The six kinds
Hot water systems either keep heated water in a tank, ready at all times, or heat it only as it is needed. Within those two, the government guides describe six kinds you are likely to meet.
| Kind | How it heats | What the guides say |
|---|---|---|
| Electric storage | An element inside the tank heats the water directly, like a giant kettle. | Used by around 50% of Australian households. The cheapest to buy and install, and generally more expensive to run, unless powered by solar panels. |
| Heat pump | A refrigeration cycle draws heat from the air into the water. | Uses 30% of the energy of a conventional electric system. Expensive to buy and install, cheap to run. The compressor can be noisy, like an air conditioner’s. |
| Solar | Solar panels or evacuated tubes, with a storage tank on the roof or at ground level. | Can provide up to 90% of a home’s hot water, depending on climate, with a gas or electric booster for the rest. Costs more to buy and install. |
| Gas continuous flow | Heats water as it flows, with no tank. | The most common kind of gas water heater. Usually installed outdoors because of venting requirements. An instantaneous system cannot run out of hot water. |
| Gas storage | A gas flame heats a stored tank. | Particularly inefficient, with very high heat loss, because the tank can’t be insulated where the flame heats it. |
| Electric instantaneous | Heats water directly when it is needed. | About 20 to 30 percent more efficient than electric storage, but often more expensive to run. Usually needs a three-phase power connection, which not every home has. |
On running costs and emissions, Your Home is direct: heat pump and solar systems are much more efficient than the other options and usually cost the least to run, and to keep energy use, running costs and emissions down, gas hot water systems should be avoided. Water heating is the second largest part of household energy use, between 15% and 30%.
Where they live
Many of these units sit outside the house, which is why they belong in this guide. Gas water heaters are usually installed outdoors, because of venting requirements. A split heat pump keeps its compressor, evaporator and fan in an outdoor unit, separate from the tank, and the two are usually no more than 10 to 15 metres apart. An integrated heat pump carries its fan high on top of the tank, where Your Home notes the noise can carry over fences towards neighbours and nearby windows. Not every heat pump model is designed for places that regularly drop below 5°C in winter.
Being outside, they also meet the weather. Your Home advises insulating hot water pipes, above all the exposed ones outside that carry water to the house, and on a storage system the pipe that runs to its relief valve. After a flood, gas appliances that have been in floodwater should be inspected for safety before use, and electrical appliances affected by water inspected by a licensed electrician. Mark 6 has the order of things after a flood.
Temperature
How hot the water may be at a shower, bath or basin is set by the Plumbing Code of Australia, and Building Commission NSW explains the limits in its advisory note on temperature requirements for heated water installations.
How big
Size depends on how many people live in the home and how they use hot water. As a typical figure, Your Home gives about 50 litres of hot water per person per day, while asking households to assess their own circumstances.
Worked example
An example only, for a household of four, using Your Home’s typical figure.
- People
- 4
- Typical use per person per day
- 50 L
- Typical use for the household per day
- 200 L
Your Home’s caution runs both ways. A tank too small for the household can run out; a tank too big costs more energy to keep hot, though good insulation of the tank, fittings and pipes reduces that. Electric storage systems over 250 litres can heat water in cheaper off-peak periods. Below that size, Your Home says off-peak operation doesn’t suit them, and they can cost more to run as a result.
A check you can make from the yard
A storage system has a relief valve, which protects it by relieving excess pressure. Your Home’s test: if a bucket placed under the valve fills in a day, the valve needs replacing. It also asks for dripping hot taps and leaking appliances, the relief valve included, to be repaired straight away.
Installation is work for a professional: Your Home says all hot water systems must be designed and installed to Section 8 of AS/NZS 3500.4:2021, the Australian Standard for heated water services.
Help with the cost
Solar and heat pump systems may be eligible for small-scale technology certificates, which can be traded for cash or a discount on the price. Your Home notes that these certificates will be phased out by the end of 2030, and that the NSW Government was among the states offering additional energy-saver incentives when it was read in October 2026; energy.gov.au keeps the current list. If a system fails, energy.gov.au notes that some installers will lend a temporary electric heater while you choose. The full guides are Your Home on hot water and energy.gov.au on hot water systems.