Heat Pump Hot Water Systems – A Complete Buyers Guide

In 2023 the number of heat pump hot water systems installed in Australia increased by 70%. The rise of this technology has been linked with improvements in performance, the ability to link heat pumps to solar systems and in some states, like VIC and NSW, the ability to ‘double-dip’ into 2 rebate schemes to reduce the costs.

What is a heat pump hot water system?

Air source heat pump hot water systems work by extracting heat from the surrounding air. These systems consist of 2 parts – the compressor and the water tank. The compressor contains a fan that draws in air, and a refrigerant absorbs the heat from the air. The refrigerant then undergoes a compression process, raising its temperature even further. The heated refrigerant is then circulated past a water line from the water tank and the heat is transferred. As a result, the water temperature increases, providing hot water for various household needs.

One of the key advantages of air source heat pump hot water systems is their energy efficiency. They typically require 3 to 4 times less energy than a traditional element-based water tank. Additionally, these systems can work in a range of climates, although they may be more efficient in milder temperatures. Overall, air source heat pump hot water systems contribute to reducing carbon emissions and lowering energy bills while providing a reliable source of hot water for residential use.

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Integrated vs split heat pump hot water systems

An integrated heat pump hot water system has the compressor and water tank together in one tower. Typically the compressor is located above the water tank as shown in the example to the right.
One advantage of the integrated system is that is requires less space and ground footprint than a split system.
It is also requires less time and is cheaper to install these units.
Integrated heat pump hot water system
With a split heat pump hot water system, the compressor is a separate device that would need to be wall mounted or ground-mounted beside the water tank.
As split systems don’t need to be compacted in their design to fit on top of a cylindrical water tank, the larger units can often be more efficient and reach higher temperatures.
The split system also enables you to install the compressor and tank in different places which can allow some flexibility (i.e compressor outdoors and water tank inside). The water tank for split systems can also require less clearance from the wall.
Splits systems usually cost a little more to  install as you are mounting and connecting two pieces of hardware and you may require a concrete slab for the compressor to sit on.
Split heat pump hot water system

Rebates for heat pump hot water systems

In NSW and Victoria there are both state and federal rebate schemes a heat pump hot water system will be eligible for. In other states it is just the federal STC rebate scheme.

Federal STC Rebate

The small-scale technology certificates (STCs) are part of the government’s incentives to reduce carbon emissions which includes hot water and solar panels. The STCs are created based on the estimated reduction in power usage from the new more efficient system.

The number of STCs you will get depends on your location (which STC Zone) and which Brand/Model of Heat Pump you have installed. Each STC can be sold for around $36. The below table gives you an estimate of the rebate per STC Zone for some popular Heat Pump models if they were installed in 2024 with a certificate price of $36.


STC Zone 1

NT, North QLD, North WA

STC Zone 2

NT, Mid QLD, North WA

STC Zone 3


STC Zone 4

Victoria, South SA, South WA

STC Zone 5

Regional NSW, South VIC, TAS

iStore    PASHW015-270LD-FL02 (270 Litre) $612 $612 $756 $792 $792
Enviroheat 200EH1-14 (200 Litre) $576 $576 $720 $756 $756
Reclaim Energy REHP-CO2-250SST (250 Litre) $612 $576 $756 $792 $792

You can calculate the number of STCs for all registered models for your exact postcode via the REC calculator.

NSW Home Energy Efficiency Retrofits (HEER) Rebate

The NSW HEER rebate offers an incentive to homeowners looking to upgrade water heating or lighting to a more efficient solution.

The rebate program covers a broad range of energy efficient upgrades from upgrading air conditioning, insulation to water heating. The size of the rebate is determined by a complex calculation in the legislation which is designed to measure the amount of energy saved.

For upgrading to water heating system to a heat pump, the size of the rebate will depend on if you are upgrading from an existing gas water heater or an electric water heater. In practice, the upgrade will create a quantity of Energy Saving Certificates (ESCs) which can be sold to provide a rebate.

As a rough guide see the below numbers, although this will vary depending on the model of heater you are changing from and to.

Upgrade TypeApprox. number of ESCs createdEstimated Rebate Value
Replacing an electric hot water system with a 200L heat pump40$970
Replacing a gas hot water system with a high efficiency heat pump20$485

The NSW HEER Scheme requires the homeowners make a minimum contribution of $30 plus GST.

See our full guide on the NSW heat pump rebate.

Solar Victoria – Hot Water Rebate

Victoria’s hot water rebate is managed through Solar Victoria and offers a contribution of $1,000 for eligible customers.

Key Eligibility Criteria:

  • Household income of less than $210,000 per year
  • Property value under $3 million
  • Property address has not received a hot water rebate OR a solar battery rebate previously
  • Hot water system to be replaced is at least 3 years old

Your heat pump hot water installer will help you apply for the rebate and will confirm eligibility as part of the quoting process.

How much does a heat pump hot water system cost?

There are a few factors to consider when estimating the cost of upgrading your hot water system. However, for most households, a typical cost of upgrading to a good quality heat pump, installed by a reputable company would typically cost between $4,000 to $6,000 before any rebates are applied.

