Replacing your hot water system and trying to decide whether gas or electric hot water is the right call? Water heating accounts for up to 25% of the average Australian home’s energy use, so the system you choose has a real, lasting impact on your bills for the next decade or more.
This guide gives you a straight comparison of gas vs electric hot water, including upfront costs, running costs, pros, cons, and an honest take on where heat pumps and solar fit in. We’ll also clarify what Australia’s gas transition means for Sunshine Coast homeowners making this decision right now.
Key Takeaways
- Gas hot water has historically been cheaper to run than standard electric storage, but that gap is narrowing as gas prices rise.
- Heat pump hot water systems are the most energy-efficient option currently available.
- Electric storage is the cheapest to install upfront, but typically the most expensive to run on peak tariffs.
- Queensland has no gas ban, but mains gas isn’t available everywhere on the Sunshine Coast, and LPG running costs are significantly higher than natural gas.
- Eligible Queensland households can access an $800–$1,000 Climate Smart Energy Savers rebate on heat pump systems, plus federal STCs, making the economics more competitive than many people expect.
How Each System Works: A Quick Overview
Before comparing the cost of gas vs electric hot water, it helps to understand what you’re actually choosing between.
Electric Storage
Electric Storage heats water using an electric element inside an insulated tank, similar in principle to a kettle. It’s the most common type in Australia, used in around 50% of homes. Low upfront cost, simple to install, but generally the most expensive to run unless you’re on an off-peak tariff or pairing it with rooftop solar.
Gas Storage
Gas storage uses a burner to heat water held in a tank. They heat quickly, but gas storage systems suffer from high heat loss because it’s not possible to insulate the point where the gas flame heats the tank, so they consume more gas than most people realise.
Gas Instantaneous (Continuous Flow)
These systems heat water on demand with no storage tank. Popular with households wanting unlimited hot water and a smaller footprint. More efficient than gas storage, and typically the better gas option if you already have a mains connection.
Heat Pump
A heat pump extracts heat from the surrounding air and transfers it to the water in the tank – the same principle as a reverse-cycle air conditioner running in reverse. Rather than generating heat directly, they transfer it, allowing them to use 60–75% less electricity than conventional electric systems.They have a higher upfront cost, but significantly lower running costs.
Solar
Solar uses rooftop collectors to heat water directly, with a gas or electric booster for overcast days. Solar is the best long-term investment in sunny climates – the Sunshine Coast is an ideal environment for it.
Gas vs Electric Hot Water: Side-by-Side Comparison
| Electric Storage | Gas Storage | Gas Instantaneous | Heat Pump | |
| Supply + install (approx.) | $1,200–$2,500 | $1,500–$3,000 | $1,800–$4,600 | $3,500–$5,000 (after rebates) |
| Est. annual running cost | ~$1,500 | ~$1,000–$1,200 | ~$800–$1,000 | ~$470–$600 |
| Typical lifespan | 10–12 years | 10–15 years | 15–20 years | 15–20 years |
| Requires gas connection? | No | Yes | Yes | No |
| Pairs with solar PV? | Yes (with timer) | No | No | Yes (ideal) |
Cost estimates are approximate guides for an average household. Sources: energy.gov.au; Sustainability Victoria
Running Costs: Where the Real Difference Shows
When homeowners debate the gas vs electric hot water question, running costs usually decide it.
Natural gas has historically been cheaper to run than standard electric storage. But that’s shifting. Gas prices have risen steadily, and research commissioned by the Australian Renewable Energy Agency (ARENA) found that by 2030, domestic gas hot water systems will no longer have the lowest average running costs – they will be the most expensive.
For Sunshine Coast homeowners, this matters in a specific way. Mains natural gas isn’t available across all areas of the region. Many homes rely on LPG, which is significantly more expensive to run than mains gas, so the economics of gas look very different depending on your connection type.
If you’re on mains gas with a continuous flow system, it remains competitive today. But if you’re on LPG, or you’d need to fund a new gas connection ($2,000–$4,000+ depending on circumstances), the supposed cost advantage largely disappears.
Standard electric storage on a peak tariff is the most expensive option of all. The exception: homes with rooftop solar that set the system to heat during daylight hours can dramatically cut running costs. Off-peak (controlled load) electricity tariffs can also reduce bills by 40–60%, where available. Check with your retailer, as availability varies by location.
Heat Pump vs Gas Hot Water: The Option Worth Considering More Carefully
When homeowners compare heat pumps vs gas hot water, heat pumps are often dismissed on upfront cost alone. That’s worth a second look.
Yes, a heat pump hot water system costs more to install – typically $3,500–$5,000 after federal rebates, compared to $1,500–$3,000 for gas storage. But the running costs significantly change the calculation.
