Gas hot water systems

Last updated: 6 September 2022

There are two main types of gas hot water systems:

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

Storage hot water systems

Water is heated and stored in an insulated cylinder, ready to use when needed.

Hot water is drawn off the top of the cylinder and cold water drawn in at the bottom. When you use hot water, the burner comes back on to heat the cold water up to temperature.

Most storage systems have a Gas Energy Rating of between 4 and 5.3 stars

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, heat losses can add up to a high proportion of overall hot water energy use. In these cases, a gas instantaneous water heater will have lower gas use and be cheaper to run.

If you’re going to be away from your house for an extended period, switch off the gas pilot light to save energy.

Instantaneous hot water systems

Water is heated only when needed. This reduces the amount of gas needed to heat the water compared to storage systems, as there are no heat losses through the storage cylinder walls.

Most instantaneous systems have a Gas Energy Rating of between 5 and 6 stars. The most efficient systems can be rated as 7 star ‘equivalent’.

These systems have a higher gas consumption rate than storage systems. This may require a new gas line to be installed if it’s replacing a gas storage system.

Compare energy star ratings

When buying a new system, use the Gas Energy Rating Label to compare the energy efficiency of different systems. The more stars, the more efficient the system is.

Look for systems that have a rating of at least 5 stars.

Minimum energy performance standards (MEPS) apply to gas water heaters, which means only models which have an energy rating of 4 stars or more can be sold.

Also use the energy consumption number in the box in the middle of the label. This shows the annual gas consumption of the water heater when used to provide around 200 litres of hot water a day (the typical usage of a 4 to 5 person household).

A daily hot water use of 200 litres per day is now considered to be very high. Average household hot water use is around 120 to 130 litres per day.

A gas instantaneous system with the same rating as a gas storage system will generally be more efficient and have a lower energy consumption than the storage system. This is because gas storage systems have heat losses, which stay the same no matter how much hot water is used.

Learn more about energy ratings.

Running costs

Gas prices are likely to rise over the next decade. If you have a conventional gas hot water system that needs replacing, consider a high efficiency gas water heater or a gas-boosted solar hot water system.

If you have a rooftop photovoltaic (PV) system to generate electricity, one option is to replace your gas water heater with a heat pump water heater that is controlled by timer so that it only uses electricity during the middle parts of the day, so that you make more effective use of the electricity generated by the PV system. Use of an electric storage water heater in conjunction with a PV hot water diverter may also provide lower running costs.

If you have a gas water heater, you can get a discount to replace it with a gas boosted solar water heater. 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 water heating running costs.