Heat Pump Hot Water Running Costs (2025 Guide)

If you ask most Aussies what part of their home uses the most electricity, they’ll probably say the air conditioner or the fridge.

But the real power-hungry culprit is something we rarely think about: hot water.

Every shower, laundry cycle, and dishwashing load adds up fast. According to energy.gov.au, hot water systems account for up to 25% of household energy use. That’s a quarter of your electricity bill just to stay clean.

For decades, most homes have relied on traditional electric or gas water heaters. They’ve done the job, sure, but they quietly chew through power 24/7. The result? Hundreds of dollars are lost every year.

But in 2025, there’s a better option: the heat pump hot water system.

Across Australia, from Perth to Parramatta, homeowners are making the switch. Why? Because a heat pump can cut water heating costs by up to 70%, all while reducing emissions.

Let’s break down what that really means for your wallet.

Why Heat Pumps Are Changing the Game

A heat pump doesn’t create heat like electric or gas heaters do, it moves it. It works almost like an air conditioner in reverse, pulling warmth from the surrounding air and transferring it into your water tank. Even on a cold morning, there’s enough heat in the air for the system to capture and amplify.

Because it does not burn electricity or gas to produce heat, it uses much less energy.

Most systems can produce three to four times more heat energy than the electricity they consume. That’s why switching to a heat pump can reduce your energy use for water heating by 60–75%.

If you’re spending around $1,200 a year on hot water now, that could drop to $300 or less with a heat pump. That’s a saving of almost $900 a year, and that’s before you add solar power into the mix.

What are the Upfront Costs?

Let’s be upfront: A heat pump costs more to buy and install than a basic electric heater.

A good quality 250-litre system in Australia typically costs between $2,500 and $4,000, installed.

By comparison:

A regular electric system costs around $1,200–$1,800.

A gas storage heater costs $1,500–$2,000.

But here’s where it gets interesting. Australia’s federal and state governments offer rebates that bring the cost down significantly.

Under the Small-scale Renewable Energy Scheme (SRES). Homeowners can claim Small-scale Technology Certificates (STCs) worth $600–$1,000, depending on location and model.

Then, some states offer even more help:

Victoria: The Solar Homes Program offers up to $1,000 extra.

New South Wales: The Energy Savings Scheme (ESS) provides discounts through approved suppliers.

Queensland and South Australia: Have regional incentives and trade-in offers.

After rebates, most Australians end up paying around $1,800–$2,500 net for a new heat pump. That’s close to what you’d pay to replace an old electric heater, but the savings that follow are on another level.

What Are the Running Costs?

The biggest reason heat pumps are taking off is their running cost. Once installed, the difference is immediate.

A standard electric water heater uses about 3,500–4,000 kilowatt-hours (kWh) of electricity every year. At an average power rate of $0.30 per kWh, that’s around $1,200 annually.

A heat pump only needs about 800–1,200 kWh per year, costing $240–$360 annually.

That’s a saving of $800–$900 each year without changing how you use hot water.

And if your home already has rooftop solar, you can set your heat pump to run during the day when solar power is free. Even without solar, the system pays for itself in 3–5 years, and then keeps saving you money for a decade or more.

Running costs and ROI graphs for types of heaters 

The total cost is calculated as: Upfront Cost + (Annual Energy Cost $\times$ 10 years) + (Annual Maintenance Cost $\times$ 10 years).

Water Heater System 10-Year Cost Breakdown

The table below details the cost breakdown for each water heater system over 10 years.

The data clearly illustrates that:

• Conventional Electric (Tank) has the highest total cost in both periods due to high annual energy consumption.
• Conventional Gas (Tank) has a very competitive total cost because of its relatively low upfront cost and moderate annual energy cost.
• The Heat Pump (Hybrid) system, despite the highest upfront cost, demonstrates a significant advantage in energy savings, leading to a much lower 10-year total cost than the Tankless Gas system.

Note: These figures are based on mid-range estimates and can vary significantly based on regional energy prices, installation complexity, unit size, and specific usage habits. For example, the Heat Pump’s energy cost savings are substantial, but its higher upfront cost is factored in.

Key Takeaways

How to Estimate Your Water Heater Running Cost

To figure out what your water heating really costs, you only need three quick steps.

Follow this simple method; it works for any heat pump or electric system.

Step 1: Find Your Household’s Hot Water Use

Most Australians use about 50–60 litres of hot water per person per day.

Multiply that by the number of people in your household.

Example: A family of four uses roughly 220 litres per day.

Step 2: Calculate the Energy Needed

Heating one litre of water by 45°C (for example, from 15°C to 60°C) requires 0.052 kWh of energy.

So:

220 litres × 0.052 = 11.4 kWh per day of heat energy needed.

Over a year:

11.4 × 365 = 4,161 kWh of heat.

Step 3: Apply Your Heat Pump’s Efficiency

A good heat pump has a Coefficient of Performance (COP) of about 3.5, meaning it uses one unit of electricity to produce 3.5 units of heat.

So:

4,161 ÷ 3.5 = 1,189 kWh per year of actual electricity use.

At an average rate of $0.30 per kWh:

1,189 × $0.30 = $357 per year.

Maintenance and Durability

One more thing people often forget; maintenance. Gas and solar systems need more frequent servicing to stay efficient.

Gas units have burners and valves that wear down. Solar hot water systems need their pumps, pipes, and roof panels checked regularly. Those visits cost time and money.

A heat pump, on the other hand, is low-maintenance. You just keep the area around it clear, clean the air filter once or twice a year, and get a basic service check every few years.

That’s it.

