For most households chasing long-term savings, a heat pump or solar hot water system delivers the best running-cost efficiency; if upfront budget matters more right now, conventional electric or gas storage remains a sound, cheaper starting point. Storage tanks hold heated water ready to use, while continuous flow units heat water on demand. Rebates and existing solar PV can shift this calculation significantly.
TL;DR:
- Heat pump and solar hot water systems offer significantly lower operating costs, especially when paired with rebates and existing solar PV, compared to electric and gas options.
- Continuous flow units are ideal for small households or irregular demand, but larger families benefit more from well-sized storage tanks or heat pumps that can supply multiple simultaneous hot water uses.
- Gas systems require outdoor installation and can be more costly if using LPG, and their environmental impact depends on whether they use mains gas or LPG, which are priced differently.
- Proper system sizing and site assessment are critical to avoid overspending or underperformance, with switchboard capacity and roof suitability being common overlooked factors.
- Upfront investment in heat pumps or solar systems typically pays off in five years or less, especially when rebates are included, making them the more economical long-term choice for most households.
Table of Contents
- Hot water system types: the basic taxonomy
- Storage versus continuous flow: pros, cons and when to choose each
- Electric hot water: conventional storage and heat pump systems
- Gas hot water systems: instantaneous and storage options
- Solar hot water systems: collectors, boosters and roof reality
- Sizing, costs and running-cost comparisons
- Installation checks and rebates you shouldn’t skip
- Installer checklist and common pitfalls we see on-site
- Weighing upfront cost against lifetime running cost
- Get a straight assessment before you commit to a new system
- Sources
- FAQ
Hot water system types: the basic taxonomy
Every hot water system on the market falls into one of two delivery methods, each of which can run on different energy sources. Understanding this split first makes every later comparison far easier to follow.
Storage systems heat water ahead of time and hold it in an insulated tank, ready for you to draw on. Continuous flow systems (also called instantaneous or tankless) heat water only as it passes through, with no tank at all.
Four energy sources power these two delivery methods:
- Conventional electric (resistive element heating, the traditional “electric hot water tank”)
- Heat pump (extracts ambient heat from the air rather than generating it directly)
- Gas, either mains natural gas or bottled LPG
- Solar thermal, using rooftop collectors with a backup booster
Hot water heating is not a minor line item on your power bill. It typically accounts for 15% to 30% of a household’s total energy use, which is why the system type you choose has more influence over your bills than almost any other appliance decision in the house. Get this choice wrong and you’ll feel it every quarter for the next decade.
Storage versus continuous flow: pros, cons and when to choose each
Storage tanks lose a small amount of heat over time simply sitting there, known as standby heat loss. That’s the trade-off for having a buffer of hot water always available, which matters when three people want a shower within twenty minutes of each other. Continuous flow units skip that standby loss entirely and, in theory, never run out. The catch is they need a stronger gas or electrical connection to heat water fast enough to keep up with demand, and running two showers and a dishwasher simultaneously can push a smaller unit to its limit.
Here’s how we’d generally steer you, based on household use patterns:
- Single occupants or couples often do well with continuous flow, since demand is low and irregular, and there’s no benefit in heating a full tank overnight for one shower.
- Families of three to five usually get more consistent comfort from a well-sized storage tank or heat pump, which can supply multiple simultaneous draws without dropping temperature.
- Retrofitting an existing gas storage system with continuous flow is often straightforward if the gas line is already sized correctly, but swapping to electric continuous flow can mean an electrical upgrade.
If your home has limited outdoor or roof space, continuous flow’s compact wall-mounted footprint is a genuine advantage over a bulky tank.
Electric hot water: conventional storage and heat pump systems
Conventional electric storage tanks use a resistive element, much like an oversized kettle, and they’re the default fit-and-forget option in a lot of Australian homes. They’re the cheapest to buy but the most expensive to run of any mainstream option, since converting electricity directly to heat is inherently inefficient.
