Choose the right hot water system

Last updated: 16 August 2022

Things to consider when choosing a hot water heater.

  • fuel type – electric, gas or solar
  • system size
  • running costs.

Electric, gas or solar?

Electric heat-pump water heaters

A heat-pump water heater uses heat from the surrounding air to heat water in a storage tank. An electric heat-pump hot water heater uses much less electricity than an electric storage water heater, and are the most efficient hot water systems on the market. These systems can provide additional economic and environmental benefits if your home has a Solar PV system that is generating more electricity than your household’s daytime demand, as a heat-pump hot water heater can increase self-consumption of onsite solar generation.

Solar hot water systems

A solar hot water system is more expensive to buy and install, but the running costs can be significantly lower. Solar hot water systems can be boosted with either gas or electricity. In Victoria, solar water systems can rely quite heavily on their boosting system, particularly in winter months. Solar water systems do not generate electricity and take up space on your roof which can limit the space available for Solar PV systems.

Gas hot water systems

High efficiency gas hot water systems have typically been considered the most economical type of water heater when operated on natural gas. Recent advancements in heat-pump technology mean that this is no longer the case. If you have a conventional gas or electric hot water system that needs replacing, you should consider a heat-pump water heater over a more efficient gas or solar hot water system.

Electric hot water systems

Electric storage hot water systems – the most common type in Victoria – heat water with an element in the bottom of the unit and store it in an insulated tank, ready for use throughout the day. Electric hot water systems are the cheapest to buy but the most expensive to run. If you have an existing electric hot water system, you should consider taking advantage of the government incentives available to upgrade to efficient heat-pump options.

Running costs

The type of hot water system you have makes a big difference to your energy bills.

Compare running costs

How to size your hot water heater

A storage heater that is too small will continually run out of hot water, while one that is too large will be more expensive to run because it will maintain the water temperature even when it's not being used.

Similarly, a continuous flow system that's too small may not be able to keep up with your hot water demands when multiple hot water outlets are being used at the same time. Your water heater supplier will be able to help you choose the right-sized system.

  • Storage hot water heaters are sized according to household size. The more people, the larger your storage tank will need to be.
  • Continuous flow or instantaneous systems are sized according to the number of hot water outlets in the home, rather than the number of people.
  • Solar water heaters are sized according to the number of people in the household. The more people, the larger the storage tank and the more solar collectors required.

Replacing your existing hot water heater

If you currently have an electric or gas hot water heater, your best option is to replace it with a heat-pump hot water heater, rather than replacing like-for-like. There are government incentives available to upgrade to a more efficient heat-pump hot water heater.

Questions to ask your hot water retailer or plumber

When making your decision, it's important to ask your hot water retailer or plumber the right questions.

Government incentives

At various times, government incentives may be available for the purchase of new hot water heaters.

To find out what incentives are currently available, visit:

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