The short answer
A heat pump hot water system costs $2,475 to $3,415 after federal STCs and state rebates. It pays for itself in 6.6 to 10.3 years depending on your state, then saves $200 to $330 a year on energy bills. Over 15 years the total saving is $4,400 to $7,000. In every Australian state, the heat pump wins.
If your gas hot water system is getting old, you are probably weighing up whether to replace it with another gas unit or switch to a heat pump. The upfront cost of a heat pump is higher, but the running costs are so much lower that every state sees a positive return well within the system's 15-year lifespan.
I ran every state through the calculator to get the real numbers. Here is what I found.
How the two systems compare
A gas hot water system heats water by burning natural gas. It runs at about 72% thermal efficiency (blended across storage and instantaneous types). That means for every dollar of gas you buy, about 28 cents is wasted as heat that escapes up the flue.
A heat pump works differently. Instead of generating heat, it moves it from the surrounding air into the water, the same way a fridge moves heat out of your food. For every unit of electricity it uses, it produces 3 to 4 units of heat. This ratio is called the coefficient of performance (COP), and it varies by climate.
| Climate | Typical COP | Example cities |
|---|---|---|
| Subtropical | 4.0 | Brisbane, Perth |
| Temperate | 3.5 | Sydney, Adelaide |
| Cool | 3.0 | Melbourne, Hobart, Canberra |
Even in a cool climate like Melbourne, a heat pump uses roughly 65% less energy to heat the same amount of water. In Brisbane, the gap is even wider. That efficiency difference is what drives the cost savings.
What it costs to switch
A heat pump hot water system costs about $4,000 installed. Two types of incentive bring that down:
- Federal STCs (Small-scale Technology Certificates) take $585 to $1,170 off the price at point of sale, depending on your climate zone. Cool-climate homes (VIC, TAS, ACT) receive 15 STCs, temperate homes (NSW, SA, WA) receive 25, and subtropical homes (QLD) receive 30, at $39 each. The installer claims these and passes the discount to you.
- State-based rebates reduce the cost further. NSW receives approximately $550 in ESS (Energy Savings Scheme) certificates. VIC receives a $560 VEEC heat pump discount. SA receives a $350 REPS rebate. These are applied automatically through the installer.
After federal STCs and state rebates, the net out-of-pocket cost ranges from $2,475 in Sydney to $3,415 in Hobart.
VIC residents with a household income under $210,000 may also qualify for the $1,000 Solar Homes hot water rebate, which brings the VIC cost down further. This is available as an opt-in "include income-tested rebates" option in the calculator.
The numbers for every state
Here is how a heat pump hot water switch looks in each major city, for a 3-bedroom home with gas hot water. These numbers come from the calculator using current 2026 energy rates and incentives.
| State | Net cost | Payback | Year 1 saving | 15-yr saving |
|---|---|---|---|---|
| NSW | $2,475 | 6.6 yrs | $330/yr | $6,999 |
| ACT | $2,615 | 10.1 yrs | $206/yr | $4,435 |
| SA | $2,675 | 7.7 yrs | $293/yr | $6,290 |
| QLD | $2,830 | 10.3 yrs | $223/yr | $4,591 |
| VIC | $2,855 | 8.4 yrs | $281/yr | $6,033 |
| WA | $3,025 | 8.0 yrs | $321/yr | $6,732 |
| TAS | $3,415 | 10.1 yrs | $270/yr | $5,695 |
Net cost = heat pump installed minus federal STCs and state rebates. Savings include reduced gas usage but do not include gas supply charge elimination (that only happens when you remove all gas appliances, not just hot water). 3-bed home, all appliances at end-of-life, 15-year analysis period, 10% discount rate.
The standout is that even at full cost, every state delivers strong positive returns over 15 years. NSW has the best payback at 6.6 years, saving $330 a year and nearly $7,000 over the system's lifetime. Even Tasmania, the most expensive case at $3,415 upfront, saves $5,695 over 15 years.
Why the running costs are so different
The efficiency gap alone does not explain everything. Gas also has a price-per-unit-of-useful-heat problem.
In Sydney, gas costs $0.045 per MJ. At 72% efficiency, the effective cost per MJ of useful heat is about $0.063. Electricity costs $0.36 per kWh, which is $0.10 per MJ. But at a COP of 3.5, the effective cost per MJ of useful heat is only $0.029. The heat pump delivers useful heat at less than half the cost, even though electricity has a higher headline rate.
In warmer climates like Brisbane and Perth, the COP is even higher (4.0), which widens the gap further. In cooler climates like Melbourne and Hobart, the COP drops to 3.0, but gas prices tend to be lower there too. The heat pump still wins everywhere, just by different margins.
