Heat Pump vs Gas Hot Water in Australia: Costs, Savings and Which to Choose

A heat pump hot water system costs 60 to 75% less to run than gas storage in every Australian state. For a four-person household, that translates to $280 to $400 per year for the heat pump versus $800 to $1,200 for gas. The heat pump costs more upfront, but federal rebates narrow the gap to $1,000 to $2,700, and running cost savings repay that difference within two to four years.

With gas bans rolling out across Victoria, the ACT and parts of Sydney, and gas prices climbing 30 to 50% over the past five years, a heat pump vs gas hot water decision in Australia increasingly has only one rational answer for most households. Here is the full breakdown.

Running costs: heat pump vs gas hot water australia

System type	Annual running cost (4-person home)	Notes
Heat pump (COP 3.5 to 5.0)	$280 to $400	At 30 c/kWh grid rate
Heat pump on off-peak tariff	$150 to $250	Timer set to run overnight
Heat pump on solar	$50 to $100	Near-zero marginal cost
Gas storage	$800 to $1,200	At 3.5 c/MJ retail gas
Gas instantaneous	$500 to $800	No standby losses
Electric element (resistance)	$800 to $1,200	Worst efficiency

Source: PumpSwap, 2026; assumes 200L daily demand.

The efficiency gap is enormous. A heat pump with a coefficient of performance (COP) of 4.0 produces four kilowatt-hours of heat for every one kilowatt-hour of electricity consumed. Gas storage converts fuel to heat at just 55 to 65% efficiency, with additional losses from the pilot light and tank standby.

Gas instantaneous systems are more efficient than gas storage (80 to 85%) because they eliminate tank standby losses. But they still cannot compete with a heat pump on running costs because gas per unit of energy is now more expensive than electricity per unit of useful heat when the heat pump multiplier is factored in.

Gas prices are rising faster than electricity

Retail gas prices have increased 30 to 50% across VIC, NSW and QLD in the past five years (Australian Energy Regulator, 2025). Electricity has risen too, but not at the same rate. Every year you stay on gas, the savings gap widens.

A household switching from gas storage to a heat pump today saves roughly $500 to $800 in year one. By year five, with gas trending upward at 5 to 8% annually, that saving grows to $700 to $1,000 per year.

Upfront costs and rebates

System	Installed price (before rebate)	After rebates	Net cost difference
Heat pump (270 to 315L)	$3,500 to $5,500	$2,200 to $4,000	Reference
Gas storage (250 to 315L)	$1,400 to $2,800	$1,400 to $2,800 (no rebate)	$800 to $1,200 cheaper
Gas instantaneous	$1,500 to $3,200	$1,500 to $3,200 (no rebate)	Varies

Federal STC rebate (how it works)

Heat pumps qualify for Small-scale Technology Certificates (STCs) under the federal Renewable Energy Target. Your installer creates the certificates at point of sale and passes the value back as a line-item discount on your quote. You do not fill in forms or wait for reimbursement.

In 2026, a typical heat pump in climate zone 3 (Sydney, Brisbane, Perth) generates 25 to 31 STCs. At the current spot price of $38 to $40 per certificate, that equals an $800 to $1,200 discount applied automatically.

The deeming period dropped from six years in 2025 to five years in 2026. That means roughly 17% fewer certificates per install than last year. The scheme ends in 2030. Installing sooner means a larger rebate.

Source: Clean Energy Regulator, STC quarterly report, March 2025

State rebate stacking

• Victoria: Solar Victoria rebate plus federal STCs can combine for $1,500 to $2,700 total discount. Reclaim Energy (Australian-made) qualifies for the higher $1,400 Solar Victoria tier.
• NSW: Federal STCs only. Some retailers offer additional incentives through the Energy Savings Scheme (ESS certificates), worth $100 to $300 on top.
• ACT: Zero-interest loans up to $15,000 through the Sustainable Household Scheme cover heat pump purchases.

