What New Homeowners Need to Know

Imagine cutting down your hot water bills without cutting back on your showers. That’s the promise of heat pump hot water systems, an energy-efficient alternative to traditional electric or gas units that’s quickly gaining traction across Australia.

Instead of burning fuel to generate heat, these clever systems pull warmth from the surrounding air and use it to heat your water. The result? Lower running costs, reduced energy use, and a much smaller carbon footprint. 

How does heat pump hot water work? What are the benefits of heat pump systems? And what should you know before deciding if a heat pump is the right choice for your new home? We’ve got all the answers and more.

What Is a Heat Pump Hot Water System?

A heat pump hot water system transfers natural warmth from the air and uses it to heat your water supply, instead of relying on electricity or gas to create heat directly.

At the heart of a heat pump system are three key components.

1. Compressor: Increases the pressure and temperature of the refrigerant so it can release heat effectively.
2. Evaporator: Absorbs heat from the surrounding air into the refrigerant.
3. Condenser: Transfers the captured heat into the water stored in the tank.
   

Together, these parts work to provide reliable hot water with renewable energy.

How Does a Heat Pump Hot Water System Work?

1. The evaporator absorbs heat from the air. A small fan pulls in ambient air, and the evaporator draws out its heat.
2. Refrigerant converts the heat into usable energy. The cold refrigerant absorbs the heat, changes into a warm gas, and moves through the system.
3. The compressor boosts the temperature. The gas is compressed, its pressure rises, and it becomes very hot.
4. Heat transfers to the water in the tank. The hot refrigerant passes through a condenser coil wrapped around, or inside, the tank, releasing heat into the water.
5. The cycle resets, ready to repeat. An expansion valve drops the refrigerant’s pressure so it cools back to a liquid, then it returns to the evaporator to start again.

Benefits of Heat Pump Hot Water Systems

Energy Efficiency

Unlike electric water heaters that rely on electricity to directly generate heat, heat pumps only need a small amount of electricity to run the fan and compressor. The real work is done by drawing in natural warmth from the air, which is a free and renewable energy source.

This heating process uses far less power, reducing electricity consumption by around 75–85% compared to traditional electric systems.

Cost Savings

A heat pump may cost more upfront than a standard electric unit, but the long-term savings quickly add up. By using far less electricity to heat water, your energy bills drop month after month. Lower electricity costs mean more money left in the family budget for other priorities.

Over the life of the system, these savings can outweigh the initial purchase and installation costs. In many cases, households can also benefit from government rebates or incentives, making the switch even more affordable. 

Eco-Friendly

Heat pump hot water systems are one of the most environmentally friendly ways to heat water. By drawing renewable heat from the air instead of burning gas or using large amounts of electricity, they produce far fewer greenhouse gas emissions.

Switching from a conventional electric water heater to a heat pump can save around 0.3 tonnes of CO₂ per year, while replacing a gas system can save 1–2.9 tonnes annually, depending on the household size and energy use. That’s roughly the same as the emissions from driving 1,000–10,000 km in an average car.

For new homeowners, using a heat pump is a straightforward way to shrink your household’s carbon footprint and make a positive impact on the environment, without compromising on comfort.

Versatility

There are heat pump models to suit homes of all shapes and sizes. 

For example, the iStore 180L heat pump is ideal for households of up to 3 people, delivering enough hot water for daily showers, dishwashing, and laundry without unnecessary energy use. 

The larger iStore 270L heat pump is designed for medium to large families of 4–6 people, providing reliable hot water even with multiple showers, appliances, and higher daily demand.

With different capacities available, you can choose a system that provides plenty of hot water without wasting energy. This flexibility makes heat pumps a practical option for almost any new homeowner.

