If your hot water system is unreliable, expensive to run, or nearing the end of its lifespan, it’s likely time to replace it. This guide explains how to change your hot water system in Australia, including what it costs, how long installation takes, and which type—electric, gas, solar or heat pump—best suits your home.
What You’ll Learn
- Signs you need to replace your hot water system
- Types of Hot Water Systems in Australia
- Questions to Ask Before Replacing Your Hot Water System
- Emissions & Efficiency Comparison
- What Size Hot Water System Do I Need?
- How Much Does a Hot Water System Cost to Run?
- What Is the Cost to Install a Hot Water System?
- Available Rebates & Incentives
- Step-by-Step Guide to Replacing a Hot Water System in Australia
Signs you need to replace your hot water system
- Visible rust on the tank and fittings.
- Persistent rust coloured water coming from the hot taps.
- Pools of water or damp spots on the floor around the base.
- Sudden changes in water temperature.
- Repeated minor pipe leaks or leaks from fittings.
- Odd noises, banging sounds or popping noises (which come from the sediment build up in the tank).
- Severe sediment build-up which requires a flush or replaced element.
- Issues with pressure changes, lower pressure.
- Running out of hot water much faster than before.
- An unexpected rise in your electricity bill, often due to costing more to run.
- A leaking pressure relief valve, faulty thermostat, or heating element.
- Multiple call outs in a year.
Most hot water systems last 8–12 years. Replacing early gives you time to choose the right model, avoid emergency call-outs, and reduce long-term energy costs.
Quick Tips:
If repairs cost more than half the price of a new system, replace it. A leaking tank always means replacement. And if your system is near or past its lifespan, replacement is usually the smarter, more cost-effective choice.
Types of Hot Water Systems in Australia
There are four main types of hot water systems available in Australia (Electric, Gas, Solar, Heat Pump), each using a different energy source and offering varying levels of efficiency, cost, and suitability for different households.
1. Electric Hot Water Systems
- Use an electric element to heat water in a tank or on demand.
- Types:
- Heats and stores water in an insulated tank.
- Instantaneous (continuous flow): Heats water only when needed, no tank.
2. Gas Hot Water Systems
- Use natural gas or LPG to heat water.
- Types:
- Tank holds hot water, heated by a gas burner.
- Heats water instantaneously as it flows through the unit.
3. Solar Hot Water Systems
- Roof-mounted solar collectors absorb heat from the sun, transferring it to a storage tank. Often has an electric or gas booster for cloudy days.
4. Heat Pump Hot Water Systems
- Use a small amount of electricity to extract heat from the air and transfer it to the water (like a reverse fridge). See our review of the best heat pumps compared.
| System Type | How It Works | Common System Types | Installed Price Range* | Notes |
| Electric | Uses an electric element to heat water, either stored in a tank or on demand | Storage (tank), Instantaneous (no tank) | $600 – $2,200 | Low upfront cost. High running costs on standard tariffs. Off-peak tariffs can reduce energy use. |
| Gas | Burns natural gas or LPG to heat water in a tank or as it flows through | Storage (tank), Continuous flow | $1,200 – $3,500 | Lower running costs than electric. Requires gas supply. Continuous flow models provide hot water on demand. |
| Solar | Solar collectors heat water stored in a tank; booster used on cloudy days | Roof-mounted or split system | $4,000 – $8,000 | Very low running costs. High upfront cost. Works best with good roof space and sun exposure. Eligible for STCs. |
| Heat Pump | Uses ambient air and a compressor to heat water stored in a tank | Integrated tank system | $3,000 – $6,500 | Highly efficient. Works best in warmer climates. Can be noisy. Rebates available under STCs. |
Questions to Ask Before Replacing Your Hot Water System
Before replacing your hot water system, consider what matters most to your household: upfront cost, energy efficiency, running costs, or environmental impact.
Ask Yourself:
- Do I want the lowest upfront cost or the lowest long-term cost?
- Electric systems are typically the cheapest to install but have the highest running costs—especially on standard electricity rates.
- Gas systems offer a balance, with moderate install costs and lower running costs than electric however.
- Solar and heat pump systems cost more upfront but can cut energy bills by 60–75%, paying for themselves over time.
- When does my household use the most hot water?
- A household of 1–2 people may only need a small tank or instantaneous system.
