Heat Pumps

How Heat Pumps Work

A heat pump hot water system does not generate heat — it moves it. The unit draws ambient air across a refrigerant-filled heat exchanger, causing the refrigerant to evaporate and absorb heat from the air. A compressor then raises the refrigerant’s pressure and temperature, and the resulting heat is transferred to the water in the tank. The refrigerant cycles back to a liquid state and the process repeats.

This process is far more efficient than any heating technology that converts energy directly into heat. An electric resistance element has a Coefficient of Performance (COP) of exactly 1.0 — one unit of electricity in, one unit of heat out. A gas system, factoring in flue losses, delivers a COP of roughly 0.9 on an energy basis and significantly worse on an emissions basis given gas’s carbon content. A heat pump delivers a COP of 3.0–5.0 depending on ambient temperature — meaning 3 to 5 units of thermal energy for every unit of electricity consumed.

All-in-one vs split systems. An all-in-one (integrated) unit houses the compressor, heat exchanger, and tank in a single cabinet. It is easier and cheaper to install but requires adequate clearance for airflow — typically 1m³ of clear space and a minimum of 10m² of surrounding area. A split system separates the compressor/heat exchanger from the tank, allowing the heat exchanger to be placed outdoors or in a well-ventilated space while the tank sits in a cupboard or indoor area. Split systems are quieter indoors, better suited to tight spaces, and the preferred option for cold climates where outdoor air temperature matters less than indoor ambient.

Refrigerant Types and Climate Performance

The refrigerant determines how well a heat pump performs in cold conditions. Three refrigerants dominate the Australian market:

CO2 systems operate at higher pressures than conventional refrigerants and maintain efficiency across the widest temperature range. The Reclaim Energy and Sanden Econet split systems are the go-to choice for Canberra, the alpine regions of Victoria and NSW, and Tasmania, where winter temperatures regularly fall below -5°C. They come at a higher upfront cost — Reclaim CO2 split systems sit around $5,000 installed before rebates — but deliver the best cold-climate performance of any residential hot water technology.

R290 (propane) systems from iStore and Aquatech represent the mid-market. Effective to -7°C, they cover the operating range needed for Melbourne, Sydney, Adelaide, and most regional areas. iStore’s 270L and 315L all-in-one units are widely available through plumbers and electricians and offer good value for the performance delivered.

Rheem’s AmbiHeat uses R513a and is the most widely stocked unit in Australia due to Rheem’s existing distribution network. It works well in temperate to warm climates and has the advantage of being readily available for same-day replacement. The -5°C lower operating limit is a minor constraint for most of the country but rules it out for alpine and high-altitude sites.

STC Rebates and State Incentives

Heat pump hot water systems qualify for Small-scale Technology Certificates (STCs) under the federal Renewable Energy Target. The number of STCs awarded depends on the system’s zone rating, tank capacity, and the current STC deeming period (which runs until 2030).

Australia is divided into STC zones, broadly:

• Zone 3: Most of NSW, VIC, SA, WA south — the majority of the population
• Zone 4: QLD, WA north, NT — higher solar resource, more STCs awarded
• Zone 5: TAS, alpine VIC, ACT higher elevations — fewer STCs due to lower ambient temperatures

In Zone 3, a 270–315L heat pump typically earns 20–35 STCs. At current STC spot prices of approximately $35–$40, that translates to $700–$1,400 in rebate value, usually passed on as a point-of-sale discount through registered installers.

Additional state programs apply in several jurisdictions:

Victoria (VEU). The Victorian Energy Upgrades program provides additional discounts on heat pump hot water installations through accredited suppliers. Combined with STCs, the total rebate available in Victoria can reduce installed costs substantially — in some cases to under $1,500 for a basic system.

ACT — Sustainable Household Scheme. The ACT government has offered interest-free loans and rebates for heat pump hot water upgrades as part of its broader electrification push. Check the Sustainable Households website for the current round of available funding, as scheme parameters change.

Queensland. Several Queensland retailers and the state government have offered rebate programs targeting hot water and appliance upgrades. Check the Queensland government energy website and ask your installer about current availability at the time of installation.

Choosing the Right Size and System

Tank capacity should be matched to household size. Undersizing leads to the element backup running frequently, which eliminates most of the efficiency benefit:

• 1–2 people: 250L
• 3–4 people: 315L
• 4+ people: 400L or a second unit in a staged heating configuration

Pairing with solar. Heat pumps draw 400–900W depending on the model, compared to 3.6–4.8kW for an electric resistance element. A heat pump running during solar generation hours is a practical load-shifting strategy — program the timer to run 9am–3pm and you can offset most of the running cost with rooftop generation. All modern heat pump controllers have a programmable timer for this purpose.

Installation requirements. All-in-one units need adequate airflow — the surrounding area should be at least 10m² and the unit should not be enclosed in a tight corner. Most units produce a condensate drain of 1–5 litres per day depending on humidity and heating demand; a drain point must be available nearby. Heat pumps are noisier than tank or solar systems — most units produce 45–55dB(A) at one metre, roughly equivalent to a quiet conversation. Placement away from bedroom windows is advisable, particularly for early-morning timer schedules.

Split vs all-in-one for space-constrained installations. If the existing tank is in a small cupboard or indoor laundry with no room for an all-in-one unit, a split system places only the tank indoors and mounts the heat exchanger on an external wall. This costs more to install but opens up options that would otherwise require relocation of the tank entirely.