Heat pump systems flip that equation. Rather than generating heat, they extract warmth from the surrounding air and use it to heat the tank, which means they typically use roughly 30% of the energy that a conventional electric unit needs for the same output. Payback on the higher purchase price is often around five years, shorter again once rebates are factored in.
Heat pumps come in two configurations. Integrated units combine the compressor and tank in a single cabinet, which is simpler to install but can be noisier if placed near a bedroom window. Split systems separate the compressor from the tank, letting you site the noisier component further from living areas, at the cost of running a refrigerant line between the two.
- Heat pumps perform best in warm to temperate climates; colder regions may need a booster or a cold-climate rated unit.
- Pairing either electric option with rooftop solar PV can dramatically cut daytime running costs.
- Off-peak electricity tariffs still make sense for conventional resistive tanks if you don’t have solar PV.
- Always check your switchboard’s spare capacity before committing to a heat pump or electric continuous flow unit.
Pro Tip: If you’re upgrading from an old resistive tank to a heat pump, ask your installer to check your switchboard capacity and phase during the initial quote, not on installation day. Older Sutherland Shire homes in particular often need this upgraded, and it’s cheaper to know upfront.
Gas hot water systems: instantaneous and storage options
Gas remains a genuinely practical choice for plenty of households, particularly where a gas connection already exists. Instantaneous gas units heat water quickly and efficiently for smaller households, since there’s no tank to keep hot around the clock. Gas storage tanks suit larger households that want a buffer of ready hot water without the standby losses being as costly as electric, because gas is typically cheaper per unit of heat than electricity.
A few practical points worth flagging before you commit to gas:
- Gas systems, whether storage or instantaneous, need outdoor installation or proper flue venting, which rules them out for some apartment or townhouse layouts.
- LPG runs noticeably more expensive per unit than mains natural gas, so an LPG-only property changes the running-cost maths considerably.
- Gas systems produce direct emissions at the point of use, whereas electric and heat pump systems shift that footprint to the grid, meaning their environmental impact depends heavily on your local electricity mix.
If your property isn’t connected to mains gas and would need an LPG bottle setup, it’s worth comparing that running cost seriously against a heat pump before deciding.
Solar hot water systems: collectors, boosters and roof reality
Solar hot water uses rooftop collectors, either flat plate panels or evacuated tube collectors, to heat water directly using the sun. Evacuated tubes generally perform better in cooler climates and cloudy conditions, while flat plate collectors are cheaper and perform well in most Australian conditions. Systems can be passive (the tank sits on the roof alongside the collectors) or pumped (the tank sits at ground level and a pump circulates water up to the collectors).
Because the sun doesn’t always cooperate, every solar system needs a booster, electric or gas, to top up hot water on overcast days or during high demand. Done properly, solar hot water can cut hot-water energy use by 60% or more compared with a conventional system.
- Roof orientation and shading matter enormously; a north-facing roof with no shading is close to ideal, while a shaded or oddly angled roof may make solar a poor fit.
- Solar hot water competes directly with rooftop solar PV for available roof space, and if you’ve already got PV panels installed, pairing that PV output with an efficient electric or heat pump system can be simpler and just as cost-effective.
- Winter performance drops off, so your booster’s efficiency matters as much as the collector choice itself.
Sizing, costs and running-cost comparisons
Matching system capacity to household size prevents both wasted spending and cold showers at the worst moment. One to two people are usually well served by continuous flow (gas or electric) or a compact heat pump. Three to four people typically need a mid-sized storage tank, whether gas, heat pump, or conventional electric, or a well-sized continuous flow unit if gas capacity allows. Five or more people usually need either a larger storage tank or multiple continuous flow units to handle overlapping demand.
Upfront prices vary widely by system type and installer:
A worked payback example: swap a failing conventional electric tank for a heat pump costing around $4,500 installed. At roughly 30% of the running cost of the old unit, and with state and federal rebates knocking a meaningful chunk off that upfront price, payback typically lands around the five-year mark, sometimes sooner depending on your tariff and household use.
