Hot Water Systems Cost Versus Energy Saving

 The world is going savings mad for both energy and money! The government identified our hot water systemsh as a great way to save both money and energy. Alternative tariffs, new products and government rebates have all been introduced, with relative success but these have been short term solutions that have generated further issues down the line. This blogs looks at the different issues and suggests the best way to move forward for the hot water market in both savings and productivity.

 The government have been looking at many ways to save energy and improve Australia’s carbon footprint as well as reduce energy bills for the Australian households. One of the key areas they identified was your residential hot water systems (HWS). Hot water is a necessity in all homes; a comfort everyone takes for granted and can’t live without. 


Energy efficient units have been identified by the government as an energy saving target. This is why they have invested over $323 million on over 250000 solar hot water installs (Sept 2011, CleanEnergyCouncil).

However, the simplicity of hot water has been taken away by the need to save money and energy and there are several key variables that make the decision all most impossible. These include product pricing and running costs, tariffs and the installation industry.

First off, products, there are so many different hot water systems out there surrounded by ‘buzz’ words: ‘energy saving’, ‘solar’, ‘efficient’, ‘cheap’, ‘affordable’, ‘cleaner’, ‘greener’, ‘environmentally friendly’, carbon reduction’ and I can go on… but what do these words mean and how can all these products claim to have these attributes.


Starting with an electric HWS, the traditional water heater is just a large kettle, it delivers reliable hot water but is not efficient in its production of energy in comparison with the new systems available and is a large contributor towards Australia’s carbon footprint. The government have implemented a phase out of these products, but only in SA and the new build market has it had a significant effect. The benefits of the electric hot water system is the upfront purchase cost and installation fee and the unit running off tariff 31 (off peak). Despite the units poor efficiencies, the running costs of the unit are not recognised in full as the unit runs off a low tariff costing. However, these low running costs are set to change as the tariffs alter and the price of electricity becomes more consistent, and reflects the energy usage.


Low upfront cost

Low running cost on tariff 31


Energy intensive – Carbon footprint

High running costs on tariff 33/11

Very high running cost once the time of use is implemented


The next option is natural gas or bottled gas, the carbon friendly efficient system that saves energy and is cheap to run. This is very misleading, as bottled gas is the most expensive system to run followed by natural gas, with a family of four looking at $600 plus bills for hot water a year. The unit is very efficient in comparison with the electric HWS, however what isn’t recognised by the consumer is the cost of the bottled gas, the quarterly connection charges that add up to a considerable annual bill. Around 12 months ago this was the main type of system for builders to install, unable to install electrics, gas was the second cheapest to install and as the builder doesn’t pay the running costs they weren’t affected and it was an easy decision. However, consumers are more aware now and price comparisons between products have changed, with a greater degree of builders opting for a heat pump option. There is no cheap tariff for the gas units to go on, so once they’ve been installed the bills are expensive.


Low Gas Emissions 


Very expensive to run

SOLAR on the ROOF (Boosted)

The Solar phenomenon looks to have had its day, with explicit rebates benefitting the rich and driving up the price of electricity, Solar has had a significant impact on the hot water market. The rebates have now been scrapped and the labour intensive installs give the 90% energy efficient units up to and in excess of a 10year payback. The unit is ideal in the hot sunny summer periods however in the winter it can often turn into a standard electric or gas heater as the booster is required regularly.


Efficiency of up to 100% in summer


Very expensive install, with on the roof labour

10 plus years payback

Dramatic loss of efficiency during the winter period

Unsightly roof top mounting & tanks – structural damage


Trends in hot water are strongly governed by the products available and costs they incur, solar had a major boost by the rebates and the change in focus onto energy efficient products. Then heat pumps also had major push going from sales of 2000 to 30/40000 units a year and this resulted in major floors in some designs. However now the rebates have been removed and the products are under the microscope of both the industry and consumer major advancements have been needed and made to the quality of heat pump production. Cheap to run saving 60-70% efficiency on electrics, costing less than the connection fee alone of gas and no peaks and troughs with efficiency like solar the heat pump is the cheapest unit to run on the market. Along with the changes in legislation and market needs the purchasing and installation of a heat pump is a lot more competitive with gas and electric giving pay back periods of 1-2 years.


Low running costs

Competitive installs

1-2 years payback

Compatible with time of use tariffs


Poor history


A major influence on the replacement market is off peak power and the price comparison between the tariffs. Electric HWS are energy intensive units, however when they use tariff 31 off peak over night the energy usage is not reflected in the cost and this is the overriding factor. Customers are more concerned with the cost of their electricity bill than their carbon footprint. If the government are to ensure the phase out is continued and completed then single time of use tariff needs to be introduced. Once the electric system is on the same tariff as heat pump there will be no comparison on the cost of running the unit. The heat pumps are able to produce 3 times more energy than electric systems from the same power input, dramatically reducing the energy consumption. Further to this heat pumps have been designed with in built timer functions allowing them to work with smart meters and the time of use tariffs. Gas is already significantly more expensive and with costs only likely to increase is no comparison to the heat pump in the QLD hot water market. Solar on the roof will remain a viable option for the wealthy and maintain a use in the market. However, issues with installs and the upfront costs are making the product obsolete to your average home owner. 


The last issue is the install cost, solar has a very high setup costs with the labour and dangers involved with mounting large units onto the roof, positioning and reinforcing the roof, therefore it will never be a cheap and easy option. Natural gas will always vary on the availability of the connection in the area and LPG is a reasonably straight forward install but the running costs are too significant to make gas a competitive option. Therefore electric and heat pumps are the only two products remaining, electric will always have the edge on upfront costs due to their production value but the running costs are high and will continue to increase. As heat pumps become more common practice and recognised by plumbers as a straight forward install, just like an electric the setup costs will reduce and payback periods will continue to drop, leaving heat pumps as the main option and only logical option.


If the government are serious on reducing the carbon footprint and saving Australians money then the phase out of electrics must be pushed through, however this requires the monitoring of the plumbing industry and installs as well as implementing changes to the tariff. The answers are there but it’s whether or not we take the action to implement them.


 By Simon Baird 

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