Electric hot water systems

Last updated: 6 September 2022

There are 2 types of electric hot water systems:

  • Storage – Water is heated and stored in an insulated cylinder for use when needed.
  • Instantaneous (continuous flow) – Water is heated only when needed.

Storage hot water systems

How they work

These systems heat water with an electric element and store it in an insulated cylinder, ready for use throughout the day.

The electric element is located near the bottom of the storage cylinder. Some off-peak systems also have a boost element higher up in the cylinder.

They come in a range of cylinder sizes. They’re also available as main pressure systems and gravity fed systems, although these are now much less common.

Use the system efficiently

The storage cylinders are insulated.

All storage systems lose some heat through the walls of the cylinder. This means they use energy even if you don’t use any hot water. The bigger the cylinder is, the more heat is lost. For small households, these heat losses – known as standing losses - can add up to a high proportion of overall hot water energy use.

If you’re going to be away from your house for an extended period, switch the water heater off at the switchboard to save energy.

Large systems (160 – 400 litres)

Large systems can be run on the cheaper off-peak electricity tariff.

The cylinder is often outside but can also be inside if there’s enough room.

The electric element is powered overnight (typically from 11 pm to 7am) so that you have plenty of hot water in the morning.

It’s important to buy the right-sized system so that it meets your daily water needs. Ask your supplier for advice.

Some systems have a boost element, which can be used to re-heat some of the water in the cylinder if you run out. If you have a boost element, you should consult your electricity retailer about the tariff options available to you.

Smaller systems (25 – 125 litres)

These systems can only be run on the peak (or general) electricity tariff. This means they can have high energy costs.

These systems are often located inside in a cupboard and can be found in flats and apartments.

When you use hot water, the electric element switches on under thermostat control and re-heats the cold water that is drawn into the system. Due to their small storage capacity, it’s important that they’re sized to suit the number of people in your home and how you use hot water. Ask your supplier for advice.

Mains pressure systems

These are the most common type of storage system. They provide hot water at a similar pressure and flow rate as cold water. This allows more than one tap to be used at a time without affecting water pressure.

You should have these systems serviced regularly, as this will extend the life of the water heater.

Gravity fed systems

Some older houses have gravity fed hot water systems. These are usually located in the roof-space in a circular tray to catch any water leaks. They’re made of copper so can last for many years.

The water pressure is lower than mains pressure systems. Water pressure is dependent on the height difference between the cylinder and the hot water outlets.

These systems may not be compatible with low flow shower roses. If you change from a gravity fed system to a mains pressure system you should also replace the shower rose, otherwise the water flow rate could be too high.

Instantaneous hot water systems

How they work

These systems use a high-powered electric element to heat the water as it’s used. The higher the flow rate the greater this power consumption is. This needs to be taken into account if you’re replacing an existing storage electric water heater.

These systems don’t need a cylinder to store water.

They use less energy than a storage electric water heater to provide a certain amount of hot water, as, unlike the storage systems, they do not have standing losses through the cylinder wall.

They are run on the more expensive peak (or general) electricity tariff, so the energy costs can be higher than for off-peak electric water heaters.

Running costs

Electric hot water systems are the cheapest to buy but can be the most expensive to run. Systems that operate on the peak (general) electricity tariff rather than the off-peak electricity tariff can be particularly expensive to run.

If you have a rooftop photovoltaic (PV) system to generate electricity, it may be beneficial to operate a storage electric water heater on a peak electricity tariff, and limit the time that the water is heated to the middle part of the day. This will make better use of the electricity generated by the PV system, as it will reduce the amount of electricity that is exported to the grid.

Solar power diverters are now also available, either as add-on kits for off-peak electric storage systems or built in to some models. They divert excess electricity from a rooftop PV system to heat water in the cylinder during the day, reducing the amount of off-peak electricity that is required and reducing water heating costs.

If you have an electric water heater, you can get a discount to replace it with either heat pump, electric boosted solar, high efficiency gas or gas boosted solar systems. Replacing an inefficient water heater with a high efficiency, more environmentally-friendly option can be eligible for a financial incentive under the Victorian Energy Upgrades scheme.

A 50% rebate up to $1,000 can also be available from Solar Victoria if you:

  • install a solar or heat pump water heater
  • have a household income under $180,000
  • meet the other eligibility criteria.

For information on the annual running costs of different water heater types for different sized households, see Compare hot water system running costs.