Total cost of ownership over 10 years

System	Purchase + install	10-year running cost	10-year total
Heat pump (after rebate)	$3,800	$3,500	$7,300
Gas storage	$2,200	$10,000	$12,200
Gas instantaneous	$2,500	$6,500	$9,000

A heat pump saves $4,900 over 10 years versus gas storage. Even against the more efficient gas instantaneous, the heat pump saves $1,700 over a decade, and that gap will be larger in practice because gas prices are rising faster than modelled.

These figures assume constant 2026 energy prices. With gas trending up 5 to 8% annually and electricity stable or falling (due to grid-scale renewables), the real savings will be higher.

The gas ban factor: installing gas now risks a stranded asset

Multiple Australian jurisdictions are legislating gas out of homes:

Jurisdiction	Policy	Date
ACT	All new gas connections banned (residential and commercial)	November 2023
Victoria	New homes requiring planning permits must be all-electric	January 2024
Victoria	All new residential builds must be all-electric	January 2027
Victoria	Existing homes: failed gas HW must be replaced with electric	March 2027
City of Sydney	Indoor gas banned in new developments	January 2026
City of Sydney	All-electric requirement (including HW) in new builds	January 2027

Source: RenewEconomy; Victorian Government; City of Sydney planning controls

Victoria’s March 2027 rule is the most impactful: when your existing gas hot water system fails, you will be required to replace it with an electric system. That means a heat pump or a resistance electric heater (with the heat pump being dramatically cheaper to run).

No statewide bans exist yet in NSW, QLD, SA, WA or TAS. But the policy direction is clear. A gas system installed today may need to be replaced before its natural end-of-life in states that tighten regulations further.

If you are in Victoria or the ACT, there is no longer a debate. Heat pump is the only forward-looking option. For other states, the running cost savings alone justify the switch regardless of regulation.

Heat pump performance in cold climates

Heat pumps extract warmth from ambient air. In cold weather, there is less warmth available, and efficiency drops. How much depends on the refrigerant type.

Refrigerant	Models	Min operating temp	COP in cold weather	Behaviour below 0°C
CO2 (R744)	Reclaim, Sanden, Thermann	Down to minus 25°C	Maintains full COP (4.5 to 5.1)	No backup element needed
R290 (propane)	iStore, Rheem AmbiPower	Down to minus 7°C	Drops significantly below 0°C	Switches to resistive backup element

For Melbourne and Canberra: Choose a CO2 heat pump. Canberra’s July average minimum is minus 1°C, with overnight lows regularly reaching minus 5°C. An R290 unit will spend weeks running on its backup element at 30 to 35 c/kWh, losing much of its cost advantage. A CO2 unit from Reclaim or Sanden maintains full efficiency regardless.

For Sydney, Brisbane, Perth and coastal areas: R290 units are perfectly adequate. Overnight temperatures rarely drop below 5°C. The iStore and Rheem AmbiPower offer excellent value in these climates.

Popular models compared

Model	Tank	COP	Refrigerant	Installed price (pre-rebate)	Warranty
Reclaim Energy CO2	250L	5.0	CO2	$6,600 to $8,000	10yr tank / 5yr compressor
Sanden Eco Plus	315L	5.1	CO2	$6,500 to $8,000	15yr tank / 6yr compressor
iStore 270L	270L	4.82	R290	$2,900 to $3,400	5yr standard
Rheem AmbiPower 280L	280L	5.2	R290	$3,599	7 to 10yr
Rheem AmbiPower 315L	315L	5.9	R290	$5,399	7 to 10yr

The Sanden Eco Plus has the longest tank warranty in the market at 15 years. Combined with its 5.1 COP, it costs roughly $210 per year to run for a four-person household, making it the cheapest to operate long-term despite the higher purchase price.

You can compare all heat pump models side by side on Gridly, filtering by COP, tank size, noise level and price.

The iStore 270L is the value leader. At $2,900 to $3,400 installed (roughly $1,700 to $2,200 after STC rebate), it undercuts gas storage on upfront cost in many cases while running at one-third the annual cost. It is the default recommendation for Sydney, Brisbane, Adelaide and Perth households that want the fastest payback.

