The Four Main Types
Most Melbourne homes run on one of four hot water system types: gas storage, gas continuous flow (instantaneous), electric storage, or heat pump. Solar is a fifth option that suits larger homes with good roof orientation. Understanding how each works makes it easier to weigh the trade-offs.
Gas Storage Systems
Gas storage systems heat water in an insulated tank and keep it ready for use. They're reliable, widely available, and fast to replace in an emergency since they're the most common type across Melbourne. Running costs are moderate — gas rates in Victoria vary, but gas is generally cheaper than electricity per megajoule of heat produced. The main downside of a storage system is standby heat loss: the system uses energy keeping water hot even when you're not using it.
Gas storage is a solid choice for medium to large households, particularly when replacing a like-for-like system where gas is already connected to the property.
Gas Continuous Flow (Instantaneous)
Continuous flow systems heat water on demand rather than storing it. There's no tank, no standby heat loss, and they can supply unlimited hot water as long as the gas is running. They're more efficient than storage systems for smaller households who use hot water intermittently. The initial installation cost is typically higher, and they require adequate gas supply pressure to work properly.
These are ideal for apartments, couples, and smaller households where simultaneous high-demand use (multiple showers at once) is rare.
Gas hot water systems — storage or continuous flow — require a natural gas connection. If your property doesn't have gas connected, the cost of connecting to the network needs to be factored in. In areas without mains gas, LPG (bottled gas) is an option but has higher running costs.
Electric Storage Systems
Electric storage systems are the simplest and cheapest to install, which is why they're common in older homes and units. They heat water using an electric element inside the tank. The major downside is running cost — electricity in Victoria is expensive, and heating water electrically on a standard tariff is significantly more expensive per unit of heat than gas.
One exception: if the system runs on an off-peak overnight tariff, the running cost is much lower. This requires a separate meter and tariff arrangement, and the tank must be large enough to hold a full day's supply heated overnight.
- Cheapest upfront cost to purchase and install
- High running costs on standard tariff
- Off-peak tariff significantly reduces running costs — requires separate meter
- No gas connection required — suitable for all-electric homes
Heat Pump Systems
Heat pump hot water systems work like a reverse refrigerator — they extract heat from the surrounding air and use it to heat water, rather than generating heat directly. This makes them roughly 3–4 times more efficient than a standard electric element. Running costs are considerably lower than conventional electric systems, and they work well with solar panels since they draw from the grid or solar depending on time of use.
They require adequate outdoor space for the unit (they're larger than a standard tank), work best in moderate climates (efficiency drops in very cold weather), and have a higher upfront cost. Victorian government rebates have made heat pump systems more accessible in recent years.
Solar Hot Water
Solar hot water systems use roof-mounted collectors to heat water using the sun, with a gas or electric boost for overcast days. They can dramatically reduce running costs in households with good north-facing roof space and high hot water demand. The upfront cost is the highest of any system type, but federal rebates (STCs) reduce this considerably. They're most cost-effective in larger households with consistent daytime hot water use.
Which System Is Right for You?
For most Melbourne households replacing an existing gas system, staying with gas (either storage or continuous flow) is the straightforward choice — lower installation disruption, no need to change infrastructure, and competitive running costs. For all-electric homes or households looking to reduce carbon footprint, a heat pump is the most efficient electric option. If you have solar panels on the roof, pairing them with a heat pump or solar hot water system maximises the return on both investments.
- Replacing gas — gas storage or continuous flow is simplest
- All-electric home — heat pump for best efficiency
- Have solar panels — heat pump timed to solar export hours
- Large family — storage or solar to ensure supply meets peak demand
- Apartment — continuous flow or electric storage (space constraints)
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