You've just had a shocking power bill, or your hot water system needs replacing, and you're wondering if a solar or heat pump version might be the way to go? Is it worth the upfront cost and will it really save you money in the long run? The short answer is: probably yes.

A well chosen solar hot water system (HWS) or a heat pump may cost more to begin with, but they can be significantly cheaper to run than a conventional electric or gas system. Good for the purse, good for the planet. And some of the purchase cost can be offset with government rebates and incentives.

Solar or heat pump?

Pumped to know the difference between a solar and a heat pump system? Here are the basics. 

Solar hot water system

  • Consists of solar collector panels and a storage tank. A four-person household typically needs about four square metres of solar collector area (two panels) and a 300–360L tank. You need a large tank to allow for days with less sunlight (or more hot showers than usual).
  • Thermosiphon systems have both the collector panels and the storage tank mounted on the roof. The liquid in the panels circulates into the tank via the thermosiphon effect (as water heats up, it becomes lighter and rises into the tank). 
  • Pumped or split systems have collector panels on the roof but the tank is located at ground level (or elsewhere in the building). Hot water is pumped from the panels to the tank.
  • If panels can't be installed in an ideal location – usually a north-facing part of the roof with no shading – their efficiency may drop and you'll need a larger collector area.
  • Collectors may be flat panel or evacuated tubes. Evacuated tubes are generally more efficient – so require less panel area – but they're also more expensive.
  • The storage tank usually has an electric or gas booster element to keep the water hot on days with less sunshine. 
  • In frost-prone areas, the water can freeze and damage the panels, so you need frost-tolerant panels which use a special heat-exchange fluid to heat the tank rather than heating the water directly.
  • Solar hot water systems are comparatively expensive and time-consuming to install, but a well-chosen system will pay for itself in the long run due to very low running costs.

Heat pump hot water system

  • A very efficient electric storage tank system that works on the same principle as a fridge or air conditioner, by extracting heat from the air and using it to heat the water tank.
  • Units are usually integrated (tank and compressor together) but can also be split (separate tank and compressor).
  • Need to be installed in a well-ventilated area, usually outdoors.
  • The compressor on the unit can be noisy, like the outdoor unit of an air conditioner, so don't install too close to a neighbouring home.
  • Tend to work best in warm and temperate regions, but some models are designed to work well in cold climates too, and most systems have a booster element for days of cold weather or high demand.
  • You'll typically need a 270–315L tank for a four-person household. Tank sizes generally range from 125L to 400L.

Government rebates 

Some state governments still operate energy-efficiency incentive schemes. To find incentives and rebates for hot water systems, see the Australian government Living Greener program or contact your state government. Some manufacturers and suppliers also have rebate calculators on their websites.

The main upfront financial incentive for buying a new solar or heat pump hot water system (HWS) comes from government-regulated Small-Scale Technology Certificates (STCs). Solar and heat pump systems qualify for a certain number of STCs depending on the efficiency of the system and where you live. 

In most cases, the easiest way to use STCs is to sell them to the company supplying your new hot water system – they usually 'pay' you by discounting the system you're buying. You can also opt to trade the STCs yourself, but this is trickier and you might not do any better out of it.

Solar and heat pump hot water systems typically qualify for 20 to 40 STCs. The market price for STCs varies but is about $30. So for a system eligible for 30 STCs, at a price of $30 per STC, you would get $900. Different suppliers may quote different amounts for STCs.


Installation of a solar HWS can be more complex than for a conventional electric or gas system. It won't happen the next day, so unless you can live without hot showers for a while, it's probably not a good option for when your old HWS dies. A heat pump HWS is easier, as it's often situated and plumbed in just like other outdoor electric tank systems.

Solar panels need a section of roof with good access to sunlight, preferably facing north for maximum exposure. With a thermosiphon system, the roof might need reinforcing as it has to bear the load of the water tank. And if the roof is difficult to access, the supplier might charge more for installation. 

Check with your local council about building regulations. Councils probably won't object to you installing solar panels, but there may be restrictions.

For strata buildings, it might be impossible to install solar panels for individual units, and most units won't have suitable outdoor space for a heat pump. However, the owners' corporation could consider a commercial installation for the entire building. Villas and townhouses have more options, but owners' corporation approval will still be needed.

Getting a quote

Suppliers usually need about 30 minutes to assess your home. Retail suppliers are often connected with just one or two brands, but most brands have a wide range of products, so suppliers should be able to quote on a range of different types and models. As always, get quotes from at least two suppliers.

Questions the supplier should ask you:

  • How many people live in the house? How much showering and hot clothes washing do you do each day, and what time of day do you do it?
  • What sort of hot water system do you currently have?
  • Is gas connected to the property?

Questions you should ask the supplier:

  • Is installation included in the quote?
  • How long will it take from placing the order to completion?
  • How many STCs does the system qualify for? Is STC buyback included, and at what price for the STCs?
  • Can they help you with other government rebates?
  • Can you keep your existing hot water heater tank as part of the new system? It might be possible to incorporate it as a booster for a solar hot water system. However, doing this may mean you may not be eligible for STCs, because they only apply to completely new installations.


For both solar and heat pump hot water systems, the final cost can vary as it depends on the cost of the system, installation, rebates and the price of STCs at the time of purchase.

  • Solar power hot water systems range in price from about $2000 to $7000 (not including installation).
  • Heat pump hot water systems range in price from about $2500 to $4000 (not including installation).