Ausgrid Pie chart showing average household energy use
Source: Ausgrid

With the cost of hot water making up anywhere from 30 – 40% of your home’s energy use, it is important to know the actual costs of installing a new hot water system in your home or business.

The actual cost is more than just the price you pay to purchase and power your storage or instant hot water system.

This guide (2021) shares the pros and cons of different systems with you and highlights additional costs and savings that you should be aware of before signing off on any quote to install a new water heater.

So, let’s get started!

Price of Hot Water Systems

Hot water heaters can use ambient energy, electric, gas, solar energy and a combination of these to heat your hot water. With systems ranging in price from $200 for electric tank storage upwards of $7000 for hybrid solar, a well-informed purchase decision can save you thousands of dollars over the life of the system.

Energy SourceLow ($)System Only Price Moderate ($)High ($)Ongoing Running Costs
Heat Pump$2,500$4,000
Table 1 shows price ranges (low moderate-high) for different types of hot water systems based on the energy type used to heat hot water.

Hot Water System Styles

A storage system requires a tank to hold and heat water with size determining how much hot water you can use at any one time. If your tank is too small, you may find yourself having a cold shower. If your tank is too large, you are paying to heat more water than you need.

Insulation will directly impact the ongoing running cost, and well-insulated storage systems run most cost-effectively on solar and natural gas. Electricity, LPG and solid fuels such as coal and wood are used for heating hot water tanks.

Instantaneous systems heat the water as and when it is needed. Water is drawn directly from the supply through the system, so you do not need a storage tank. You can expect a continuous flow of hot water, providing a constant energy source to heat.

While it may seem apparent that heating water only as needed would be more energy and cost-efficient, cost is relative to the source of energy used. Both styles are considered suitable for most homes, so to weigh up your options, you should also compare: –

  • Pro’s and Con’s: Energy Type
  • Delivery, Installation & Removal Costs
  • Available Rebates

Electric Hot Water Systems

Provided you are connected to the network power supply; electric hot water heaters are a very reliable source of hot water. They use electric elements to heat your water and are available at comparatively low to moderate upfront cost ($200 – $2000). However, with fossil fuels still used to generate electricity, the environmental cost, in terms of greenhouse gas emissions, is high.

Instant electric systems run on demand, using the continuous or anytime tariffs making instant electric the most expensive to run. So, if electric is your only option, go with a storage tank of 100 litres or more so that you can heat the water in your tank using off-peak and/or controlled load tariffs, which are typically two to three times cheaper than the continuous or anytime tariffs.

Minimise the ongoing running expense of your electric hot water system by using a storage tank of at least 100 L.

Gas Hot Water

The most common choice for gas water heaters is continuous flow systems that heat water only as needed. Available at comparatively low to moderate prices ($800 – $2000), they connect directly to the water supply. Instantaneous gas heaters use a water pressure switch to ignite the heater when your tap, appliance or shower turns on. Gas instant hot water systems are smaller and generally more efficient than a gas storage system which uses a gas burner to heat and maintain water in a tank at 60°C. 

Both produce lower emissions than their electrical counterparts and are subject to lower usage rates than electricity, making them slightly more cost-effective to power. In terms of disadvantages, gas hot water systems risk running cold water should the gas supply run out; for this reason, it may only be viable for homes connected to mains gas supply. For compliance certification reasons, gas water heaters require a licenced gas fitter to install.

Continuous flow gas systems are a good option if you are looking to replace an electric water heater and want to reduce the running cost and emissions.

Rheem premier loline solar and gas boosted hot water heater.
Source: Solahart

Solar Hot Water Systems

Solar hot water systems use the suns energy to heat and maintain the temperature of water in your storage tank, using panels installed on the roof of your home. Storage tanks can be installed on the roof or below the roofline. If you live in a sunny climate, they are a great way to heat water however in cooler climates or during low sunshine hours, when there is not enough energy in the sun to heat the water to 60 degree Celsius, electricity or gas can be used to boost temperate. Even with rebates they range from moderate to very high upfront cost ($2000 – $7000) a sizeable investment that will be offset in the long run by significantly lower running cost.

