When the hot water system dies, it usually happens at the worst possible moment: a cold shower on a Monday morning and a plumber on the phone asking, "So, gas or electric?" It's a big decision to make in a hurry, and the answer isn't as simple as it used to be. The gas vs electric hot water question has changed a lot in the past few years, mostly thanks to heat pumps.
Heating water is one of the biggest energy costs in most Australian homes, often around a fifth to a quarter of your total household energy use. So picking the right system can save you hundreds of dollars a year, every year, for the next decade or more. Here's a plain-English breakdown to help you choose with confidence.
The main types of hot water system
"Gas or electric" is really five or six different options. Here's what each one does.
Electric storage
The classic tank with an element inside, a bit like a giant kettle. Cheap to buy and simple to install, but expensive to run unless it's on a cheaper off-peak tariff.
Electric heat pump
Works like a reverse fridge. It pulls heat from the surrounding air and moves it into the water, using far less electricity than a standard element. It costs more upfront but is one of the cheapest systems to run.
Gas storage
A tank heated by a gas burner. Cheaper to run than plain electric storage, but it keeps a pilot flame or burner going to hold the water at temperature, which wastes some energy.
Gas continuous flow (instantaneous)
No tank. It heats water only when you turn on a tap, so you never "run out". Compact and efficient for a gas system, though you'll still pay the daily gas supply charge.
Solar hot water
Panels on the roof heat the water, with a gas or electric booster for cloudy days. The cheapest to run in sunny areas, but the most expensive to install.
Gas vs electric hot water: running costs compared
Running cost is where the real difference shows up. These are typical yearly figures for a three to four person household, based on recent 2026 price estimates. Your actual cost will depend on your state, tariff and how much hot water you use.
| System | Typical yearly running cost |
|---|---|
| Electric storage | $500 to $1,200 |
| Gas storage | $450 to $1,250 |
| Gas continuous flow | $400 to $1,050 |
| Heat pump (electric) | $200 to $480 |
| Solar (electric boost) | $120 to $400 |
The takeaway is pretty clear. Old-style electric storage and gas systems sit in roughly the same range, while heat pumps and solar run at a fraction of the cost. That's why "electric" no longer automatically means "expensive". It depends entirely on which kind of electric system you choose.
Don't forget the gas supply charge either. If hot water is the only thing in your home using gas, you're paying a daily fee just to stay connected, which can add a couple of hundred dollars or more a year on top of your usage.
How much does each system cost to buy and install?
| System | Typical installed price (2026) |
|---|---|
| Electric storage | $800 to $3,000 |
| Gas storage | $1,200 to $3,500 |
| Gas continuous flow | $1,500 to $3,500 |
| Heat pump | $3,000 to $6,000 before rebates |
| Solar hot water | $3,500 to $7,000 |
Heat pumps and solar systems usually qualify for federal rebates through small-scale technology certificates (STCs), and some states add their own discounts on top. After rebates, a heat pump can come down to roughly $2,500 to $5,300. Rebates change regularly, so check your state government's energy website or ask your installer what you're eligible for.
Upfront cost vs long-term savings
This is where many people get caught. The cheapest system to buy is often the most expensive to own.
Say a heat pump costs you around $2,000 more than a basic electric storage tank after rebates, but saves you $400 to $600 a year in running costs. You'd make that money back in roughly four to five years. After that, the savings are yours for the rest of the system's life, which is typically 10 to 15 years.
If you have rooftop solar, a heat pump gets even better. You can set it to run during the middle of the day, heating your water with your own free solar power instead of buying electricity from the grid. If you're curious about how your solar system's inverter handles that power, our solar inverter guide explains it in plain English.
Which hot water system is right for you?
There's no single best answer, but this quick guide covers most situations:
- You have solar panels: a heat pump is usually the standout choice.
- You want the lowest running cost and have a sunny roof: look at solar hot water or a heat pump.
- Your hot water just died and money is tight right now: an electric or gas storage tank is the cheapest quick fix, but expect higher bills.
- You already use gas for cooking and heating: gas continuous flow can still make sense, since you're paying the supply charge anyway.
- You're trying to get off gas completely: a heat pump lets you drop the gas connection and its daily fee.
- You live in a very cold area: choose a heat pump rated for low temperatures, or ask your installer about solar with a booster.
Things to check before you switch
Moving from gas to electric, or the other way around, involves a few practical details:
- Space. Heat pumps and tanks need room outside, plus airflow around a heat pump. Continuous flow gas units are much smaller.
- Noise. Heat pumps make a gentle hum, similar to an air con unit. Keep them away from bedroom windows if you can.
- Electrical capacity. Some homes need minor switchboard work for a new electric system. Your electrician can check.
- Tank size. As a rough guide, a household of three to four people often needs around 250 to 315 litres for a storage or heat pump system.
- Licensed installation. Hot water systems must be installed by a licensed plumber, and any electrical or gas work by the right licensed tradesperson.
Simple ways to cut your hot water costs today
Whatever system you have, these habits help:
- Take shorter showers. Showers are usually the biggest user of hot water in the home.
- Fit a water-efficient showerhead. A 3-star rated showerhead uses noticeably less water than an old one.
- Fix dripping hot taps. A slow drip wastes heated water around the clock.
- Wash clothes in cold water. Modern detergents work well in cold, and it cuts energy use straight away.
- Use off-peak or solar timing. If you have electric storage or a heat pump, make sure it runs on the cheapest power available.
- Insulate exposed hot water pipes, especially near the tank, to reduce heat loss.
One safety note: storage systems need to keep water at 60°C or higher to stop bacteria such as legionella from growing. Don't turn your tank thermostat down below that to save money. If water at the tap feels too hot, ask a plumber about a tempering valve instead.
Frequently asked questions
Is gas or electric hot water cheaper to run?
It depends on the type. A standard electric storage tank and a gas system cost roughly the same to run. An electric heat pump is usually much cheaper than both, often costing less than half as much per year.
Is a heat pump worth it in Australia?
For many homes, yes. It costs more upfront, but lower running costs often repay the difference within around four to five years, and even faster if you run it on solar power.
How long does a hot water system last?
Most systems last around 10 to 15 years. Regular checks of the pressure relief valve and, for tanks, the sacrificial anode can help it last longer.
Can I replace a gas hot water system with an electric one?
Yes. A licensed plumber can remove the gas unit and cap the gas line, and an electrician may need to add a suitable circuit. Many households switch to a heat pump to lower bills and drop the gas supply charge.
The bottom line
The old idea that gas is cheap and electric is expensive no longer holds up. Basic electric and gas systems cost about the same to run, while a heat pump or solar system can cut your hot water bill by half or more. If you can manage the higher upfront cost, especially with rebates, it usually pays for itself and keeps saving you money for years.
If your system is still working, now's a great time to plan ahead. Get a few quotes, check your rebates, and you won't be forced into a rushed decision on a cold Monday morning.
Prices and running costs are general estimates as of October 2026 and will vary with your location, tariff and usage. Always get quotes from licensed installers and check current rebates in your state. See our disclaimer for more.
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