Last year 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, SA and NSW, the ability to ‘double-dip’ into 2 rebate schemes to reduce the costs.
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.
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.
Government Rebates for heat pump hot water systems
If you’re looking for a heat pump hot water system in Victoria or in NSW 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 2025 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
NSW, SE QLD, SA, ACT, Perth
STC Zone 4
Victoria, South SA, South WA
STC Zone 5
Regional NSW, South VIC, TAS
iStore PASHW008-180LD-NM-R290 (180 Litre)
$504
$504
$576
$612
$612
Sanden GAUS-315FQS (315 Litre)
$540
$540
$684
$720
$684
Reclaim Energy REHP-CO2-250SST (250 Litre)
$504
$504
$648
$684
$684
You can calculate the number of STCs for all registered models for your exact postcode via the REC calculator.
NSW Heat Pump Hot Water Rebate: Home Energy Efficiency Retrofits (HEER)
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 Type
Approx. number of ESCs created
Estimated Rebate Value
Replacing an electric hot water system with a 200L heat pump
24
$240
Replacing a gas hot water system with a high efficiency heat pump
11
$110
Estimated Rebates for Hot Water System Upgrades under the HEER Program
The NSW HEER Scheme requires the homeowners make a minimum contribution of $200 plus GST.
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.
To read more about this Solar Victoria rebate and other rebates that you might be able to access in Victoria read our full Victoria Heat Pump Rebate guide.
Victorian Energy Upgrades – VEECs
For eligible customers, this rebate can be claimed in addition to the Solar Victoria and STC rebates mentioned above.
Victorian Energy Efficiency Certificates (VEECs) can be created when a less efficient hot water system is upgraded to a heat pump hot water system. The amount of certificates that are create depend on a variety of factors as set out by the Energy Services Commission.
To give you an overview of what might be available see below table:
Old Hot Water System
Upgrading To
Estimated VEEC rebate value
Electric Instantaneous or Electric Storage
Heat Pump Hot Water System
$790
Gas Instantaneous or Gas Storage
Heat Pump Hot Water System
$447
Please note that your actual rebate may vary depending on the specific make, model and age of your existing hot water system and the new heat pump hot water system you have installed.
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, based on the Solar Choice Heat Pump Price Index, we know that the average cost of a heat pump hot water upgrade (including a basic installation) is $4,324 after the STCs have been deducted. This ignores any state rebates which might be available to you.
Lets breakdown the costs of a heat pump installation.
Hardware Costs
A mid-range quality heat pump under 200 litres in capacity are commonly priced at around $2,000. For more well-known brands and larger tank sizes – 250L to 300L – you can expect the cost to be closer to $2,500 to $3,500. Some top of the range systems like Reclaim Energy and Sanden will set you back $5,000 to $6,000 or more for the hardware alone.
Installation costs
Installing a heat pump hot water system often requires two different trades – an electrician and a plumber. If you are upgrading from an existing electric hot water system with a re-useable 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 scenario will result in the cheapest install costs which could be as low as $600 – $800.
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 $1,000 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 installer is responsible for delivering the heat pump to desired location and disposing of your old system and the installation costs factor this in.
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 Heat Pump Hot Water Systems
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?
Through the average prices we track across many hot water installers across Australia we know the average price to install a hot water heat pump is around $4,000 for a mid-range system with a basic installation. This includes the STC rebate, but excludes any state rebates. If the price if you have been quoted is much lower than this, there is a good chance they are cutting corners on the quality of the heat pump or the install methods.
Solar Choice has pre-vetted a network of heat pump installation companies and we vet each company to ensure they are using good quality products and install practices.
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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.
We have run some common scenarios through the Solar Choice heat pump hot water savings calculator which are displayed in the tables below. We encourage you to use this free tool to calculate your own potential savings.
We can see that a home in NSW could save between $800 and $2,200 per year on their energy bills depending on their current hot water system and their energy rates. With the same conditions, a home in Victoria could save between $800 and $1,600 on their energy bills.
The upgrade could also prevent up to 17,675 kg of carbon emissions over the next 10 years.
Heat Pump Savings Scenarios in NSW
Hot Water Usage
Existing System
Energy Rate
Annual Savings
Payback Period
150L per day
Gas Storage
$0.052 per MJ
$1,054
3.6 Years
150L per day
Electric Storage
$0.35 per kWh
$813
4.4 Years
300L per day
Gas Storage
$0.052 per MJ
$2,108
1.8 Years
300L per day
Electric Storage
$0.35 per kWh
$1,627
2.2 Years
Assumptions – Assumes household has solar installed with a feed in tariff of $0.03 per kWh – Assumes heat pump installation cost of $3,600 for electric upgrade and $3,800 for gas upgrade after STC rebate and NSW rebate deducted – Assumes there is still life left in existing hot water system – More assumptions in savings calculation outlined in our Heat pump savings calculator
Heat Pump Savings Scenarios in Victoria
Hot Water Usage
Existing System
Energy Rate
Annual Savings
Payback Period
150L per day
Gas Storage
$0.041 per MJ
$817
3.2 Years
150L per day
Electric Storage
$0.35 per kWh
$813
2.8 Years
300L per day
Gas Storage
$0.041 per MJ
$1,635
1.6 Years
300L per day
Electric Storage
$0.35 per kWh
$1,627
1.4 Years
Assumptions – Assumes household has solar installed with a feed in tariff of $0.03 per kWh – Assumes heat pump installation cost of $2,280 for electric upgrade and $2,600 for gas upgrade after STC rebate and Solar Victoria and VEECs rebate deducted – Assumes there is still life left in existing hot water system – More assumptions in savings calculation outlined in our Heat pump savings calculator
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)
You can see our full list of hot water heat pump reviews here or check out our review of the best heat pumps in Australia compared.
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Compare Heat Pump Hot Water Systems in Australia:
This chart represents Solar Choice’s score for Australia’s heat pumps, based on factors such as price, efficiency (Coefficient of Performance or COP), warranty, customer reviews, and functionality. For more details on how the scores were calculated and their limitations, see more in our Best Heat Pumps in Australia Compared article.
Jeff has consulted on over 20MW of commercial solar projects, ranging from SMEs to ASX top 100 companies. Jeff has also provided independent advice to 100s of residential solar, battery and EV charging customers across every state in Australia. He holds an MBA from the Australian Graduate School of Management and is an expert in business strategy and financial analysis.
