Choosing between gas and electric hot water comes down to four things: your current gas connection, your electricity tariff, your household size, and whether you care more about running costs or upfront cost. This guide breaks down both options clearly so you can make the right call for your home and budget.
Quick Comparison — Gas vs Electric at a Glance
| Feature | Gas | Electric |
|---|---|---|
| Upfront cost | $800–$2,000 (storage) $1,200–$2,500 (continuous flow) |
$500–$1,500 (storage) $1,800–$3,500 (heat pump) |
| Annual running cost | $400–$700 | $500–$900 (resistive) $200–$350 (heat pump) |
| Efficiency | 60–90% (continuous flow up to 95%) | 95%+ (resistive) 300–400% (heat pump) |
| Works without electricity | ✓ Pilot ignition / ✗ Electronic | ✗ |
| Works without gas connection | ✗ | ✓ |
| Suitable for solar | Limited | ✓ Excellent with solar |
| Carbon emissions | Moderate | Low (renewable) / High (coal grid) |
| Lifespan | 10–15 years | 10–15 years (resistive) 15–20 years (heat pump) |
Understanding Gas Hot Water Systems
Gas hot water systems come in two main types. Storage tank systems heat and hold a reservoir of water ready for use — typically 130–315 litres. Continuous flow (instantaneous) systems heat water on demand as it passes through a burner unit, so you never run out of hot water and you're not paying to keep a tank hot 24 hours a day.
Continuous flow is the more popular choice in Australian homes for its efficiency and endless hot water supply. That said, if you have very high simultaneous demand (multiple showers running at once), you'll want to check the flow rate of the unit before buying.
It's also worth distinguishing between natural gas and LPG (bottled gas). LPG costs significantly more per unit — typically 3–4 times the price — which substantially changes the running cost equation. If you're on LPG, an electric heat pump is often a better long-term investment.
Pros of Gas Hot Water
- Lower running costs than electric resistive systems (though not heat pumps)
- Continuous flow means you genuinely never run out of hot water
- Older pilot-light ignition models continue to work during power outages
- Fast recovery rate on storage models — water reheats quickly
Cons of Gas Hot Water
- Requires an existing gas connection — not available in all areas or new developments
- Higher upfront cost compared to basic electric storage
- Gas prices have risen significantly since 2022 and are expected to remain elevated
- Not compatible with solar PV generation — you can't offset running costs with rooftop panels
Understanding Electric Hot Water Systems
Electric hot water systems fall into two main categories with very different performance and cost profiles.
Electric resistive storage is the traditional element-in-tank design. These units are cheap to buy upfront ($500–$1,000) but expensive to run if you're on peak electricity rates. They work best when configured to heat on off-peak tariffs overnight, which significantly reduces running costs. Many older Australian homes have these units set up this way.
Heat pump systems (reverse-cycle) are a different beast entirely. Rather than generating heat directly, they extract heat from the ambient air — exactly like a reverse-cycle air conditioner running in reverse. This makes them 3–4 times more efficient than resistive elements. Upfront costs are higher ($2,500–$4,500 installed), but running costs are the lowest of any non-solar system. They're also eligible for STC (Small-scale Technology Certificate) rebates in most states.
Pros of Electric Hot Water
- Works anywhere — no gas connection needed
- Heat pumps have the lowest running costs of any system type (excluding solar)
- Fully compatible with rooftop solar panels — use excess daytime generation to heat water
- Heat pump systems qualify for government rebates in most Australian states
- Lower carbon footprint when paired with renewable electricity
Cons of Electric Hot Water
- Electric resistive systems are expensive to run on peak tariffs
- Heat pumps need adequate outdoor space and work best above 5°C ambient temperature
- Heat pumps produce noise similar to a split-system air conditioner
- Higher upfront cost for heat pump units
Running Cost Comparison in Australia (2026)
Running costs vary depending on your energy tariff, usage patterns, and household size. The figures below are based on an average Australian household of four people using approximately 200 litres per day. They use average 2026 energy prices — your actual costs will differ depending on your state and retailer.
| System type | Annual running cost | Cost per shower (approx.) |
|---|---|---|
| Electric resistive (peak tariff) | $850–$1,100 | $0.80–$1.20 |
| Electric resistive (off-peak tariff) | $450–$650 | $0.40–$0.65 |
| Gas continuous flow | $380–$650 | $0.35–$0.65 |
| Gas storage | $420–$700 | $0.40–$0.70 |
| Heat pump (electric) | $200–$350 | $0.18–$0.35 |
| Solar hot water | $100–$200 | $0.08–$0.20 |
If you have rooftop solar, an electric heat pump or solar hot water system is almost always the most cost-effective choice. You can divert excess solar generation to heat water during the day, reducing your running costs to near zero on sunny days.
Government Rebates and Incentives (2026)
One significant advantage of electric heat pump and solar hot water systems is eligibility for government rebates. The federal government's Small-scale Technology Certificates (STCs) scheme applies to both solar hot water and heat pump systems, typically reducing the upfront installed cost by $500–$1,500 depending on the system size, your location, and current certificate prices.
State-specific rebates add further savings. Victoria's Solar Homes program has offered additional rebates on heat pump systems. New South Wales, Queensland, and South Australia each run varying incentive programs — eligibility and values change regularly, so check with your installer or the Clean Energy Regulator website for current figures.
STC rebate values change quarterly based on market prices. Ask your hot water installer to apply the rebate at the point of sale — you shouldn't need to claim it yourself. A reputable installer will do this automatically and simply deduct it from your quote.
Which Should You Choose?
The right choice depends on your specific situation. Here's a straightforward decision framework:
- You already have gas and want the lowest upfront cost: Gas continuous flow is a solid, proven choice with reasonable running costs.
- You have rooftop solar panels: An electric heat pump or solar hot water system will give you the lowest ongoing running costs, potentially near zero on sunny days.
- You have no gas connection: An electric heat pump offers the best long-term value. Off-peak electric resistive storage is a lower-cost entry point.
- You're a landlord buying for a rental property: Gas storage or electric resistive tends to win on upfront cost and simplicity, even if running costs are higher for the tenant.
- Environmental impact is your priority: An electric heat pump on a green energy tariff has the lowest lifecycle carbon footprint of any system currently available.
Installation Costs
The figures below include both the unit and professional installation by a licensed plumber. Prices vary by state, access difficulty, and whether any additional electrical or gas work is required. All hot water system installations in Australia must be carried out by a licensed plumber — this is a legal requirement, not optional.
| System | Supply + install (approximate) |
|---|---|
| Electric resistive storage (250L) | $900–$1,500 |
| Gas storage (170L) | $1,200–$2,000 |
| Gas continuous flow | $1,500–$2,500 |
| Heat pump (270L) | $2,800–$4,500 |
| Solar hot water | $3,000–$6,000 |