4.3 kWh per hour to heat water to 60 degrees Celsius. Heat pumps are nowhere near as demanding and use only 0.8 kWh.
Gas Consumption Rates
Natural gas systems work differently. A standard gas storage system needs approximately 1.5 kWh equivalent per hour to heat water. Gas systems operate with an efficiency factor of 0.5 to 0.7, but their running costs are lower because fuel prices are cheaper.
Peak vs Off-Peak Cost Analysis
Your hot water usage timing affects costs by a lot. Current electricity rates show:
- Peak rate: 29.3 cents/kWh
- Off-peak rate: 21.6 cents/kWh
Controlled load tariffs are a great way to save money by restricting heating to specific times (usually 11 pm to 7 am). This method can reduce your annual running costs substantially. Heat pump systems already use about 70% less electricity than traditional
Factors Affecting Water Heating Costs
Your water heating energy costs can vary depending on:
- Number of people in your household
- Usage habits for showers, dishwashing, and laundry
- Energy tariffs and climate
- System efficiency and pipe insulation
- Tap and shower flow rates (water efficiency)
Heat Pump Hot Water Savings Comparison 4-person household
4 people (150 litres per day)
Heat pump
| Electricity tariff type | Efficiency rating | Annual energy cost | 10-year Greenhouse Gas emissions (tonnes) |
| Peak tariff, No PV system | 23 STC | $275 | 5.0 |
| Peak tariff, PV system* | 23 STC | $160 – $185 | 5.0 |
| Peak tariff, PV system and time control* | 23 STC | $50 – $90 | 5.0 |
| Peak tariff, No PV system | 18 STC | $435 | 8.0 |
| Peak tariff, PV system* | 18 STC | $255 – $300 | 8.0 |
| Peak tariff, PV system and time control* | 18 STC | $75 – $135 | 8.0 |
| Off-peak tariff | 23 STC | $205 | 5.0 |
| Off-peak tariff | 18 STC | $325 | 8.0 |
* The effective energy cost of heat pump water heaters run on a peak (or general) electricity tariff will be lower if the house has a rooftop PV system, as some of the electricity used to heat the water will be provided by the PV system. The impact is greatest if the water heater is controlled by a timer to operate during the middle part of the day, e.g. 10 am to 4 pm.
Solar
| Water heater type | Efficiency rating | Annual energy cost | 10-year Greenhouse Gas emissions (tonnes) |
| Natural gas boosted | 23 STC | $220 | 3.4 |
| Natural gas boosted | 15 STC | $305 | 4.7 |
| Electric boosted – peak tariff | 22 STC | $375 | 6.9 |
| Electric boosted – peak tariff | 16 STC | $450 | 8.3 |
| Electric boosted – off-peak tariff | 22 STC | $275 | 6.9 |
| Electric boosted – off-peak tariff | 16 STC | $335 | 8.3 |
| LPG boosted | 23 STC | $420 | 3.8 |
| LPG boosted | 15 STC | $580 | 5.3 |
Electric
| Water heater type | Efficiency rating | Annual energy cost | 10-year Greenhouse Gas emissions (tonnes) |
| Peak tariff – storage | N/A | $1,015 | 18.7 |
| Peak tariff – instant | N/A | $985 | 18.1 |
| Off-peak tariff – storage | N/A | $780 | 19.4 |
Gas
| Water heater type | Efficiency rating | Annual energy cost | 10-year Greenhouse Gas emissions (tonnes) |
| Natural gas – storage | 5 star | $700 | 9.8 |
| Natural gas – storage | 4 star | $780 | 10.9 |
| Natural gas – instant | 7 star equivalent | $530 | 7.3 |
| Natural gas – instant | 5 star | $655 | 9.0 |
| LPG – storage | 5 star | $1,335 | 11.3 |
| LPG – storage | 4 star | $1,480 | 12.6 |
| LPG – instant | 7 star equivalent | $980 | 8.4 |
| LPG – instant | 5 star | $1,215 | 10.4 |
Choosing the Best Water Heating System for a Family of Four
When it comes to heating water for a household of four using 150 litres daily, the choice of system can significantly impact both your energy bills and your environmental footprint. Here’s a breakdown of the key options, showing why modern heat pumps are quickly becoming the preferred choice.