- Larger households (3–5+) benefit from larger storage tanks or continuous flow systems.
- If everyone showers in the morning, look for systems with fast recovery or on-demand heating.
- Do I have off-peak electricity available?
- Off-peak electricity is a discounted rate available during low-demand hours (usually 10pm–7am).
- If your home has an off-peak meter, an electric storage system can heat water overnight for less.
- How important is energy efficiency or star rating?
- Electric systems (on the coal-powered grid) have the highest emissions and lowest efficiency.
- Gas systems produce fewer emissions but are still fossil fuel-based.
- Solar and heat pump systems offer the lowest environmental impact—especially when combined with rooftop solar PV.
- Does environmental impact matter to me?
- Electric systems (on a fossil fuel grid) have the highest emissions.
- Gas systems emit less but are still fossil fuel-based.
- Solar and heat pump systems have the lowest environmental impact, especially when paired with rooftop solar PV.
- What rebates or incentives are available?
- Check for Small-scale Technology Certificates (STCs) and state-specific rebates for solar and heat pump systems.
- These incentives can reduce your upfront cost by $800–$1,800+, depending on your location and system type.
Quick Tip:
Rebates, tariffs, and installation requirements can vary by state. Always check with a licensed installer to confirm eligibility and ensure compliance with Australian Standards.
Emissions & Efficiency Comparison
| System Type | Emissions Level | Notes |
| Electric (grid-powered) | ❌ Highest | Uses coal-powered electricity; highest running costs |
| Gas (natural/LPG) | ⚠️ Moderate | Lower emissions than electric, but still fossil fuel-based |
| Solar Hot Water | ✅ Very Low | Uses free energy from the sun; booster (electric or gas) used only when needed |
| Heat Pump Hot Water | ✅ Low | Extracts heat from air; uses less electricity than standard systems especially when paired with solar systems; some do offer booster element. |
What Size Hot Water System Do I Need?
Choosing the right tank size is essential to avoid running out of hot water—or overspending on energy for a system that’s too large. The ideal system size depends on how many people live in your home and when hot water is used (e.g. morning vs evening showers).
Hot Water System Sizing Guide
| Household Size | Recommended Tank Size | System Type Suggestions |
| 1–2 people | 80–160 litres | Small storage tank or instantaneous system |
| 3–4 people | 250–315 litres | Medium storage tank or gas continuous flow |
| 5+ people | 400 litres or more | Large storage tank or continuous flow system |
How Much Does a Hot Water System Cost to Run?
The cost to run your hot water system each year depends on the energy source, household usage, and system efficiency. Here’s what Australian homeowners typically pay:
Estimated Annual Running Costs
| System Type | Average Yearly Cost* | Energy Efficiency |
| Electric | $1,400+ | ❌ Least efficient; highest ongoing cost |
| Gas | $700 – $1,000 | ⚠️ More efficient than electric |
| Solar + booster | $500 – $700 | ✅ Uses free solar energy, very efficient |
| Heat pump | $500 – $700 | ✅ Highly efficient, uses ambient air & able to use solar PV |
*Based on a 3–4 person household. Costs vary by usage, location, and tariffs.
What Is the Cost to Install a Hot Water System?
Below is a comparison of average installed costs, including the unit, labour, and basic fittings:
Hot Water System Installation Costs (2025 Estimates)
| System Type | Total Installed Cost |
| Electric storage | $600 – $2,200 |
| Gas (storage or flow) | $1,200 – $3,500 |
| Heat pump | $3,000 – $6,500 (before rebates) |
| Solar hot water | $4,000 – $8,000 (includes booster) |
Installation costs can vary depending on your location, system size, access to gas, and whether upgrades are needed.
Data sourced from Sustainability Victoria’s Hot Water Running Costs 2020 and compares running costs of a 5.5-star gas storage system, 7-star gas instantaneous system, electric storage off-peak system, high-efficiency solar gas boosted system, high-efficiency solar electric boosted system, and high-efficiency hot water heat pump on off-peak tariff.
Available Rebates & Incentives
Both solar and heat pump systems are eligible for:
- STCs (Small-scale Technology Certificates)
- State-based rebates or interest-free loans
These can reduce your total cost by $800–$1,800+, depending on system size and postcode.
