Different types of hot water systems?

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A residence can produce hot water in a number of ways, each with advantages and disadvantages. An electric hot water tank is one possibility; however, it might be tiny and expensive to operate.

An additional choice is a bigger electric hot water tank that runs on off-peak electricity and can be connected to solar panels to cut expenses and emissions. A third choice is an instantaneous gas hot water unit, which is small and compact but needs a gas connection to heat water as it is used.

A heat pump hot water system is a fourth choice; it uses electricity to move heat from the air or the earth to heat the water, but it works best when coupled with renewable energy sources. Last but not least, a solar hot water system heats water using solar energy and is a sustainable, economical choice.

What are the different types of hot water systems on the market?

Generating hot water is one of the most energy-intensive activities of a household. So let’s have a look at the different hot water systems on the market so we can also assist you in keeping your energy bill down and help reduce CO2 in the atmosphere.

80L small hot water tank
Small hot water tanks are quite inefficient in their utility and energy usage

1. Small 80 litre electric hot water tank

The small 80 litre instant hot water tank is often used in the 70s and 80s style 2-3 bedroom units and small businesses. It is most likely the least energy-efficient way to generate hot water.

This technology works like a large hot water kettle and will draw electricity every few hours when the thermostat says – I need a top-up. The tank uses an electric element to heat the water—such tanks usually last about ten years.

It is usually connected to a standard meter, which means one pays the standard electricity rate to heat the water. It is relatively cheap to install but quite expensive to run over time.

If the unit supplies a shower, I recommend not having long showers, as these tanks run out of hot water relatively quickly and take a while to reheat.


  • An expensive way to make hot water with a limited opportunity to replace this technology, as there is no suitable alternative on the market so far which is as compact as this unit for space-constrained businesses.
man working on tank
Larger electric hot water tanks are inefficient and costly unless you rely on a renewable energy source like solar

2. Larger 250, 315, or 400-litre electric hot water tank

Many older homes have these tanks on the site of the house. They are the same technology as the smaller 80-litre tank and usually feature two heating elements. One is on the bottom, and one is on the top of the tank.

The tanks are often connected to an off-peak timer and a separate off-peak meter. They are only heated at night and will enjoy a lower electricity rate, around 50% of the standard rate. If one runs out of hot water (HW) during the day, one has to wait till nightfall and the off-peak period for more hot water to be created.

Depending on the size of the tank, such a setup can consume around ten kW/h of electricity per day. Allow approximately a $200 bill for the running costs for such a setup every three months.

The traditional setup for this system meant that the CO2 generation for this energy-intensive hot water system was terrible, so the Rudd Government once considered banning this method of making hot water.

Luckily more recently, some products have been developed called energy diverters. They allow renewable solar energy to be sent into the hot water tank when there is excess solar generation. Using renewable energy to make hot water means the hot water generation costs are relatively cheap.


Without using solar electricity to make hot water, this technology should have gone the way of the dinosaurs. Nevertheless, suppose solar electricity is utilised and combined with an electricity diverter technology to heat the water. This technology can be one of the cheapest and most environmentally friendly ways to make hot water. Expect the tank to last approximately ten years. After five years, replacing the sacrificial anode in the tank will prolong tank life.

instantaneous hot water heater
Gas hot water heaters are efficient and reliable butt rely on fossil fuels

3. Instantaneous gas hot water systems

On the side of many modern houses and next to the balcony on flats, you might have noticed a small box the size of a briefcase. These are instantaneous gas hot water units.

They have the advantage that they are compact and not much more expensive to install a large hot water tank. Their other advantage is that you never run out of hot water; they heat the cold water as it travels through the compact unit.

They also only heat the water you require, so you do not constantly heat a significant amount, no matter how much you need, like in the electrical storage tank.

These units have been around for at least two decades and are robust and long-lasting. They come in many brands and have different sizes, depending on how many litres one can heat per minute.

Their running costs are reasonable, and around $200 of gas will keep a family of 4 in hot water for three months, similar to a conventional off-peak hot water storage tank running costs.

The big political drawback nowadays is that they use gas, which is a fossil fuel and not renewable.


While compact and reliable, due to the gas’s environmental impact, instantaneous hot gas water units might fall victim to Government regulations in years to come.