Heat Pumps: The Clear Winner
Heat pump systems shine when it comes to cost and emissions, especially when paired with a solar PV system and time controls. These systems offer annual energy costs as low as $50–$90 and steady emissions of just 5.0 tonnes over 10 years. Even without solar panels, heat pumps remain cost-efficient, with costs ranging from $205–$435 depending on the efficiency rating and electricity tariff.
Why Heat Pumps Are a Great Choice:
- Cost Savings: Heat pumps are up to 80% cheaper to run than traditional electric systems.
- Eco-Friendly: They maintain lower emissions regardless of setup.
- Optimal with Solar: Timed operation during solar generation hours drastically cuts costs.
- Solar Water Heaters: Balanced Costs and Emissions
For those looking to balance costs and emissions, solar water heaters with a natural gas boost are a solid option. With annual costs of $220 and emissions of 3.4 tonnes over 10 years, they’re eco-friendly and reliable. However, upfront costs can be higher, and they may not match the long-term savings of heat pumps when paired with solar PV systems.
Electric Storage: High Costs and Emissions
If you’re still using an electric storage system, it might be time for an upgrade. These systems have the highest annual running costs, reaching $1,015 per year, and they’re responsible for 18.7 tonnes of emissions over a decade. While they’re simple to install, they’re far from efficient or sustainable.
Gas Systems: A Mixed Bag
Natural Gas Instant Systems strike a middle ground with annual costs of $530 and emissions of 7.3 tonnes. They’re a reliable choice but still trail behind heat pumps and solar systems in efficiency and environmental impact. On the other hand, LPG storage systems are among the most expensive and environmentally taxing, costing $1,480 annually with emissions reaching 12.6 tonnes.
Choose Wisely for Savings and Sustainability
The data is clear: heat pump systems offer the best value for households looking to reduce costs and emissions. With the added benefit of government rebates and the ability to integrate with solar PV systems, they’re a future-proof choice for eco-conscious families. If you’re still relying on traditional electric or gas systems, now might be the perfect time to make the switch and enjoy the benefits of a more efficient, sustainable solution.
Scenarios: Real-World Examples of Savings
Scenario 1: Household Without Solar PV
- Current System: Electric storage on peak tariff, annual cost $1,015.
- Switch to: Heat pump, 23 STC, peak tariff, annual cost $275.
- Savings: $740 per year.
Scenario 2: Household With Solar PV + Timer
- Current System: Natural gas storage, 5-star, annual cost $700.
- Switch to: Heat pump, 23 STC, PV system + timer, annual cost $50.
- Savings: $650 per year + significant emissions reduction.
How Solar PV Systems Enhance Heat Pump Efficiency
Installing a solar PV system alongside a heat pump hot water system can significantly reduce your energy costs while maximizing environmental benefits. Heat pumps are already highly efficient, using a fraction of the energy of traditional systems. When paired with a solar PV system, the cost savings increase exponentially. Here’s why:
Daytime Operation:
Heat pumps can be set to run during solar generation hours (e.g., 10 a.m.–4 p.m.), directly using the electricity generated by your panels.
Reduced Energy Bills:
- Without PV: Heat pumps rely entirely on grid electricity, which can cost between $275–$435 annually.
- With PV: Solar energy covers most of the electricity needed, lowering costs to $50–$90 annually.
Environmental Benefits:
Solar energy eliminates emissions associated with grid electricity, making your water heating almost carbon neutral.
Cost Breakdown: Heat Pump With and Without PV
| System Type | Annual Energy Cost (AUD) | 10-Year Greenhouse Gas Emissions (tonnes) |
| Heat Pump (No PV, Peak Tariff) | $275 | 5.0 |
| Heat Pump (PV + Timer) | $50–$90 | 5.0 |
Heat Pumps: The Clear Winner
In Melbourne, you may qualify for government rebates for both solar PV systems and heat pump hot water installations, reducing your upfront costs. This makes it easier to switch to a more sustainable setup.
If you’re looking to cut costs and reduce your environmental impact, a heat pump hot water system is an investment worth considering. With rebates available for energy-efficient systems, upgrading to a heat pump in Melbourne has never been easier.