Because heat pumps use 60–75% less electricity than standard electric systems, annual running costs drop to around $470–$600 for an average household, compared to $1,000–$1,200 per year for natural gas storage. That’s a saving of $400–$700 annually. Most households break even on the upfront premium within four to six years.
In Queensland, the financial case is stronger thanks to available incentives. Queensland’s Climate Smart Energy Savers program offers eligible households an $800 standard rebate – or $1,000 for low-income households – on qualifying heat pump systems. Federal Small-scale Technology Certificates (STCs) reduce upfront costs further at the point of purchase, with Queensland’s warm climate placing many homes in a higher STC rebate zone. Businesses in Queensland may also be eligible for up to $12,500 under the QBEST rebate scheme.
Heat pumps are also the ideal pairing for rooftop solar. Set the system to run during daylight hours, and you offset much of the electricity it draws from the grid, further reducing the cost of your hot water plumbing over time.
What About Solar Hot Water?
A solar system uses rooftop collectors to heat water directly, with a gas or electric booster for overcast days or high-demand periods. Installed costs are higher (typically $4,500–$7,200), but they offer the lowest running costs of any system at around $150–$350 annually.Solar systems are also eligible for federal STCs, which reduce upfront cost.
For most straight-replacement scenarios, a heat pump is often the more practical choice – lower installed cost, simpler installation, and strong long-term savings. But if you’re building a new home or doing a major renovation, solar hot water is worth including in your comparison.
The Gas Phase-Out: What Sunshine Coast Homeowners Need to Know
Victoria banned new gas connections for new homes from January 2024, and the ACT introduced similar restrictions. Queensland has not introduced a gas ban – existing homes on gas can continue to use and replace gas systems without restriction.
So if you’re already on natural gas with a mid-life system running well, there’s no urgency to switch.
If your gas system is nearing end of life, doing a proper gas vs electric hot water cost-of-ownership comparison now, rather than defaulting to a like-for-like replacement, is worthwhile.
If you’re building in an area without existing gas infrastructure, a heat pump or solar system will almost always offer better long-term value than funding a new LPG connection from scratch.
How Much Does It Cost to Install a Hot Water System?
Here’s a practical summary of supply-and-install cost ranges for the Sunshine Coast and broader Queensland:
- Electric storage: $1,200–$2,500
- Gas storage: $1,500–$3,000 (add $2,000–$4,000+ if a new gas connection is required)
- Gas instantaneous: $1,800–$4,600
- Heat pump: $3,500–$5,000 after STCs (further reduced with Queensland Climate Smart rebate)
- Solar hot water: $4,500–$7,200
These are indicative ranges. Actual costs vary depending on system size, brand, whether you’re switching energy types, and labour in your area. Always get at least two or three itemised quotes from licenced plumbers and gas fitters, and make sure each quote clearly shows which rebates and STCs have already been applied.
Expert Hot Water System Advice & Installation
Not sure which system suits your home?
Universal Plumbing N Gas offers free quotes and honest advice on hot water plumbing across the Sunshine Coast. Whether you’re upgrading to a heat pump, replacing a gas continuous flow system, or dealing with an ageing electric tank, we’ll give you a straight answer on what makes sense for your situation and budget.
And if your existing system is playing up, we handle hot water system repairs too, with call-outs available across the Sunshine Coast.
FAQs
Natural gas is generally cheaper to run than standard electric storage on a peak tariff, but heat pumps are cheaper than both. LPG costs significantly more than mains gas and often more than electric storage too. If you’re not connected to a mains gas network, LPG is rarely the most cost-effective choice once you run the numbers properly.
It depends on your setup. Gas instantaneous is a strong option for households on mains natural gas who want fast recovery and unlimited hot water flow. For most Sunshine Coast homeowners, particularly those with solar PV or factoring in long-term running costs, a heat pump often comes out ahead on total cost of ownership when comparing gas vs electric hot water across a 10–15 year lifespan.
If your gas system is at end of life and you have rooftop solar or access to off-peak tariffs, the numbers for switching to a heat pump are worth working through carefully. With current Queensland rebates and federal STCs, the upfront premium has narrowed considerably. If your gas system is still mid-life and functioning well, there’s no urgency, but factor rising gas prices into any long-term planning.
Installed costs vary widely: electric storage from $1,200, gas storage from $1,500, gas instantaneous from $1,800, heat pumps typically $3,500–$5,000 after rebates, and solar from $4,500. Costs depend on system size, brand, location, and whether you’re switching energy types. Always get itemised quotes from licensed installers.
For most households, yes, especially in Queensland’s warm climate where heat pumps perform well year-round. They use 60–75% less electricity than standard electric systems, attract federal STCs, and qualify for Queensland’s $800–$1,000 Climate Smart Energy Savers rebate. Most households recover the upfront premium within four to six years through energy savings alone.