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How to buy the best hot water system

Don't wait until your old tank burns out – plan your next purchase now.

two hot water systems and hot tap

When a hot water system goes – with a bang, a whimper, or even a flood – it tends to go suddenly. At that point you don't have the luxury of carefully reviewing the available options, unless you love cold showers. Instead, you get a replacement of the same type wheeled in ASAP and try to forget about it until next time. But what if you were missing out on a better product?

This guide explains the different types of hot water systems and their pros and cons, how to choose a brand, and how to pick the right size of system for your household.

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Why you should review your hot water system

Water heating accounts for a quarter of typical household energy use – and it can be even more. It's worth reviewing your hot water use well before your current system dies and then checking out the alternatives. Reducing your hot water consumption will help save you money, and you might be able to switch to a hot water system that's more cost-effective and kinder to the environment.

Also, regulations aimed at reducing energy consumption now mean a new electric storage system is not an option for many homes. Check the regulations in your state.

Electric, gas, solar or heat pump hot water system?

The first decision you'll need to make when choosing a hot water system is the energy source and heating method: electricity, gas, solar or heat pump?

Heat pump

  • A type of 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.
  • This makes them much more energy-efficient and cheaper to run than a conventional electric system (see below), though the initial purchase price is more expensive. The payback (break-even) point is typically about five years, though this can depend very much on the amount of rebate you get.
  • Heat pumps make particularly good sense when you have solar panels on your home – you're powering the hot water system with your own "free" electricity. 
  • Units are usually integrated (tank and compressor together) but can also be split (separate tank and compressor).
  • They need to be installed in a well-ventilated area, usually outdoors.
  • Installation typically takes no more than two or three hours, if it's a straight replacement for a similar heat pump or electric storage hot water system.
  • The compressor on the unit can be noisy, like the outdoor unit of an air conditioner, so you can't install them too close to a neighbouring home.
  • They tend to work best in warm and temperate regions, but there are models designed to work well in cold climates too, and most systems have a booster element for days of cold weather or high water usage. 
  • You'll typically need a 270–315L tank for a four-person household.
  • Government rebates and other incentives can help offset the purchase cost.
  • They range in price from about $2000–7600 (not including installation).


  • An electrically heated storage tank system is usually relatively cheap to buy and install, but is usually the most expensive to run, especially if it's on the continuous (full day) rate.
  • Installation typically takes no more than two or three hours, if it's a straight replacement for a similar system.
  • Systems that run on off-peak electricity are much cheaper to run, but need a larger tank as the water heated overnight has to last you all day. And off-peak electricity isn't available to all homes.
  • A four-person household typically needs a 125–160L tank for a continuous rate system or 250–315L for off-peak.
  • Can be installed indoors or outdoors.
  • Electric instantaneous water heaters are also available, but are typically able to supply hot water for just one outlet (one tap or shower).
  • They typically range in price from about $400–1800 (not including installation). 
  • Your electric hot water system could account for a major chunk of your electricity bills. It's worth checking that you're on the best electricity plan for your needs.


  • Natural gas is a good option if you have the connection for it. It can be cheaper than electricity (unless you have solar panels) and because gas rates don't vary through the day, gas hot water systems can heat water as needed.
  • Installation typically takes no more than two or three hours, if it's a straight replacement for a similar system.
  • A four-person household needs a tank of about 135–170L. You also have the option of an instantaneous system. See below for information on storage tank vs continuous flow systems.
  • Usually installed outdoors due to venting requirements, but can be installed indoors with a flue.
  • Have an energy efficiency star rating. 
  • Some have a pilot light, which continually uses a small amount of gas. Electric ignition is more economical, but in a blackout you can lose your hot water supply.
  • Liquid petroleum gas (LPG) bottles are an alternative to natural gas – but expect to pay significantly more in running costs.
  • One important consideration is that gas is a fossil fuel, and moves to reduce carbon emissions will probably make gas a less attractive option in the future. While it's currently cheaper than grid electricity, it's nowhere near as cheap as your own solar-generated electricity if you have solar panels. The long-term future for gas prices is uncertain, but it's expected that gas will become more expensive over time.
  • They typically range in price from about $900–2000 (not including installation). 


  • 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).
  • If your panels can't be installed in an ideal location, they may be less efficient and you'll need a larger collection area.
  • The storage tank usually has an electric or gas booster element to keep the water hot on days with less sunshine.
  • Comparatively expensive and time-consuming to install. The installer will need to inspect your home to plan the installation, but the actual installation should usually be a day's work or less. A well-chosen system will pay for itself in the long run due to its low running costs.
  • Government rebates and other incentives can help offset the purchase cost.
  • See our solar hot water buying guide for more information.
  • They range in price from about $4000–8000 (not including installation).

Storage tank or continuous flow ('instantaneous')?

The next decision, after heating method, is whether you go for a system with a tank, or one that heats water as needed.