Cost of the heat pump hot water products

A mid-range quality 150L heat pumps are commonly priced at $2,000. If the price you are being quoted is less than this, we highly recommend doing proper research on the brand and model you are buying.

For more well-known brands and larger tank sizes – 250L to 300L – you can expect the cost to be closer to $3,000 to $4,000. Some top of the range systems will set you back $6,000 or more for the hardware alone.

Installation costs

Installing a heat pump hot water system requires two different trades – an electrician and a plumber. If you are upgrading from an existing electric hot water system with a reuseable electrical circuit, then it is possible that some plumbers may be able to complete the water and electrical connections with a restricted electrical licence. This will result in the cheapest install costs which could be as low as $400 – $600.

If you are converting from a gas hot water system, then you will require a new electrical circuit to be drawn from your switchboard and you will need a licenced plumber and a licenced electrician. Often companies will offer a fixed installation cost including both, but will usually be sub-contracting the trade they don’t do. In this scenario you can expect the installation costs to start at $1,200 to $1,400.

The following items may mean that your installation is more difficult and will increase the cost:

  • Heat pump to be installed in new location requiring new water lines to be run
  • Switchboard a long way (more than 10 metres) from your water heater location
  • Difficult to access site requiring specialised lifting equipment

The installation company will request photos of your existing water heater, access to the site and your electrical switchboard so they can assess this a provide you with a fixed price.

Beware of cheap offers or ‘free upgrades’ in Victoria and New South Wales

As a rebate driven industry, there are many companies looking to take advantage of the heat pump rebates and have found ways to complete an upgrade for next to nothing. The questions you need to ask are how long will this last, and will this cost me more in the long run?

The collective value of both rebates in these states typically amount to $1,500 to $2,000. Based on the information provided above, companies need to sacrifice quality of product and use cheap labour options to get to a very cheap price.

Solar Choice has pre-vetted a network of heat pump installation companies to ensure they are using good quality products and install practices. Follow the link below to compare quotes.

Common problems experienced with cheap heat pump hot water systems

Cheaper heat pumps tend to have worse outcomes when considering the below aspects

  • Efficiency – cheaper heat pumps generally require more energy to heat water which over time will cost you more to operate
  • Noise Levels – one big thing you will find when looking through customer reviews of heat pumps is that the noise created by heat pumps can be significant. Take particular attention of this if you install location is close to an entertaining or often used area. The noise level on mainstream brands ranges from 35db (similar to refrigerator hum) to 55db (similar to electric kettle).
  • Warranty –The larger well-known brands have support teams to help respond promptly to issues experienced by customers. The cheaper options typically have shorter warranty periods with more stipulations in the document to void the warranty, and customers often report greater difficulties in getting a resolution
  • Longevity – Buying a better quality system ensures you have a longer lifetime. With the NSW and Victorian rebate schemes you only have one opportunity to access the upgrade rebate so if you have to replace your heat pump after a few years, it might be a more expensive process.

If you suspect that you have a quote that is too good to be true, then we recommend checking the companies trading history on ABN Lookup, searching for reviews of the company installing, searching for reviews of the heat pump hot water system they plan to install and ask to speak to one of their previous customers in your area.

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How much money will a heat pump hot water system save?

So the key questions are how much can I save and is it worth it? In my experience, a lot of the heat pump installers aren’t the best at accurately estimating the savings you will make. They also have an incentive or be a bit optimistic about the potential of the system.

Based on our calculations an average 3 person home could save $372 to $515 per year by switching from a gas storage water heater to a high efficiency heat pump, and $537 to $680 per year by upgrading an electric storage water heater.

The upgrade could also prevent up to 13,700 kg of carbon emissions over the next 10 years.

We have set out some calculations below based on a scenario of a household using 120 litres of hot water per day. This is typical of a household with 3 people. We have clearly set out the inputs and assumptions so you can tailor your own calculations to suit your own circumstances.

Electricity and gas cost saving by installing heat pump hot water system

Our Assumptions:

  • Natural gas usage of 0.4MJ per litre and electricity usage of 0.66kWh per litre is estimated based on a 4 energy star rated devices in Melbourne. Warmer climates would use less energy
  • Greenhouse gas emissions estimated using the following co-efficients – 0.473kg CO2-e per kWh for electricity and 0.05553kg CO2-e per MJ for natural gas
  • “Heat Pump with Solar Installed” scenario assumes the home has an existing solar system with sufficient surplus power to cover the small energy requirements of the heat pump. It assumes the feed in tariff the owner would have otherwise received is 6c per kWh.

Pros and cons of heat pump hot water systems

Pros Cons
  • Highly energy efficient saving money and reducing carbon emissions
  • There are currently state and federal rebates available to help with the upfront cost of a Heat Pump system
  • Installation is usually straightforward requiring 2-3 hours  
  • Heat pump hot water systems have a higher upfront cost than traditional gas or electric hot water systems
  • Require a well-ventilated area for installation (usually outdoors)
  • Compressor can be noisy (typically around 35db to 55db)
Jeff Sykes