And because modern brands like Rheem Ambiheat, Reclaim Energy, and Stiebel Eltron are built for Australian conditions, most come with 5–10-year warranties. So you’re covered for the long haul.

Other Costs Permit & Inspection Fees

Some councils or states require permits for major plumbing or electrical work.

These can cost $100–$250, depending on your location and the type of system installed. Plumbers or electricians usually handle the paperwork, but you’ll still pay for it in your invoice.

Venting or Flue Upgrades

If you’re replacing a gas system, you may need a new flue or vent to meet current safety standards.

This typically adds $150–$400, especially for older homes where vents are outdated or rusted. Switching from gas to electric or heat pump? The old vent may need to be sealed off safely.

Gas Line Extensions or Removal

Changing your system type can also affect your gas line.

If your new heater is electric or solar, you may choose to cap or remove the gas line, costing $200–$600. If you’re installing a new gas unit, you might need a line extension, which can cost $300–$800, depending on distance and access.

Electrical Upgrades

Heat pumps and solar hot water systems often need dedicated circuits or upgraded wiring.  If your switchboard is old, an electrician may need to install a new circuit breaker or cable run. 

Expect an extra $250–$600. Homes with solar systems may need smart controls or timers added to optimise performance.

Asbestos Removal

Older homes (built before the 1990s) can have asbestos behind the water heater or in the flue.

If found, only a licensed remover can handle it, adding $500–$1,000 depending on the area. It’s rare, but it’s a safety must-do.

Roof Structure or Mounting Issues (Solar Systems Only)

For solar hot water systems, your roof must be strong enough to handle heavy storage tanks and collectors.

If not, you may need reinforcement work or mounting frames, which can cost $300–$1,200. Homes with flat roofs might also need tilt frames to position panels for better sunlight.

Environmental Costs and Long-Term Value

The cost story doesn’t stop with your power bill. Switching to a heat pump also cuts your household emissions dramatically.

According to YourHome.gov.au, replacing an electric water heater with a heat pump can reduce annual carbon emissions by up to three tonnes of CO₂. That’s like taking a small car off the road every year.

And as Australia continues shifting toward renewable energy, the electricity that powers your heat pump will become even cleaner.

So not only are you saving money, but you’re also helping reduce the national energy load and contributing to a greener grid.

Top Factors Affecting Heat Pump Running Costs

When it comes to heat pump water heaters, the running cost isn’t fixed.

It varies depending on where you live, your energy source, and how well your system is installed. Below are the top factors that make the biggest difference to your electricity bill and overall efficiency.

Climate & Temperature

Heat pump efficiency depends heavily on your local climate. In warmer regions like Queensland, Northern Territory, and Western Australia, annual energy use averages 500–700 kWh, translating to roughly $150–$230 per year.

Mild climates such as New South Wales or South Australia consume 700–900 kWh/year (about $200–$300), while cooler regions like Victoria or Tasmania require 900–1,200 kWh/year, or $270–$400 annually.

Even at the higher end, heat pumps remain far cheaper to operate than gas or traditional electric systems.

Electricity Tariff & Solar Power

The cost of electricity in your area directly affects your heat pump’s running expenses. Homes on higher electricity tariffs will spend more, but pairing a heat pump with solar PV panels can drastically reduce costs. 

Many homeowners save up to 60% on water heating bills when using solar-generated electricity. The more power you draw from your panels instead of the grid, the lower your ongoing costs.

Installation & Placement

Installation quality and system placement influence performance and energy use. Positioning the outdoor unit in a well-ventilated, sunlit area helps it operate efficiently, while shaded or enclosed spots can increase consumption by 10–20%. 

A professional installer ensures proper insulation, airflow, and plumbing setup, reducing heat loss and maximising savings long-term.

Upfront Costs & Rebates

While heat pumps cost more upfront:

Typically $2,500–$4,000 installed, rebates and government incentives offset much of that. The Small-scale Renewable Energy Scheme (SRES) can provide $800–$1,200 in savings, reducing the payback period to under five years.

With running costs as low as $150–$300 per year, they quickly become one of the most cost-efficient water heating options in Australia.

When a Heat Pump Makes the Most Financial Sense

A heat pump is a no-brainer if:

• You’re replacing an old electric system.
• You already have rooftop solar.
• You use a lot of hot water daily (large family or frequent laundry).
• You plan to stay in your home for at least five years.

If you tick two or more of these boxes, the payback period becomes shorter, often just three years. After that, it’s pure profit in energy savings.

Even landlords are beginning to install heat pumps because of their long-term value. The ongoing running costs are so low that they boost property appeal without extra tenant expenses.

Real-World Example

Take an example from Emerald Energy Systems in New South Wales. A homeowner in Epping replaced their old 250-litre electric unit with a 200-litre Emerald heat pump.

Over just 52 days, their electricity use for hot water dropped by 75.5%. Their total hot water cost for that period? $3.50.

That’s less than the price of a cup of coffee for nearly two months of hot showers. Multiply that across a year, and you can see why so many Australians are switching.

The Final Word

If you want to cut household energy costs fast, your hot water system is the best place to start.

A heat pump might cost a little more at first, but it’s a clear long-term winner. It uses a third of the power of an electric system, lasts as long as gas, and works in almost any climate.

Most importantly, it saves real money; hundreds every year, thousands over time.

It’s like installing an extra set of solar panels, but without touching your roof.

So next time you step into a hot shower, imagine the warmth powered not by gas or coal, but by the clean air outside your home, and costing you almost nothing.

That’s the power of a heat pump.

That’s smart, sustainable Australian living.