There are 2 government rebates available to upgrade hot water system to an energy-efficient heat pump hot water system.
New South Wales (NSW)
There is the federal government’s Small-Scall Technology Certificates (STCs) see above, and the NSW Government’s Energy Savings Scheme.
- Offers upfront discounts (not fixed rebates) applied in your installation quote.
If you’re eligible, discounts can range between:
- $400 and $670 when you replace an electric water heater with an air source heat pump water heater
- $190 and $310 when you replace a gas water heater with an air source heat pump water heater.
- from August 2025, a 5-year minimum product warranty requirement for heat pump hot water systems installed with NSW Climate and Energy Action discount incentive.
Victoria (VIC)
Victorian Energy Upgrades (VEU):
- Up to A$1,000 for eligible heat pump or solar hot water systems.
- Up to A$1,400 if choosing an eligible locally-made product (≥50% Australian-made parts)
Victorian Energy Efficiency Certificates (VEECs) for replacing inefficient electric or gas hot water systems, can save an extra A$300–1,000.
Australian Capital Territory (ACT)
If on an ActewAGL plan, eligible homes may receive:
- $750 off the purchase price under the Energy-efficient Electric Water Heater Upgrade.
- $2,500 Sustainable Home Upgrade rebate for pension or concession card holders.
South Australia (Adelaide – City of Adelaide Council)
- Up to 50% off, capped at A$1,000, for heat pump hot water installations within Adelaide’s municipal area.
Other Regions
- Queensland: No current rebates.
- Tasmania: No direct rebates.
- Northern Territory and Western Australia: No state-level rebates.
Step-by-Step Guide to Replacing a Hot Water System in Australia
Replacing a hot water system involves more than swapping out the unit. From disconnecting your old system to installing a new one with proper certifications, here’s exactly what to expect—costs, timelines, and safety requirements included.
Step 1: Removal of the Old System
- Get quotes for removal, installation, and compliance certificates upfront.
A licensed plumber will inspect the existing system (age, size, condition, energy source). - The system is safely drained and disconnected from the water supply.
- A licensed electrician or gas fitter will disconnect power or gas connections.
- Old systems are usually disposed of professionally ($100–$300).
Step 2: Site Preparation & Upgrades
- Ensure proper clearance and access for the new unit.
- Prepare the site: a concrete slab, wall brackets, or weather shielding may be required.
- Upgrade fittings as needed:
- Valves, pressure regulators, tempering valve
- Pipework, switchboard, or gas line (if switching fuel types)
If changing system types (e.g. electric to solar), additional upgrades may be needed.
Step 3: Installation of the New System
- The unit is positioned in a suitable location:
- Outdoors for gas systems (for ventilation/flueing)
- Sunny area for solar collectors
- Well-ventilated space for heat pumps
- Plumbing is connected:
- Inlet and outlet pipes
- Tempering valve (required by Australian law to deliver hot water at a safe 50°C)
- Exposed pipes are insulated for efficiency
Step 4: Energy Source Connection
- Electric system: Wired to your switchboard, often set to off-peak tariffs if available. Includes earthing and safety checks.
- Gas system: Connected to mains gas or LPG; indoor units require a flue.
- Solar hot water: Panels installed on roof; storage tank and booster wired. May include a timer or controller for solar sync.
- Heat pump: Installed like an outdoor air conditioning unit; wired to the switchboard.
Step 5: Testing, Certification & Handover
- The tank is filled, air flushed, and connections checked for leaks.
- System is tested for:
- Heating performance
- Thermostat or compressor function
- Valve and safety device operation
Installer provides: - Plumbing and electrical compliance certificates (legally required in Australia)
- Warranty paperwork
- Instructions on operation and basic maintenance
- The old unit is removed from the site for disposal or recycling.
Time & Cost Overview
| Task | Typical Range |
| Time to replace | 2–6 hours (longer if changing system type) |
| System removal | $100 – $300 |
| Installation labour | $1,000 – $1,400 |
| System unit | $600 – $8,000 |
| Compliance & permits | Often included; sometimes $50–$200 |
Tip: Always use a licensed plumber and/or gas fitter. This ensures your system is legally compliant, covered by warranty, and safe for your household.
- How to Change Your Hot Water System in Australia (2025) - 28 August, 2025