As the most environmentally friendly option, if you live in a sunny climate and invest in solar hot water heating you can reduce your hot water energy use, emissions and ongoing costs.

Heat Pumps

While upfront costs are moderate to high ($2000 – $4500), heat pumps are one of the most energy-efficient hot water solutions drawing in warm air to heat water in a storage tank.  Although they require electricity to run, they are roughly three times more efficient than traditional electric water heaters. However, by definition, they need a warm environment to operate reliably.

Heat Pumps are an energy-efficient and reliable option, provided you live in a warm climate.

Delivery Cost

Depending on where you source your hot water heater from, it may be delivered free of charge, at a flat shipping rate or cost upwards of $150 if you live in a remote or rural area. For this reason, it will usually be more cost-effective to work with the team installing your heater and have them supply and deliver your hot water system. Delivery costs vary, so remember to ask about this cost and shop around.

Road Sign Camels Wombat and Kangaroos Next 96km to depict remote or rural areas of Australia

Hot Water Installation

Installation costs are a significant variable that depends on how difficult the work is to achieve.

At the lower-cost end of this spectrum, replacing an easily accessible small hot water heater with a system of the same size, type, and located in the same place is a relatively straight forward job. However, smaller jobs increase in cost as soon as additional parts are required for installing new piping, valves or upgrades to the systems plumbing or electrical.

There are also regulatory costs associated with new and replacement hot water systems. Your system must heat water to a minimum of 60 degrees Celsius to prevent harmful bacteria’s growth. However, the Plumbing and Drainage Act 2018 made mandatory temperature control devices (tempering values), lowering the allowed water temperature in residential homes to 50 degrees, to prevent scalding.

Once you look at changing the type, size or location of your system, installation costs will cost upwards of $1200 depending on the plumbing and electrical work required.  And of course, there is time and “unforeseen” variables, which is why it is so important to compare quotes and look for price guarantees so that the cost of any “unforeseen” variable is paid by the professionals – trained and licenced to identify variables –  as opposed to you as the customer.

Plumber with tools installing a hot water system


Accessibility considers the need to shift what may be multiple, sizeable, or heavy items (> $120 kg) from a transport vehicle to where the new water heater is installed. If your home is on a steep site or, for any reason challenging to access from the road, poor accessibility can add time and cost to the installation price for your new system.

Tibetan Fortress use depict a building that would be difficult to access

Disposal of the old system

You probably do not want to be left with an old system lying around, so buyer beware some installers charge extra for removing your old hot water system, while others do not. Remember to ask if this cost is included in any quote so that you can negotiate on price and differentiate the level of service offered when comparing quotes. 

Seven Simple Ways to Save Energy & Cost of Hot Water in Your Home

  1. Take Shorter Showers
  2. Turn Down the Thermostat
  3. Wash clothes using cold water.
  4. Install Water-Efficient Appliances.
  5. Insulate Your System Well
  6. Fix Leaking Taps
  7. Upgrade your Old Hot Water Heater

Government Rebates

Water Rating Label

Under the Renewable Energy Target (RET) scheme to encourage renewable energy – solar hot water and heat pump systems are eligible for Small-scale Technology Certificates (STCs), which provide rebate at point-of-sale on the recommended retail price of these systems.

Funding is also available to assist with the expense of replacing hot water appliances in your home. The No Interest Loans Scheme (NILS) offers those on low incomes access to fair and affordable loans without the need for credit checks and no fees, interest or charges.

More than 175 local community organisations offer NILS in over 600 locations across Australia. To find your nearest loan provider go to the NILS website.

And in terms of ongoing running costs, eligible Queensland pensioners and seniors can apply for an electricity rebate of $340.85 per year and a reticulated natural gas rebate of $74.92 per year (GST inclusive). Visit Queensland Government for eligibility details.

Plumbing & Gas Specialists

With hot water estimated to contribute more than 30% of your home energy costs, now is the time to look at saving energy by upgrading inefficient appliances or the old water heater in your home. If you would like to talk about hot water repair, service, or replacement, the National Plumbing and Gas team can help. Our licenced plumbers and gas fitters can help you find the best options for your home and budget. Call us today.