Electric, Gas, Heat Pump or Solar? A Sydney Plumber Compare All Hot Water System Types

One of those choices you will make once about a decade is to get a new hot water system and a lot has changed since you last purchased one. Let’s be honest.

Ten years ago the majority of homes in Sydney featured one or the other hot water unit: either a hot water storage tank on an off-peak power tariff, or a hot water storage tank in the backyard that was powered by gas. It really didn’t matter much as there really wasn’t much of a choice. Today, the marketplace has actually changed. The fastest-growing category is “heat pumps.” Gas storage is becoming obsolete and gas continuous flow is taking its place. Solar hot water is still available, but has been eclipsed by solar PV coupled with heat pumps. And the rebate industry has now set the equation to heavily favor heat pumps.

In 2026, Sydney offers a wide range of system types, all with their own distinct upfront cost, running cost, lifespans and space needed, let’s compare them.

Electric Storage Tank

How it works: Water is heated and maintained at 60°C in a hot water tank which is wrapped in an insulation material. Simple, non-moving parts other than a thermostat and a relief valve.

Cost up front (installed): $1000-$2000 for a basic domestic water tank.

Annual running cost: $500 to $700 – continuous tariff (on a constant electricity tariff) $300 to $450 – off-peak tariff (off-peak – heat the house while the electricity is cheaper – overnight) This system type is the most costly system to run.

Lifespan: 8 to 12 years. Very rod people and quality of water dependent.

Good for: When the existing infrastructure is electric and budget is a concern. Typical for but older Sydney apartments where there is no gas and no yard space for a Heat Pump.

Downsides: Most expensive to operate of all types of systems. Limited hot water supply (when the tank runs out of hot water, you have to wait until it reheats). Abandoned/b phased out due to government policy and moved to more effective ones.

Gas Storage Tank

How it works: A gas burner under the tank improves the water temperature, in the same way as the electric version but only using gas as an energy source. A pilot light or electronic igniter lights and maintains the burner on the blower block while the thermostat is seeking heat.

Upfront cost (installed): $1,400 to $2,500.

Annual running cost: $400 to $600. Even though it is less than electric, the prices of gas have been climbing in NSW.

Lifespan: 8 to 12 years.

Suitable for: Residences that already have gas services and a yard for the tank. Gradually being replaced by gas continuous flow, which uses the same fuel but can take up less space and can provide hot water for as long as is desired.

Downsides: Large footprint. Standby heat loss (the tank loses heat at all times, even when not in use for producing hot water). There’s an increase in the cost of gas supply. Pilot lights pose issues in windy/exposed areas.

Gas Continuous Flow (Instantaneous)

How it works: No tank), how it works: A heat exchanger (with a gas burner on demand) is used to heat cold water. The hot water only comes out when the water tap is opened and it’s always hot.

Upfront cost (installed): $1,800 to $3,000.

Annual running cost: $350 to $550. More efficient than the gas storage system since there are no standby heat losses, only hot water is being generated that is consumed.

Lifespan: 15 to 20 years. Very much longer than storage tanks due to the lack of a tank to deteriorate.

Ideal for: Families of more than two or three, requiring a limitless hot water supply. Modern town houses and rebuilt houses with gas connections. Multi-bathroom residences where “out of hot water” is not an option. Mounted on the wall which saves floor space.

Minuses: Needs to be connected to gas. The heat exchanger can scale up in hard water regions; not as much of a problem in Sydney as water is relatively soft (50–57 mg/l calcium carbonate). Requires an exterior wall to mount and clear flue space. Not all office or apartment growers allow gas appliances on balconies.

Heat Pump

Mechanism: It works as a reverse Air Conditioner as it removes heat from the air and moves it to the water in the tank. Uses about one-third of the electricity of a conventional electric tank.

Installed upfront cost (after STC): $3000 to $5000 in NSW (federal STC and NSW state ESS discount is applied).

Annual running cost: $75 to $300. By far the most efficient system type. For months in the sun the operating expenses can come near to nothing if you have solar panels.

Lifespan: 10-15 years for the heat pump unit, the tank component is the same lifespan as a normal storage tank.

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Hot water energy usage can be reduced by up to 75% with the use of a heat pump. According to the NSW Government case study, there is a homeowner who was paying $600 a year for gas hot water now uses a heat pump hot water system, paying $75 per year and then nothing with the addition of solar PV. The rise in energy prices and the rebate incentives sparked a growth of ~70% in heat pump installations, compared to the previous year, nationally.

Ideal for: Homes and Townhouses that have space outside for the unit. Households with solar PV (heat pump is powered from solar PV system during the day). Anyone that cares more about the money they will save on running costs than initial cost. Environmentally motivated homeowners.

Drawbacks: More initial cost (still after rebates) The outside unit makes a low noise, similar to an air conditioning outside unit – this is not a problem in most cases, but might be worth considering for apartments or units that have neighbours in close proximity. Requires adequate outside circulation – not allowed to fit into a closed cupboard. The performance will drop a little in very cold weather (below about 5°C), although it is a rarity in Sydney.

Solar Hot Water

The principle: Water is heated by the rooftop solar collectors or a heat transfer fluid is heated by the collectors and stored in a heat storage tank. A gas or electric booster is used to boost conditions during cloudy times and in winter.

Upfront cost (installed): $4,000 to $7,000. Expenses that come up first are greatest for any type of system.

Running costs: $100 – $250 per year (based on the use of boosters). Very low during the summer; up during winter when the booster is used more.

Lifespan: Panels have a lifespan in excess of 20 years. The life of the tank goes up to 8-12 years. Circulator pump can be replaced once during the system life.

Well suited to: Owner occupiers who have a good roof orientation (Sydney is north) and long term ownership plan. Buildings with space on the roof and who do not mind the rooftop panels for aesthetics.

Drawbacks: The initial purchase price is expensive. Roof dependent; meaning that shading, orientation and condition of the roof impact performances. They are more complex and have more components than other systems which can fail. Has mostly been superseded in the market by Solar PV + Heat Pump (similar or better energy performance and greater flexibility).

Then You Must Be Wondering: So Which One Should you Choose?

There really is no one-size-fits-all response, but the truthful one is this: It depends on the property, the budget, and the priorities. However, our abbreviated decision tree is as follows:

If you want the lowest initial investment and use the electric storage tank, you live in an apartment without a gas or outside: Electric storage tank. Though not the most efficient, it is the easiest to install and replace like for like cost-wise.

For unlimited hot water and gas you have: gas continuous flow. Longer life span compared to storage, low running cost, compact wall mounted piece.

If the least running cost is desired, and the owner is a homeowner, a heat pump is the preferred choice. The rebates make the difference up-front affordable and the running-cost savings are significant, particularly where solar PV is in place.

When in doubt, give us a call! We know the exact size your house is, the size of your family, the amount of energy you’re using and your budget for installation, so we’re not going to be pressuring you to sell something you can’t afford and don’t need.

The system that is right for your neighbour may not be the same for you. A family of five in a 4 bedroom home uses hot water systems differently to a couple in a one bedroom flat. We size and recommend systems according to your actual household—if you use an oversized system, you’re wasting money—and if you use an undersized one, you’re going to be left with cold showers.