The three main options
Gas storage or instantaneous. Heats water using a gas burner, either continuously (instantaneous, no tank) or into an insulated storage tank. Requires a gas connection, which carries its own daily supply charge separate from your hot water usage.
Electric resistive storage. The older, simplest electric option: an element heats water in an insulated tank, typically running overnight on a controlled-load (off-peak) circuit to take advantage of cheaper rates. The least efficient of the three, since it converts electricity to heat directly.
Heat pump. Works like a reverse air conditioner, extracting heat from the surrounding air to heat water rather than generating heat directly. Typically uses 60 to 70% less energy than resistive electric for the same hot water output, and can run on rooftop solar during the day.
Typical annual running costs
| System type | Typical annual running cost |
|---|---|
| Electric resistive storage | $1,200 to $1,500 |
| Gas storage or instantaneous | $450 to $650 |
| Heat pump (grid electricity) | $300 to $435 |
| Heat pump (with rooftop solar) | $50 to $150 |
Figures are indicative for a typical household and vary with household size, hot water usage habits, local rates, and climate. Use these as a starting comparison rather than a quote.
Our take on gas vs electric hot water
On running costs alone, a heat pump beats both gas and old-style electric storage in almost every case, and the gap widens further if you have solar. The catch is upfront cost: a heat pump system typically costs several hundred to around $1,500 more upfront than a like-for-like gas or electric replacement, before rebates. The federal STC scheme discounts that gap at the point of sale, and several states add their own rebate on top, which is why most calculations show payback within 3 to 6 years from running cost savings alone.
The STC scheme is being wound back on a fixed schedule, with the certificate value shrinking each year as the deeming period shortens on the way to zero by 2030. That is a reason to act sooner rather than later if you are planning to switch regardless, not a reason to panic if your system still has life left in it.
Check your current gas and electricity plans first
Before spending on a new hot water system, make sure you are not overpaying on your existing gas and electricity rates.
Compare gas and electricity plansShould you switch now, or wait until it breaks?
If your current system is working fine, the simplest approach is usually to wait until it needs replacing and switch to a heat pump at that point, since running two working systems in parallel wastes the value of the one you already have.
If you are paying a gas supply charge for very little other gas use (for example, just a gas hot water system with no gas cooking or heating), switching to an all-electric setup and disconnecting gas entirely removes that daily supply charge altogether, which can be worth $300 or more a year on its own, independent of the hot water running cost comparison.
If your gas system has already failed, this is the natural point to compare a heat pump against a like-for-like gas replacement, since you are paying for a new unit either way and the rebates apply at installation.
Whichever direction you go, check your existing plan's usage rate and, if applicable, controlled-load rate for hot water, since a heat pump running during the day suits a flat or solar-friendly tariff, while overnight resistive storage relies on a genuinely cheap off-peak or controlled-load rate to make financial sense.