Guide · last reviewed 6 September 2026
Heat pump vs gas hot water
The short version for 2026: a heat pump is usually cheaper to run than gas, and after rebates it is often cheaper to install than you would expect — because gas replacements get no state hot water incentive in most of the country. The real question is not which technology wins in the abstract, but whether your existing gas system is due for replacement anyway.
Running costs: count the supply charge, not just the gas
This is where most comparisons go wrong. Gas hot water costs you the gas you burn plus a daily supply charge you pay every day of the year, whether you used much hot water or none. Add both together and gas hot water commonly runs $300–$600 or more a year.
A heat pump typically uses roughly $100–$250 a year of grid electricity for a household, and close to nothing if you time it to run on rooftop solar. It delivers around three to four units of heat per unit of electricity, where a gas storage system loses a meaningful share of its energy to the flue and standing losses. The full breakdown is in our running costs guide.
Upfront cost: the rebates only go one way
A gas hot water unit is usually cheaper on the sticker price. What closes the gap — and often reverses it — is that heat pumps earn federal STCs nationwide and attract state incentives that a like-for-like gas replacement does not. Victoria stacks a VEU discount with the Solar Victoria rebate; NSW applies an upfront ESS discount that is materially larger when you move off gas or electric storage; South Australia's REPS incentive is set by your retailer and is substantially more generous when the replacement removes gas. Ask every installer to itemise each incentive on the quote so you are comparing real post-rebate numbers.
The gas connection question
If hot water is your last gas appliance, switching lets you consider removing the gas connection and its daily charge entirely — which is a bigger saving than the hot water usage itself. If you keep gas cooking or gas heating, you keep the supply charge, and the saving is usage only. Disconnection is worth deciding deliberately rather than by accident: reconnecting later is expensive, so confirm the cost with your gas distributor before you abolish the connection.
When gas is still the right answer
- Your gas system is young and working. Replacing a healthy unit early to chase a running-cost saving rarely pays back quickly. The strongest case for switching is when replacement is due anyway.
- No room for a tank. Some homes on instantaneous gas genuinely have nowhere to put a tank and a compressor. Get a site assessment rather than assuming it will fit.
- Placement problems. A heat pump has an outdoor fan unit that needs airflow and a sensible spot away from bedroom windows — apartments and tight side setbacks are the usual sticking points.
The verdict
For most Australian homes replacing hot water in 2026, a heat pump beats a like-for-like gas replacement on running cost, and the rebate gap often makes it competitive or cheaper to install as well. But timing matters more than the comparison — if your gas system has years left, the honest answer is to plan the switch for when it fails rather than to rip out something that works. When you are ready, get two or three quotes and compare the rebate-adjusted price for your own home.
Frequently asked
Is a heat pump cheaper to run than gas hot water?
Usually yes, once you count the daily gas supply charge as well as the gas you burn. A heat pump typically runs on roughly $100–$250 a year of grid electricity, or close to nothing timed to rooftop solar, while gas hot water is commonly $300–$600 or more a year all-in. Your own tariffs decide the size of the gap, so compare your actual bills.
Is a heat pump cheaper to buy than a gas hot water system?
A gas system is usually cheaper on the sticker, but heat pumps attract federal STCs and, in several states, substantial extra incentives that gas replacements do not. After rebates, a heat pump is often the cheaper install — and in Victoria and NSW, well-priced systems commonly land at a fraction of the pre-rebate price.
Should I replace a gas hot water system that still works?
Usually not on cost alone. The maths for switching is strongest when the old system is at or near the end of its life and you are replacing something anyway. Replacing a healthy gas unit early means paying for a whole new system to chase a running-cost saving, which lengthens the payback considerably.
Do I save the gas supply charge if I switch to a heat pump?
Only if hot water is your last gas appliance and you actually disconnect the connection. If you keep gas cooking or gas heating, the daily supply charge stays on your bill and you save only the hot water usage. Disconnection is a decision to make deliberately — reconnecting later is expensive, so check the cost with your gas distributor first.
Does a heat pump still work in winter compared to gas?
Yes. A heat pump extracts warmth from the surrounding air rather than the sun, so it heats water day, night and through winter. It works harder — and so uses more electricity — in genuinely cold weather, which is worth raising with your installer if you are in a cold-climate area such as Ballarat, Bendigo, Canberra or Tasmania.
See what the switch actually costs you
Check your state's rebates, then get free quotes from local installers.
General information reflecting Australian pricing and published scheme information as at 6 September 2026 — not a quote or advice. Running costs depend on your own electricity and gas tariffs, household size and climate zone; rebates vary by state and change. Always confirm current eligibility and get itemised quotes.