For a deeper comparison, see our best heat pump hot water guide.

Solar integration: running your heat pump for almost nothing

A heat pump paired with rooftop solar can run on surplus generation during the day, reducing hot water costs to $50 to $100 per year. Most modern heat pumps have a timer that can be set to run during solar generation hours (typically 9 am to 3 pm).

With 4.3 million Australian homes now running rooftop solar (Clean Energy Council, 2025), this is a genuine option for a large share of the population. A heat pump draws 0.8 to 1.5 kW when operating and runs for 2 to 4 hours per day. Even a modest 5 kW solar system produces far more than this during daylight hours.

The Solar Sharer Offer (from 1 July 2026 in NSW, QLD and SA) adds another layer: free grid electricity from 11 am to 2 pm. You can schedule your heat pump to run during this window at zero cost regardless of whether you have solar panels.

When gas still makes sense

Gas instantaneous systems still suit a narrow set of situations:

• No electrical capacity: Older homes with small single-phase switchboards that cannot support a heat pump without an expensive upgrade ($900 to $3,500 for the switchboard alone)
• Immediate replacement needed, minimal budget: If your gas system has failed and you need hot water tomorrow with $1,500 to spend, a gas instantaneous gets you running fastest. But you will pay more every year afterward.
• Very high simultaneous demand: Large families (6+ people) needing continuous hot water across multiple outlets simultaneously may find gas instantaneous more responsive, though a 315L heat pump tank typically covers this through stored volume

In all three cases, the long-term economics still favour the heat pump. These are short-term constraint decisions, not optimal ones.

How to switch from gas to heat pump

The process takes one to two days for most homes:

1. Get quotes from at least two heat pump rebate accredited installers. Confirm the STC discount is shown as a line item.
2. Check your switchboard capacity. A heat pump draws 0.8 to 1.5 kW, similar to a large fridge. Most switchboards handle this without upgrade.
3. Choose your tank size. 250 to 270L suits 2 to 4 people. 315L suits 4 to 6 people. Oversizing slightly is fine because the running cost per litre is low.
4. Select placement. The outdoor compressor unit needs adequate airflow and should sit on a concrete pad. Noise levels range from 37 to 52 dB depending on model.
5. Installation day: Plumber disconnects old gas unit, installs the heat pump (typically wall-mounted tank with external compressor), connects to existing hot water pipes. Electrician connects power. Usually completed in half a day.
6. Cancel your gas supply once satisfied. Removing the gas meter eliminates the $200 to $400 annual supply charge, adding to your savings.

Frequently Asked Questions

Is a heat pump cheaper to run than gas hot water in Australia?

Yes. A heat pump costs $280 to $400 per year to run for a four-person household. Gas storage costs $800 to $1,200 per year. That is a saving of $500 to $800 annually. The gap widens each year because gas prices are rising faster than electricity in most states.

How much does a heat pump hot water system cost installed in Australia?

A heat pump costs $3,500 to $5,500 installed before rebates. After the federal STC rebate of $800 to $1,200 and any state incentives, expect to pay $2,200 to $4,000 out of pocket. Gas storage systems cost $1,400 to $2,800 installed with no rebate available.

Do heat pumps work in cold climates like Melbourne and Canberra?

Yes, but refrigerant type matters. CO2 heat pumps from Reclaim and Sanden operate efficiently down to minus 25 degrees Celsius and maintain full performance in Melbourne and Canberra winters. R290 units like the iStore lose efficiency below zero and switch to a backup element.

Is gas hot water being banned in Australia?

Victoria will require all-electric hot water replacements in existing homes from 1 March 2027. The ACT banned new gas connections in November 2023. The City of Sydney bans gas in new builds from January 2027. No statewide bans exist in NSW, QLD, SA or WA yet.

How long does a heat pump take to pay back vs gas?

A heat pump typically costs $1,000 to $2,700 more upfront than gas storage after rebates. At $500 to $800 per year in running cost savings, payback takes 1.5 to 4 years. Over 10 years, a heat pump saves $4,900 compared to gas storage on total cost of ownership.