Essential Clean Energy Guides

Heat Pump Hot Water: Your Comprehensive Guide

In an average Australian home, a significant 23% of energy consumption is attributed to heating water, impacting household energy bills considerably. Adopting efficient hot water solutions, like heat pump water heating systems, can effectively manage and reduce these costs.

A heat pump hot water system is an energy-efficient alternative to traditional electric and gas hot water systems. It uses a different technology, which involves extracting heat from the surrounding environment (air or ground) to heat water, rather than generating heat directly through the burning of fuel (Gas) or the use of electric resistance elements.

How Heat Pumps Work

The technology behind a heat pump water heater is similar to that used in refrigerators and air conditioners, but in reverse. Here’s a basic outline of the process:

  • Evaporation: The heat pump system contains a refrigerant, which is a substance capable of absorbing heat at low temperatures. The refrigerant passes through an evaporator where it absorbs ambient heat from the air.
  • Compression: The warm gaseous refrigerant is then compressed by a compressor, which increases its temperature significantly due to the compression process.
  • Heat Transfer: The hot gaseous refrigerant now flows through a heat exchanger (condenser), where it transfers its heat to the water in the storage tank, heating it up. As the refrigerant loses its heat, it condenses back into a liquid.
  • Expansion: The cooled liquid refrigerant passes through an expansion valve where its pressure and temperature drop, and it cycles back to the evaporator to absorb heat again.
Diagram showing how a heat pump hot wate system works

The process is virtually identical to the Split System air conditioners that are found in many Australian homes - with the difference being that these systems heat and cool air, instead of water.

Advantages of Heat Pumps

  • Energy Efficiency: Heat pump systems are generally much more energy-efficient than conventional electric and gas systems because they use less primary energy to achieve the same heating effect. Most of the energy they use comes from the environment, significantly reducing the reliance on electricity or gas.
  • Lower Running Costs: Due to their higher efficiency, the running costs of heat pump hot water systems are typically lower compared to traditional systems, especially where electricity prices are high.
  • Environmental Impact: Heat pumps have a lower carbon footprint since they rely on ambient heat and a small amount of electricity, which can be sourced from renewable energies.

Overall, a heat pump hot water system can offer significant benefits in terms of energy efficiency, cost savings, and environmental impact, making it an attractive option for homeowners looking to upgrade their hot water system.

Heat Pump Hot Water vs Gas Hot Water

When weighing the benefits of heat pump hot water systems against traditional gas hot water systems, several factors stand out. Initially, while the upfront cost of a heat pump hot water system may be higher than that of a gas system, the operating costs are significantly lower. According to Sustainability Victoria, for a typical three-person household, a high-efficiency heat pump can operate at approximately $120 per year when using off-peak electricity, compared to $395 per year for a similarly sized gas system. This represents substantial savings over the lifespan of the unit.

You could save $275 per year on your water heating costs

Environmental impact is another critical consideration. Gas hot water systems rely on natural gas or Liquefied Petroleum Gas (LPG), both of which contribute to greenhouse gas emissions. In contrast, heat pump systems, which use electricity, can have a lower carbon footprint, especially when paired with renewable energy sources like solar panels. The shift towards a more renewable electricity grid further enhances the environmental benefits of heat pumps.

Integrating heat pumps with solar panels offers an additional advantage by maximising the use of solar energy produced during the day. This synergy not only reduces reliance on the grid but also lowers electricity costs further, making heat pumps an economically and environmentally superior choice in the long run.

Heat Pump Hot Water vs Electric Hot Water

When comparing heat pump hot water systems to traditional electric hot water heaters, the first significant difference is energy efficiency. Heat pump systems operate more efficiently by extracting heat from the environment to warm water, significantly reducing electricity usage compared to conventional electric heaters that must generate heat through electrical resistance. This efficiency translates into lower energy costs and a reduced environmental impact over the system's lifespan.

Electric hot water systems, while typically cheaper to install, tend to have higher operational costs due to their less efficient energy use. This makes them more expensive over the long term, particularly in regions with high electricity prices. In contrast, heat pump systems, despite their higher upfront cost, can offer substantial savings on utility bills as they consume less power.

In fact, Heat Pump systems can save up to 80% off hot water energy costs, year after year. In a traditional electric element hot water system, 1kW of electricity generates 1kW of thermal output - in a highly efficient heat pump such as the Reclaim Energy CO2 System - 1kW of electric input generates about 5kW thermal output. According to Sustainability Victoria, for a typical three-person household, a high-efficiency heat pump can operate at approximately $120 per year when using off-peak electricity, a similarly sized electric system would cost $780 per year - this represents substantial savings over the lifespan of the unit.