The hidden bonus: ditching gas entirely
The numbers above are for switching hot water only. But here is something most comparison sites will not tell you: hot water is usually just the first step in getting off gas completely.
If you also switch your cooktop to induction and (in cooler states) your heating to reverse cycle, you can disconnect from the gas network entirely. That eliminates the daily supply charge, which costs $220 to $310 a year depending on your state, before you use a single megajoule of gas.
The calculator models this interaction correctly. When you switch hot water first, it shows the savings from reduced gas usage. When you later switch your last gas appliance, the supply charge elimination gets added. The combination is worth significantly more than either switch alone. Read more about this in our post on ditching gas entirely.
Heat pumps and solar panels
If you have solar panels (or plan to get them), a heat pump becomes even more attractive. Heat pump hot water systems can be set to run during the middle of the day, when your panels are producing more electricity than your house can use. Instead of exporting that excess at the feed-in tariff (5 to 8 cents per kWh in most states), you use it to heat your water for free.
A heat pump running off solar costs you nothing to operate. A gas system costs the same regardless of whether you have solar. This is why the calculator often ranks a heat pump hot water switch ahead of a home battery in the optimal upgrade sequence. It is essentially a thermal battery that stores solar energy as hot water.
When gas hot water still makes sense
- Your gas system is brand new. The cost comparison above assumes all appliances are at end-of-life. The calculator now shows the full heat pump cost by default. If you just installed a new gas unit, you can specify your appliance age in the form to see how that changes the numbers. In most cases it is still worth waiting until your current system needs replacing.
- You are on bottled gas (LPG). Different economics apply to LPG. The supply charge structure is different and LPG costs significantly more per MJ than piped natural gas. A heat pump is almost certainly even more attractive in this case, but the numbers in the table above are for piped gas only.
- Very limited outdoor space. Heat pumps need outdoor placement for airflow. If you have genuine physical constraints (not just aesthetics), a gas instantaneous unit might be more practical. But most homes have space for a heat pump, they are about the size of a standard hot water tank with an attached fan unit.
What about gas prices going up?
The numbers above use today's gas rates. But gas prices in Australia are tied to international LNG export markets, which means your hot water bill is exposed to the same geopolitical risks that affect petrol prices. As we saw with the Iran conflict earlier this year, energy commodity prices can spike quickly and stay elevated.
There is also a structural problem. As more households disconnect from gas, the cost of maintaining the gas network gets spread across fewer remaining customers. Gas network owners have already signalled significant price increases. In early 2025, AGIG proposed increasing Victorian gas network charges by 16 to 20 percent per year. If that happens, the payback period for switching to a heat pump gets even shorter.
Electricity from solar panels on your roof, by contrast, is not subject to any of that. Once installed, the fuel is free.
Frequently asked questions
How much does a heat pump hot water system cost in Australia?
A heat pump hot water system costs about $4,000 installed. Federal STCs reduce that by $585 to $1,170 depending on your climate zone (15 STCs in cool climates, 25 in temperate, 30 in subtropical, at $39 each). State rebates reduce it further. After all incentives, the net out-of-pocket cost is $2,475 to $3,415 depending on your state.
Is a heat pump cheaper to run than gas hot water?
Yes. A heat pump produces 3 to 4 units of heat for every unit of electricity, compared to a gas system that wastes about 28% of its fuel. In Sydney, the effective cost of useful heat from a heat pump is $0.029 per MJ, versus $0.063 per MJ from gas. The heat pump saves $200 to $330 a year depending on your location and gas rates.
How long does a heat pump hot water system last?
A quality heat pump hot water system has an expected lifespan of about 15 years, similar to a gas storage system. Some manufacturers offer warranties of up to 10 years on the compressor. Over that 15-year lifespan, the total energy saving compared to gas ranges from $4,400 to $7,000 depending on your state.
Do heat pumps work in cold climates?
Yes, but with slightly reduced efficiency. In cool climates like Melbourne, Hobart, and Canberra, a heat pump operates at a COP of about 3.0 (compared to 4.0 in Brisbane). It still uses roughly 65% less energy than gas. All seven capital cities in our analysis show a clear financial advantage for heat pumps over gas.
Run your own numbers
The figures above are for a typical 3-bedroom home. Your savings will depend on how much hot water you use, your local gas and electricity rates, and which rebates apply in your state. The calculator works out the exact numbers for your postcode and household. It also shows where hot water fits in the optimal sequence of all home energy upgrades, from solar to insulation to EVs.
Where these numbers come from
Gas rates from Selectra and AER gas monitoring reports (2025-26). Electricity rates from published retailer tariffs. Heat pump costs from SolarChoice and installer surveys. COP values from Australian Standards (AS/NZS 4234) and manufacturer specifications. STC values from the Clean Energy Regulator. Full data source list on the data sources page.