Heat Pump vs Gas Hot Water (2026): Which Should You Install?

A gas system burns fuel to heat water, either on demand in an instantaneous unit or to keep a storage tank hot. It is a mature, reliable technology and there is nothing wrong with it as an appliance.

A heat pump does not make heat at all. It moves it, collecting warmth from the outside air with a refrigerant circuit and delivering it into a tank of water. That is why it uses roughly one third the electricity of conventional electric storage for the same amount of hot water. The compressor does not create the heat, it just relocates it, which is why the output exceeds the input.

Against gas the comparison is less about a single efficiency number and more about three things: what you pay to run it, what you pay to buy it after incentives, and whether you can pair it with something you already own. On the last point, a heat pump timed to run in the early afternoon can absorb solar generation that would otherwise be exported for a few cents. Gas cannot use your solar at all. With feed-in tariffs where they are, that alone changes the arithmetic for any household with panels on the roof.

One more thing worth being clear about. If you are currently on old electric storage rather than gas, the heat pump case is overwhelming and this comparison barely applies. Our page on electric water heaters covers where conventional element tanks still make sense, which is a shrinking list.

This is the part that decides most quotes, and it is not close. Three separate programs can apply to a heat pump hot water installation in Victoria, and none of them apply to replacing a gas unit with another gas unit.

Solar Victoria Solar Homes contributes up to $1,000, or up to $1,400 for a locally made product, subject to eligibility including a combined household income cap of $150,000 from 1 July 2026. Victorian Energy Upgrades applies a discount directly to your installation invoice rather than being claimed afterwards, with no income test, provided the property is at least two years old and you make the minimum customer contribution of $200 including GST. Federal small scale technology certificates are worth roughly $300 to $600 and are normally assigned to the installer and deducted from your price.

Stacked, that commonly totals $3,000 or more against a supplied and installed cost of $3,000 to $4,500. Most Victorian households end up paying from a few hundred dollars up to about $1,500. A gas replacement, by contrast, is paid at full price, because these programs exist specifically to shift households off gas rather than to keep them on it.

One honest caveat. The VEU program changed on 30 September 2026, so the amount must be confirmed in writing at quote time rather than taken from a figure someone remembers from last season. Our heat pump hot water rebate guide goes through each program in detail, including who the income cap catches.

This is what actually differs day to day and over the life of the appliance.

This is where heat pump installations go wrong, and it is almost always a siting problem rather than a product problem. A heat pump has a compressor and a fan. They make noise while the unit is running, in the same way an air conditioner outdoor unit does.

Sited sensibly, with clear airflow, a bit of distance from bedroom windows and the discharge pointed away from where people sit, it is a non issue and most households stop noticing it within a fortnight. Sited under a bedroom window, or hard against a narrow side boundary where the sound reflects off a neighbouring wall, it becomes the thing you complain about for ten years.

Terrace and townhouse sites are the hardest. On a narrow block in Yarraville or Footscray there may be one viable position, or none that satisfies both airflow and neighbour proximity. This is why we assess the position before quoting rather than assuming the new unit goes where the old one was. Gas instantaneous units have no compressor, mount flat on a wall, and simply do not raise this question, which is a genuine advantage in tight sites.

The other placement factor is the run to the tank and the electrical supply. A heat pump needs a dedicated circuit and an isolator, and on older homes that sometimes triggers a switchboard upgrade before anything else can happen. It is far better to identify that at quote stage.

A gas instantaneous unit does not run out of hot water. That is its single best feature and it is why households with four teenagers and one bathroom like them. A heat pump heats a tank, so it has a finite amount available and it reheats more slowly than a gas burner does.

That difference shows up as a cold shower for the last person on a winter morning if the tank was sized on the average day rather than the busiest one. It is not a fault, it is a sizing decision made badly. As a general guide, 170 to 220 litres suits one or two people, 250 to 280 litres suits three or four, and 300 litres or more suits five or more. Size for the morning where everyone showers back to back, not the one where two people do.

Cold weather does reduce a heat pump efficiency, because there is less heat in the outside air to collect. Modern units are designed for Melbourne conditions and continue to work through winter, but the compressor runs longer to achieve the same result. The practical answer is the same as the sizing answer: a slightly larger tank, and a heating cycle timed for the early afternoon when the air is warmest, which is also when your solar is generating.

That timer setting is the single most valuable thing you can do with a heat pump after installation. Running the compressor in the warmest air of the day is when the unit is most efficient, and on a solar home it means the tank fills with generation that would otherwise export for a few cents. Set it once and it works every day for a decade.

Both technologies are mature and both will run for many years with reasonable care, so the question is less about which lasts longer and more about what breaks and what it costs to fix.

A gas instantaneous unit has a burner, a heat exchanger and controls. It is a simple machine, parts are widely available, and most tradespeople in Melbourne have worked on one. A gas storage tank eventually loses its tank, which is a replacement rather than a repair.

A heat pump has a refrigerant circuit and a compressor as well as a tank. That is more to go wrong, and refrigerant work requires an ARC licence, so it is not a general plumbing repair. On the other hand the electrical and control side is straightforward, and a properly sited unit with clear airflow leads a fairly gentle life. Both types benefit from an occasional check of the temperature and pressure relief valve, which is the most commonly ignored maintenance item on any hot water system.

What we would say honestly is that neither choice is a maintenance trap. Placement, sizing and installation quality determine how a heat pump behaves over its life far more than the brand on the front does. That is true of most of the hot water systems we fit.

We install both, and there are households where we say keep the gas. Being straight about those cases is more useful than pretending the answer is always the same.

The first is a working unit. If your gas hot water system is functioning and only a few years old, replacing it early rarely pays back. Incentives make the heat pump cheap, not free, and scrapping a working appliance to save on running costs is usually a slower payback than people expect. Put the changeover on the list for when it fails, and get the quote ready before it does.

The second is placement. If there is genuinely no position on the property where a heat pump can sit with clear airflow and without pointing a compressor at a neighbouring bedroom, that is a real constraint, not a detail to work around. Narrow inner west blocks throw this up regularly.

The third is a household that keeps gas for other reasons. If you are staying on gas for cooking or heating anyway, the daily supply charge is being paid regardless, and one of the bigger arguments for electrifying hot water disappears. The picture changes entirely if you are also planning to move heating to reverse cycle, because then hot water is the appliance standing between you and disconnecting gas altogether.

The fourth is genuinely heavy simultaneous demand in a house with no room for a large tank. An instantaneous gas unit that never runs out has real value in that specific situation.

If none of those apply to you, the heat pump case is strong and the incentives are the reason. Happy to run the numbers against your actual household rather than a generic profile, so get in touch if you want it looked at properly. Pivot Trade Services holds REC 37223 and SAA accreditation S3962281, and every installation carries a 12 month workmanship guarantee on top of the manufacturer warranty.