You could save $660 per year on your water heating costs

Heat pump water heaters are also considered more environmentally friendly compared to their electric counterparts. By utilising ambient heat from the air, they contribute less to carbon emissions, assuming the electricity used is not sourced from renewable energy. This makes heat pumps a greener alternative, especially in areas increasingly drawing on renewable energy sources for electricity.

What Heat Pump Incentives and Rebates are available in Victoria?

There are three different types of government incentives which are designed to reduce the upfront cost of installing Heat Pump hot water systems. Depending on your personal circumstances and the product you choose, you may be eligible for all three. The experts at Essential Solar will provide you with advice specific to your circumstances.

Small-scale Technology Certificates (STCs)

This scheme is part of the Australian Federal Government's Renewable Energy Target which aims to curtail greenhouse gas emissions within the electricity sector. STCs offer an immediate reduction in the cost of Heat Pump Hot Water installations, making the transition to green energy both accessible and financially advantageous for homeowners and small businesses alike. The number and value of STCs can vary depending on location and product installed - but the upfront discount you receive will be in the region of $900 - the actual Values of the STC discount for your system will be shown on your Essential Solar quote.

Solar Victoria Hot Water Rebate

The Victorian State Government Solar Homes Program offers eligible households a $1,000 discount when installing an eligible system - speak with our team to check if you’re eligible.  

Victorian Energy Upgrades program (VEECs)

The Victorian Energy Upgrades program offers rebates or discounts on energy-saving products such as Heat Pump Hot Water Systems. Eligible upgrades generate certificates (VEECs), which energy retailers are required to purchase in order to meet emissions targets. The number and value of VEECs can vary, but in general they offer an upfront discount in the region of $750 off the cost of your system - if your system is eligible for VEECs we will show this discount on your quote.

What Size System Do I Need? Will I run out of water?

When planning to install or upgrade your hot water system, one of the most common questions is around the appropriate size of the system. The number of bedrooms in your home serves as a helpful guideline for estimating the size needed. For homes with 1-2 bedrooms, a tank size between 150-225 litres is generally sufficient. For a three-bedroom home, a capacity of 225-300 litres is recommended, and for homes with four or more bedrooms, you should consider systems larger than 300 litres. These recommendations cater to average water usage but having some extra capacity is advisable to accommodate future changes, such as an increase in the number of household members or guests.

Choosing the correct size is crucial; a system too small can lead to the inconvenience of running out of hot water frequently, impacting daily activities like showering and cleaning. A system that is too large can lead to unnecessary energy consumption and higher bills, making it inefficient and costly in the long run. It's important to consider both the immediate and future hot water needs of your household, ensuring that the system can handle peak usage times without wasting energy during off-peak times. If in doubt or on the odd occasion you do run out, some models include a boost function with a backup element to heat around 100L at maximum speed.

Our team will assess your specific needs based on a discussion of your household water usage patterns and other relevant factors, such as your existing water heating system, local climate conditions, and even the layout of your home. This discussion will help tailor the system to your home, guaranteeing that your hot water supply is reliable, efficient, and economically sound.

How Much Space Does a Heat Pump Hot Water System Require?

Heat pump hot water systems typically come in a monoblock format and are about 600mm wide, making them comparable in size to many existing hot water storage tanks. This similarity in dimensions generally allows for a straightforward replacement. However, there are also two-piece systems available, such as those from Reclaim Energy, which feature a separate tank and condenser unit. This design offers greater flexibility in installation, accommodating a variety of spatial configurations. Whatever your specific requirements may be, we are committed to identifying and implementing the best heat pump solution for your home.

Conclusion: Embracing the Future of Hot Water Heating

In summary, heat pump hot water systems present a forward-thinking solution for reducing household energy consumption and costs. These systems, using only a fraction of the energy required by traditional electric or gas systems, offer both immediate and long-term savings, making them an economically sound choice for homeowners. Additionally, their environmental benefits align well with increasing global shifts towards sustainable living. By integrating such innovative technologies, homeowners not only optimise their energy usage but also contribute positively to environmental conservation, marking a significant step towards greener, more sustainable homes.

The Heat Pump brands we offer

Reclaim Energy

Reclaim Energy is committed to energy efficiency and developing systems that help people live more sustainable lives. An innovative, intelligent and customised environmentally sustainable hot water solution that helps people save money and achieve a more sustainable lifestyle.


Haier is the global number one brand in home appliances. With a team of over 99,000 professionals operating in more than 160 countries and regions, producing 21.7% of refrigeration appliances and 20.3% of home laundry appliances worldwide.


iStore - Air to Energy has a proven reputation built on respect as an industry leader in heat pump technology dealing direct with qualified trade customers, and sharing our vision for a cleaner more energy efficient Australia.

Start your journey towards a greener future today

Our expert team excels in renewables and energy-saving solutions. We offer comprehensive advice and information to help you confidently start your journey into renewable energy.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.