Heat Pump Water Heaters vs Traditional Water Heaters

Feature	Heat Pump Water Heater	Gas Water Heater	Electric Water Heater
Energy Efficiency	Uses renewable heat from the air; 3–4x more efficient than electric	Moderate efficiency, but depends on gas prices and supply	Least efficient; relies on electricity to generate heat directly
Energy Cost Savings	Households can save $500–$1,000 per year compared to electric systems, depending on household size and tariffs	Cheaper to run than electric, but often 20–40% higher bills than heat pumps	Most expensive; hot water bills can be 3–4x higher than with a heat pump
Upfront Cost vs Long-Term Investment	Higher upfront price, but can pay off through energy savings within 3–5 years	Moderate upfront cost; limited long-term savings compared to heat pumps	Lower upfront cost but very high lifetime operating costs
Environmental Impact	Low emissions; reduces household CO₂ by 0.3–2.9 tonnes per year, depending on size and energy source	Produces direct greenhouse gas emissions from burning fossil fuels	High emissions if grid electricity is coal-based
Versatility	Models available from 180L in size for 1–3 people to 270L+ for 4–6 people	Suitable for small to large households, but efficiency drops with higher demand	Available in various sizes, but costs escalate with larger households

How Heat Pump Hot Water Systems Work with Solar Panels

Heat pump hot water systems pair seamlessly with solar panels, a solar inverter, and a solar battery. 

When solar panels generate electricity during the day, that energy can power the heat pump’s compressor and fan. Instead of drawing electricity from the grid, hot water is heated using clean, renewable energy from the sun.

If you also have a solar battery, the system becomes even more flexible. Excess solar energy captured during the day can be stored in the battery and used later to run the heat pump at night or in the early morning. That means you’re not limited to heating water only while the sun is shining; you can tap into stored energy whenever you need it.

Benefits of Pairing Heat Pumps with Solar Energy

• Lower Energy Bills: Powering your heat pump with solar can reduce or even eliminate hot water costs.
• Smarter Energy Use: Heat pumps can be timed to run during peak solar production hours, making the most of free, renewable power.
• Reduced Grid Reliance: Adding a solar battery means you can enjoy hot water without depending on grid electricity, even in the evenings.
• Minimal Carbon Footprint: Combining a heat pump with solar panels creates one of the cleanest, most sustainable hot water solutions available.
• Future-Proof Investment: With rising energy prices, this setup protects your household from higher running costs down the track.

Installation and Maintenance of Heat Pump Hot Water Systems

Professional Installation: What to Expect

Most heat pump hot water installations take around 3–6 hours, depending on the site and whether an old system needs to be removed. Larger or more complex setups may take a little longer. 

A licensed installer will handle the setup for you, but it helps to know the steps involved.

1. Site Inspection: The installer will check your home to find the best spot for the heat pump. Proper placement is key. Heat pumps need airflow to draw in ambient heat, so installing them in an open or semi-open space (not in a closed garage or small shed) means maximum efficiency.
2. System Positioning: They will place the heat pump unit and storage tank on a stable base, away from confined spaces or areas sensitive to noise.
3. Plumbing Connections: They’ll then connect the pipes from the unit to your home’s water supply.
4. Electrical Wiring: They’ll connect the system to your home’s power supply, often through a dedicated circuit, which is a separate electrical line and breaker that only serves the heat pump to prevent overloading and improve safety.
5. Commissioning and Testing: Finally, the installer will run the system, check water temperature, and ensure everything is operating correctly.

Homeowner Maintenance

Keeping your heat pump in good condition helps extend its life and maintain efficiency. With a bit of care, your heat pump hot water system can deliver reliable, efficient hot water for perhaps 10 years or more.

Here’s what you can do:

1. Clear away dust, leaves, and debris from the air intake and fan located on the side or top of the outdoor unit every few months.
2. Keep the surrounding space clear, maintaining at least a metre of open space around the unit so air can circulate freely. Avoid storing garden tools, bins, or plants nearby.
3. Inspect the system for leaks and strange noises, and report anything unusual to a technician.
4. Schedule regular servicing from a professional every 1–2 years. They will check refrigerant levels, electrical components, and overall performance.

Government Rebates and Incentives for Heat Pumps

Federal

The federal Small-Scale Renewable Energy Scheme (SRES) encourages households to install renewable energy systems, such as solar panels and air-source heat pumps.

When you install an eligible system, you’ll receive Small-Scale Technology Certificates (STCs). These certificates have monetary value, and you can sell them to energy retailers or other liable entities who need them to meet their renewable energy obligations under the scheme. 

You can apply the value of these STCs as an upfront discount toward the cost of installing your heat pump system, effectively reducing the purchase price.

The number of STCs you receive depends on several factors. Larger, more efficient systems in sunnier areas or homes that use a lot of energy to heat water will typically qualify for more STCs.

This scheme is reducing until it ends in 2030, so the amount you can save on your heat pump installation will decrease over time. 