These figures shift by state, installer, and site access, so treat them as planning ranges rather than fixed quotes.
Installation checks and rebates you shouldn’t skip
Before signing off on any new system, a few practical checks save headaches (and money) later:
- Confirm your switchboard has spare capacity for an electric or heat pump unit; older three-phase or undersized boards may need an upgrade.
- Check venting and clearance requirements for gas systems, and noise clearance from windows for heat pump compressors.
- Verify your chosen installer is registered to claim Small-scale Technology Certificates (STCs) on your behalf, because not every installer is eligible to process these, and missing this step means leaving money on the table.
- Check both national and your own state’s rebate pages before purchase, since incentives change and vary by system type and household eligibility.
- Confirm your model’s energy star rating against comparable units before you buy, not after.
Installer checklist and common pitfalls we see on-site
When we assess a Sutherland Shire property for a hot water swap, the checklist is always the same: roof suitability and orientation for solar, the household’s actual draw profile (how many people, how many bathrooms, peak usage times), existing gas or electrical connections, and switchboard capacity.
The mistakes we see most often are homeowners skipping the electrical capacity check until installation day, missing rebate eligibility because nobody checked before purchasing, and undersizing a system for genuine peak demand, usually because the quote was based on headcount alone rather than actual usage patterns.
Pro Tip: If your current system is failing but still repairable, get a straight answer on repair versus replacement before committing to a full swap. A tank nearing the end of its typical 8 to 12 year lifespan is usually better replaced, but a fault in a newer unit is often a cheaper fix.
Weighing upfront cost against lifetime running cost
Most homeowners default to whichever system is cheapest to buy, and for a tight renovation budget or an unexpected mid-winter failure, that’s a defensible call. But if you’re not under time pressure, the maths usually favours paying more upfront for a heat pump or solar system, particularly once rebates are applied.
Existing solar PV changes this calculation more than most people realise. A household with rooftop solar already generating daytime power gets far more value from an efficient electric or heat pump hot water system than from adding a second, separate solar hot water system competing for roof space.
Before you talk to an installer, walk in with three numbers: your household’s peak simultaneous hot-water demand, your current energy tariff structure, and whether your switchboard has spare capacity. Those three answers will shape the quote more than any brand name will.
— Peter Honey
Get a straight assessment before you commit to a new system
Choosing between storage and continuous flow, or gas and heat pump, is only half the job. The other half is confirming your property can actually support the system you want, and that’s where a proper site assessment earns its keep. An on-site assessment should check switchboard capacity, gas connections, and roof suitability, and flag which rebates you may be eligible for before spending on a new unit.
If your current system has already failed, our team handles emergency hot water replacements across Sutherland Shire and Sydney, backed by a workmanship guarantee. For homes weighing up a straightforward fix against a full hot water system replacement, our licensed plumbers will give you an upfront, transparent quote rather than a hard sell. Book a site assessment today and find out exactly which system suits your household and your budget.
Sources
FAQ
What is the most efficient type of hot water system?
Heat pump and solar systems are generally the most efficient, with heat pumps using around 30% of the energy of a conventional electric tank and solar cutting hot-water energy use by 60% or more in suitable conditions.
What are the four main types of hot water systems?
The four main energy sources are conventional electric, heat pump, gas (natural gas or LPG), and solar thermal, each available as either a storage tank or continuous flow unit.
What is the cheapest hot water system to run?
Heat pump and solar systems generally have the lowest running costs, though solar’s savings depend on roof orientation and booster type, while heat pump savings depend on your electricity tariff.
Is a tankless or a tank hot water system better?
Continuous flow (tankless) suits smaller households with irregular demand and limited space, while storage tanks handle larger households better because they can supply multiple simultaneous hot water draws without a capacity strain.