Storage tank

  • Most electric, gas, solar and heat pump hot water systems use a tank.
  • Households that use a lot of hot water will often find a storage tank system is the most cost-effective option.
  • Mild-steel tanks can corrode over time – maintenance every few years can help prevent this. They usually have five- to 10-year warranties.
  • Many tanks have one or two "sacrificial anodes". This is a metal rod inside the tank which attracts minerals and other impurities that would otherwise corrode the tank – the anode corrodes instead, 'sacrificing" itself. Get a plumber to check the system and replace the anode every five years (or as per manufacturer instructions); doing this can add years to the life of the tank.
  • Stainless steel tanks are more expensive, but generally last longer and don't require as much maintenance as mild-steel tanks. They usually carry a 10-year warranty, but still require occasional maintenance (such as replacement of valves and seals).
  • Local water quality may dictate which type is best for you – check with the installer.
  • Tanks are insulated, but there is always some heat loss over time, so it's good to install them in a sunny spot or in an insulated space. 

Continuous flow

  • Also often referred to as "instantaneous", a continuous flow hot water system heats only as much water as you need, when you need it. They aren't truly instantaneous – it can take a few seconds before hot water starts flowing from the tap, especially when there's a fair distance of pipe between the hot water system and the tap.
  • Most models use gas. Electric models are available, but these are usually intended to heat water for a single tap or shower.
  • For a smaller household, continuous flow systems are often cheaper to run and more practical than a storage tank system. 
  • Electric models will use the full electricity tariff for whenever they're in use, so running costs may be higher than for an off-peak tariff tank, but less than a continuous tariff tank system.
  • The size you need (flow rate in litres per minute) depends more on the number of hot water outlets the heater has to serve than on the number of people in the household. As a general rule, for a two-bathroom house you need a flow rate of about 22–24L per minute. Talk to your supplier to find the right capacity for your home.
  • We've had members advise that their continuous flow water heaters were not turning on because of a combination of low flow showerheads and too high a trigger point for the hot water heater to start up – essentially, the water flow was not sufficient for the water heating to be triggered. Keep this in mind if you're considering having low-flow shower heads and a continuous flow hot water heater, and confirm the trigger point is set appropriately.

Household size and water usage

Typically, one person uses about 50L of hot water a day – more if you take very long hot showers or often wash clothes in warm or hot water.

Get a hot water system supplier to analyse your home and usage and recommend some options. To determine the right size of system, a supplier should ask a few key questions to figure out how much hot water your home uses, and when.

  • How many people live in your home?
  • What's the usual time for showers or baths? Morning, evening or both? How many showers and for how long?
  • Do you wash clothes in hot or cold water? Many front loader washing machines take cold water only (and heat it themselves), so they don't use your hot water system. But if your washing machine is connected to a hot water tap, and you use hot wash cycles, that'll be drawing on the water in your hot water system.
  • Do you use a dishwasher, or do you mainly wash your dishes by hand? Dishwashers usually take cold water only (and heat it themselves), so they don't use your hot water system, while hand-washing does.
  • Is there a long pipe run from the hot water system to the main outlets (e.g. the kitchen sink or the shower)? That can be inefficient and it means long waits for hot water to arrive, and wasted energy and water. A shorter run is better, and at the least, the hot water pipe should be insulated. A good installer/plumber can help with that, but of course it will add to the cost of the work.

Get quotes from at least two hot water suppliers.

For most households, a solar hot water system can be the most efficient and cheapest to run. If that's not an option, here are other suggestions.

  • Small household (1–2 people): Continuous flow hot water system (gas or electric) or small gas storage hot water system.
  • Medium household (3–4 people): Gas systems (continuous flow or storage), or a heat pump.
  • Large household (5+ people): Multiple continuous flow hot water system may be an option but gas storage units may be more economical. Large heat pumps are also an option.

Energy star ratings

Minimum Energy Performance Standards (MEPS) currently apply for electric hot water storage systems, gas hot water storage and gas instantaneous systems. However, they aren't required to have energy star rating labels. 

You'll see star rating labels on gas hot water systems, but that's an industry-managed scheme and isn't regulated by government. It's unrelated to the energy efficiency star rating labels that applies to products such as fridges and air conditioners.

MEPS are currently under consideration for other water heater types. This will help to remove inefficient models from the market and may see star rating labels appear on all hot water systems.

Rebates and incentives

There are a few federal and state schemes to encourage households to switch to more energy-efficient types of hot water systems, in particular, to solar and heat pump models.

The federal government energy rebate website lets you enter details of your state and area of interest to find out the rebates and incentives available to you. For example, enter that you're a household, located in NSW (for example), interested in hot water, and it will list the rebates and incentives available to NSW households who are buying a new hot water system. 

In most states, the only assistance is the Small-scale Renewable Energy Scheme, which is the same scheme that provides a form of rebate for installing solar panels on your home. It offers similar incentives for installing a solar or heat pump hot water system.

Some state-based schemes also exist.

The above list is not exhaustive and new schemes appear from time to time, so it's worth doing your own check on the federal government site above, or with your state and local governments. A good local hot water system installer will also often be able to advise of any rebates that apply in your area.

Stock images: Getty, unless otherwise stated.