State

The NSW Government helps households save money on energy by offering incentives to upgrade to energy-efficient appliances and equipment. The incentive works as a discount taken off your quote for the installation of a heat pump hot water system.

If eligible, you can receive a discount of up to $640 when you replace an electric water heater with an air source heat pump. When you replace a gas water heater, you can receive a discount of up to $330.

In Victoria, eligible households can receive a discount of up to $630 for replacing an inefficient electric hot water system with a heat pump and up to $560 for replacing an inefficient gas water heater.

To find out what rebates or incentives apply in your state, visit your state government’s energy website or check the federal government’s energy.gov.au site, which lists current programs across Australia. You can also ask your installer, as many are registered providers under these schemes and can confirm eligibility and apply the discount directly to your quote.

Eligibility and the Application Process: What You Need to Do

1. Choose an Eligible Heat Pump: Your heat pump must be an approved model (e.g., iStore) on the Australian Government Clean Energy Regulator Register and must have a capacity under 425 litres to qualify for STCs.
2. Choose a Retailer and Licensed Installer: Choose a reputable retailer and confirm the installer holds the correct state or territory licence with your local authority.
3. Decide on Using a Registered Agent: Most households assign STCs to an agent, who calculates their value and applies it as an upfront discount. You can find agents in the REC Registry.
4. Install Your Heat Pump: Have the system professionally installed.  
5. Create and Register STCs (if not using an agent): Set up an account in the REC Registry and lodge your application for STCs within 12 months of your heat pump installation. Upload the documents required by the Registry. Allow 4–6 weeks for validation and registration.

How Can I Choose the Right Heat Pump for My Home?

Choosing the right heat pump hot water system comes down to matching your household’s needs with the right size and setup. 

Here are some practical tips.

• Consider your household’s size and hot water usage. A 180L system suits 1–3 people, while a 270L or larger model is better for families of 4–6.
• Consider your climate. Most heat pumps work well across Australia, but in cooler regions, look for models specifically designed for low ambient temperatures.
• Look at energy ratings. Higher efficiency ratings mean bigger savings on bills over time.
• Think about installation space. Heat pumps need good airflow, so choose an outdoor or well-ventilated location with clearance around the unit.
• Plan for solar integration. If you have solar panels, make sure your heat pump can be timed to run during the day to maximise free energy use.
• Check rebates and incentives. Federal and state government programs may reduce your upfront costs, making the system more affordable.
• Compare warranties and support. Longer warranties and responsive after-sales service give peace of mind and protect your investment.

FAQs

How Does a Heat Pump Hot Water Heater Work?

A heat pump water heater draws heat from the surrounding air and transfers it into water stored in a tank. A refrigerant absorbs the heat, a compressor boosts its temperature, and a condenser coil releases that heat into the water, providing hot water using far less electricity than traditional systems.

Are Heat Pump Water Heaters Worth It?

While heat pump water heaters cost more upfront, they can cut hot water energy use by up to 75%, lowering bills and emissions. Over time, the savings on running costs and available rebates usually outweigh the initial investment.

How Much Energy Does a Heat Pump Hot Water System Save?

On average, a heat pump hot water system uses 60–75% less electricity than a conventional electric water heater. Households can save around 2,000–3,000 kWh of electricity per year, depending on household size, climate, and hot water demand.

Can Heat Pumps Work in Cold Climates?

Modern heat pumps are designed to work efficiently in cold climates, often down to around -5°C to -10°C. However, their efficiency is higher in warmer conditions, so performance and running costs may vary with the climate.

What Is the Lifespan of a Heat Pump?

A heat pump typically lasts 10–15 years with proper installation and regular maintenance.

Upgrade to an Energy-Efficient Future with iStore Heat Pumps

How does heat pump hot water work to lower your water heating bills and carbon footprint?

Instead of burning through electricity or gas, it cleverly draws warmth from free, abundant air to heat your water. It’s comfort that costs less and cares for the planet.

At iStore, we’ve been supplying heat pumps to Australian homes for over 25 years. They’re high-quality, affordable, and reliable.

Explore our heat pumps online today, then contact us for a quote and help organising installation. Call 1300 515 640 or fill out this online form, and we’ll be in touch soon.

We can also help you if you’re thinking of switching to solar for even more savings and sustainability.