Gas vs Heat Pump Hot Water: What's Cheaper to Run?

If your hot water system is due for replacement, the two contenders for most Sydney homes are a gas continuous flow unit or a heat pump. They’re both good systems, but they win in different situations, and the “cheaper” one depends on what you’re measuring: the install price, the quarterly bills, or the ten-year total.

How each one works (in one paragraph each)

Gas continuous flow heats water on demand as it passes through the unit: no tank, no standing losses, and no running out of hot water. You pay for gas only when a hot tap runs. See our instantaneous hot water page for the details.

A heat pump is a storage system with a twist: instead of heating water with an element, it extracts heat from the surrounding air (like a refrigerator running in reverse) and transfers it into the tank. Moving heat takes far less energy than generating it, roughly a third of the electricity of a conventional electric tank. Details on our heat pump page.

Running costs: the heat pump usually wins

For a typical family household, the running-cost ranking in 2026 looks like this, cheapest first:

1. Heat pump on solar: if your panels cover its daytime run, hot water is close to free.
2. Heat pump on grid power: the efficiency advantage keeps it ahead.
3. Gas continuous flow: efficient, but gas usage prices have been rising, and the daily gas supply charge applies year-round.
4. Electric storage on off-peak: workable, but dated.
5. Electric storage at full rates: the most expensive way to make hot water.

Two things tilt the maths further:

• The gas supply charge. If hot water is the only gas appliance left in your home, the fixed daily connection fee is effectively part of your hot water bill. Going all-electric removes it entirely.
• Solar. A heat pump can be scheduled to run in the middle of the day and soak up your own generation. Gas can’t use your solar at all.

Upfront costs and rebates

A gas continuous flow replacement is typically cheaper on day one. A heat pump costs more upfront, but eligible installations attract federal small-scale certificates (STCs) and NSW energy-saving incentives, which together can close much of the gap. We put the exact after-rebate figure in every quote, because incentive values change over time.

So which should you pick?

Choose a heat pump if:

• You’re replacing an electric storage tank (biggest win),
• You have solar panels or plan to get them,
• You’re moving the house all-electric, or
• You’ll stay in the home long enough for running costs to matter.

Choose gas continuous flow if:

• You have gas, love never running out of hot water, and space is tight,
• Your household usage is modest (the heat pump’s savings shrink), or
• The only viable heat pump location fails on noise or airflow grounds.

Either way: size it properly first. An undersized system of any type is the real money-waster. Our guide on what size hot water system you need covers that.

Get local advice, not a brochure answer

We install both systems every week across the Northern Beaches and North Shore, from brands we trust: Rinnai, Rheem, Everhot, Thermann. Tell us your household size, roof and gas situation and we’ll tell you which one we’d put in our own home in your position. Start at our hot water overview.