Heat pumps cost significantly more upfront than gas hot water systems, but their running costs are dramatically lower. Whether the payback is worth it depends on your energy tariff, household size, and how long you plan to stay. Here's the complete 2026 cost comparison for Australian homeowners.
Upfront cost + 10-year total cost
| System | Installed Cost | After Rebates | Annual Running | 10-Year Total |
|---|---|---|---|---|
| Electric storage (250L) | $900–$1,600 | n/a | $700–$1,100 | $7,900–$12,600 |
| Gas continuous flow | $1,200–$2,200 | n/a | $350–$600 | $4,700–$8,200 |
| Heat pump | $2,200–$4,500 | $1,500–$3,800 | $300–$500 | $4,500–$8,800 |
| Solar hot water | $3,000–$6,000 | $2,000–$4,500 | $100–$200 | $3,000–$6,500 |
Running cost estimates for average 3–4 person household. Energy prices vary by state and tariff.
The heat pump payback calculation
Compared to electric storage, a heat pump saves roughly $400–$700/year in electricity. At $1,500–$3,800 after rebates, the payback period is typically 3–6 years. After that, it's pure savings. Compared to gas, the running cost difference is smaller ($50–$150/year) so the payback on heat pump vs gas is more like 8–15 years — marginal in many cases.
Heat pump makes sense when…
- You're replacing an electric storage system (payback 3–5 yrs)
- You have solar panels (run the heat pump in the day on free solar)
- You qualify for STC rebates ($300–$700 off)
- No existing gas connection (avoids ongoing gas supply charge)
- You care about reducing emissions
Gas makes sense when…
- You already have a gas connection (supply charge is sunk cost)
- Budget is tight — gas upfront is $1,000–$2,200 less
- Outdoor space for heat pump is limited
- You're in a unit/apartment with restrictions
- Payback period for heat pump exceeds 10 years in your situation
Frequently asked questions
Is a heat pump or gas hot water system cheaper to run?
Heat pumps and gas continuous flow have similar running costs in Australia ($300–$600/year depending on household size and energy tariffs). The gap widens if you have solar panels — a heat pump running on solar power can cost under $100/year to run.
How long does a heat pump pay itself back vs gas?
Versus gas: typically 8–15 years depending on energy tariffs and household usage. Versus electric storage: 3–6 years after rebates. If you have solar panels, the payback vs gas can be as short as 3–5 years.
Are there rebates available for heat pump hot water systems in Australia?
Yes — federal STC rebates apply ($300–$700 depending on location and system size) and are typically applied upfront by the installer. Some states have additional rebates: Victoria's Solar Victoria program, NSW Energy Saving Scheme, and SA retailer incentives.
Is gas hot water being phased out in Australia?
Some states are moving toward phasing out new gas connections in homes. Victoria announced restrictions on new gas connections in new homes from 2024. Other states are considering similar policies. If you're building or renovating and considering gas, check current regulations in your state as this is rapidly evolving.