Hot water system replacement: gas vs electric vs heat pump

Replacing a hot water system is one of those jobs most homeowners only think about once the old one fails, and by then there often isn't much time to compare options carefully. Knowing the rough shape of the market — what each system type commonly costs installed, and where the trade-offs lie — makes it much easier to make a quick decision you are not left second-guessing.

Electric storage systems are typically the cheapest option to buy and install, with installed pricing commonly landing somewhere between $1,000 and $1,800 for a standard household unit. They are simple, reliable and widely serviced, which is part of why they remain common, but they are also generally the most expensive system type to run day to day, since heating water electrically with a resistive element is not particularly efficient compared with the alternatives below.

Gas systems sit in the middle on upfront cost and are often cheaper to run than electric storage, particularly in areas with reasonably priced reticulated gas. Gas storage systems commonly cost somewhere between $1,200 and $2,200 installed, while continuous-flow (also called instantaneous or tankless) gas systems, which heat water on demand rather than storing a heated tank, commonly start from around $1,500 and can run higher depending on the model and household hot water demand. Any gas hot water installation or replacement must be carried out by a plumber with a valid gasfitting licence or endorsement — a standard plumbing licence alone does not authorise gas work in most states, which our separate article on choosing a licensed gasfitter explains in more detail.

Heat pump systems have the highest upfront cost of the three, commonly $2,500 to $4,500 installed, though some larger or higher-spec systems can run higher again. They work by extracting heat from the surrounding air to heat water, similar in principle to a reverse-cycle air conditioner, and use meaningfully less energy than a standard electric storage system as a result — which is why they generally have the lowest running costs of the three options over the life of the system. Government rebates, which vary by state and change over time, commonly reduce the effective installed cost of a heat pump by $800 to $1,000 or more, and the typical payback period for upgrading from an old electric storage system to a heat pump — the time it takes for the running-cost savings to offset the higher upfront price — commonly sits somewhere around three to five years, though this depends heavily on household hot water usage and local electricity prices.

One point worth understanding before you get quotes: replacing a system with the same type and a similar size is usually the simpler, cheaper option, since the existing pipework, gas connection or electrical circuit is generally already in place and suited to the job. Switching system type — say, from electric storage to gas, or from gas to a heat pump — typically costs more than the base installed price above, because it can require new gas piping and a flue, an upgraded electrical circuit, a new drain connection for a heat pump's condensate, or a different sized unit and mounting arrangement. None of that makes switching a bad idea, especially if the running-cost savings justify it over the system's life, but it is worth budgeting for that extra work rather than assuming a straight swap between quoted prices.

The figures above are rough planning ranges reported across the Australian plumbing industry in 2026, not a quote for your own home, and rebate availability changes by state and over time. This article is general information rather than advice on which system suits your household specifically. Getting a written quote from a licensed plumber who has actually looked at your existing setup is the only reliable way to know what your replacement will cost — our directory lists Australian plumbers by area if you are ready to start comparing.

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