Electric hot water units powered by renewable electricity are potentially the way of the future. However, regarding its compactness, especially for units, the product is hard to replace, as an equally compact electric hot water unit is still not on the market. Finally, apartment blocks cannot install enough solar on relatively compact roofs.

gas heated hot water
Gas-heated storage tanks are an outdated system for heated water storage

4. Gas-heated storage tank

Some homes have a storage tank on the side of the house, which is heated via gas instead of electricity. Usually, below the tank is a small flame that preheats the water, and when the water temperature falls below a certain pre-set degree, the unit fires up and heats the water to the desired temperature. It is similar to an electric hot water storage tank – but uses gas instead of electricity to heat the water.

This technology has two distinct disadvantages. First, it uses a lot of gas during the day by ensuring 250 to 400 litres of water are regularly heated up and on standby. With the most recent increases in gas prices, such units are expensive to run. Due to the relatively high volume of gas required to top up the hot water regularly, their CO2 footprint is poor.


A technology of the 1980s and 1990s, which is now obsolete. If your gas hot water tank ends its life, do not replace it with a like-for-like. Instead, please consider switching to an instantaneous gas hot water system or other technologies, as this FAQ recommends.

installer working on roof
Rooftop solar hot water is a trustworthy system, yet it is expensive to install and can impact your home’s appearance

5. Rooftop solar hot water systems

The technology to make hot water from the sun is decades old, efficient, and reliable. A collector is placed on the roof, and this collector has pipes running throughout, and the sun’s heat slowly heats the water in the pipes. A tank is placed above the collectors. As hot water is lighter than cold water, the heated water gets collected in the tank, and cold water enters the pipe system to be heated and then moved into the tank.

The collectors can be squarish and made of metal or evacuated glass tubes. The tank often has an electric booster in case of prolonged rain or overcast days so the household does not miss out on hot water.

Similar technology can also only place the collectors on the roof, and the collection tank sits on the side of the house via a small pump; cold water from the tank is pumped to the collectors to be heated and then returned to the tank.

In areas that in winter can fall below zero, conventional solar hot water systems will fail, as the water will freeze in the pipes, expand, and burst them. In such a climate, solar hot water will work with a frost-protected glycol solution running through the pipes and a heat exchange unit transferring the fluid’s heat into the water.


While reliable, long-lasting, and cheap, solar hot water units can cost you more than $4,000 to $5,000 for a fully installed team. So the future running cost savings are taken up via the initial high purchasing cost.

Also, the collectors will occupy valuable real estate on your roof, which might be required to install solar panels to make renewable electricity. Unfortunately, while very popular a decade or more ago, some people find the units look ugly on the roof, and their popularity has dramatically reduced.

heat pump
Heat pump systems are eco-friendly but have high initial costs

6. Heat pump and storage tank

The latest technology, possibly my favourite, combines a heat pump and storage tank. A heat pump works like a fridge in reverse, whereby the temperature in the atmosphere is used to heat water, and then this hot water is stored in a tank.

The hot water in the tank is then available for use in the home, such as showers and cleaning. Heat pumps can be connected to a solar system, so only the excess solar electricity not used in the house generates the hot water. This keeps the running cost of such technology low. Naturally, one must have an extensive enough solar system in the 1st place to generate enough excess renewable electricity to heat the water via the heat pump, even in winter.


While environmentally friendly and potentially with a shallow carbon footprint, if we use solar electricity to make the hot water – the unit itself and the storage tank are not cheap to purchase and install in the 1st place.

A top-of-the-line heat pump and storage tank can set you back $4000 – $5000, similar to a solar hot water system.

You can expect around ten years plus life from the unit – similar to a hot water storage tank system. However, one would hope that in years to come, such units will be designed to last 15 or even 20 years.

So what are the most cost-effective and environmentally friendly hot water solutions?

While we presented the many hot water generation options available in Australia, none is very cheap or wins this race.

If you have an extensive solar system, try utilising the excess power you generate daily to make hot water. You can achieve this by sending this spare renewable electricity into your standard hot water tank. That way, the hot water tank operates like a battery, absorbing the excess electricity you generate and turning it into environmentally friendly cheap hot water.

To do this without even the help of a diverter unit is to simply put the hot water tank on a time and have it switched on between 11 a.m. and 3.30 p.m. to heat the tank. At that time of the day, a solar system produces the most electricity and is most likely to send excess electricity to the grid.

Alternatively, install a particular diverter device and send all the excess feed-in-tariff electricity to the electric hot water tank.

The second most preferred way would be the heat pump and tank, followed by the older style rooftop solar hot water unit in number three. Finally, if you have a gas storage hot water unit, replace it with instantaneous hot water – or any of the three solutions outlined above.

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