Gas Hot Water vs Electric: The Honest Framework

Hot water is one of the biggest energy uses in an Australian home, which makes "should our hot water be gas or electric?" a question with real money attached. It is also a question with no universal answer, despite the confidence of everyone trying to sell you something. We sell neither appliances nor fuel, so here is the framework without the sales pitch: the system types, the four things a genuine cost comparison has to include, and why any comparison that hides its assumptions is not a comparison at all.

The four main system types

Gas storage. A burner heats a tank of water, which sits ready until you use it. Simple, familiar, and it keeps some heat loss running around the clock because a hot tank in a cold laundry loses warmth whether or not anyone showers.

Gas instantaneous (also called continuous flow). No tank; the unit heats water as it passes through, only when a tap runs. No standing tank losses, and the unit's efficiency depends on its design and age.

Electric resistance storage. An element heats a tank, exactly like a kettle that never quite clocks off. Each unit of electricity becomes roughly one unit of heat, and tank losses apply as with any storage system. These systems are often run on off-peak or controlled-load electricity tariffs, which changes their economics considerably.

Electric heat pump. The interesting one, technically. Rather than making heat, a heat pump moves it, extracting warmth from the surrounding air into the water, working like a refrigerator in reverse. Because moving heat takes less energy than creating it, a heat pump delivers considerably more useful heat per kWh of electricity than a resistance element. Its efficiency does vary with air temperature, so climate matters, and it can also be scheduled onto cheaper tariff windows.

Four systems, two fuels, and already you can see the problem: they do not just use different amounts of energy, they buy that energy in different markets, on different tariff structures, with different efficiencies. Which brings us to the maths.

What an honest comparison must include

1. Energy content is not cost

Gas is billed in megajoules (MJ), electricity in kilowatt hours (kWh). The physics is fixed: 1 kWh equals 3.6 MJ of energy content. That identity is true everywhere and always, and it tells you almost nothing about cost on its own, because it says nothing about how much of that energy content ends up as hot water in your tank. Anyone converting your gas bill to "equivalent kWh" and multiplying by an electricity rate, or the reverse, is doing physics homework, not a cost comparison. There is no honest generic conversion between a household's electricity usage and its gas usage; the appliances in between decide everything. Gas megajoules explained sets out why that identity is so easy to misuse.

2. Appliance efficiency

This is where the systems separate. An electric resistance element turns essentially all of its electricity into heat, but one kWh in means about one kWh of heat out. A heat pump, because it moves heat rather than making it, delivers a multiple of that per kWh consumed, with the exact multiple depending on the model, the climate, and the season. Gas units span a wide range: an older gas storage tank and a modern high-efficiency instantaneous unit can convert very different fractions of each megajoule into water you actually use, with the remainder lost up the flue or through the tank walls. So the same shower, on the same day, can draw very different amounts of billed energy depending on the box on the wall.

3. Tariff structure

Now multiply by what each unit of energy costs, which is its own maze. Gas is typically priced on stepped rates, where the first block of daily or quarterly usage costs one rate and later blocks cost another, plus a daily gas supply charge. Electricity may be flat-rate, time-of-use, or include a controlled-load tariff, an off-peak arrangement historically built around exactly this appliance, heating water overnight at lower rates. Electricity tariffs explained covers those structures in full. A storage system, gas or electric, can shift when it buys energy; an instantaneous system buys at the moment of the shower. Two households with identical hardware and identical usage can pay meaningfully different amounts purely on tariff structure.

4. The supply charge question

Here is the factor most comparisons skip entirely, and for some households it is the decisive one. A gas connection carries a daily supply charge whether you burn one megajoule or a thousand. If your home still runs gas cooking and gas heating alongside gas hot water, that fixed cost is spread across several uses. But if hot water is the last gas appliance left, the entire gas supply charge is effectively part of your hot water bill, every day, all year, before the first megajoule is burned. That single line item can shift the comparison more than any efficiency figure, and it is a question about your whole house, not about any appliance: what else is the gas connection paying its way for?

Why the "typical household" numbers cannot decide it for you

You will find running-cost comparisons quoting annual figures for each system type. Treat every one of them as an answer to someone else's question until it shows its working. Any such figure depends on climate (heat pump efficiency and incoming water temperature both vary by region), household size and usage pattern (a two-person house and a six-person house are different problems), the specific tariffs assumed for each fuel, and the efficiency assumed for each appliance. Change any assumption and the ranking can flip.

Sustainability Victoria publishes a comparison that does show its working, which is what makes it worth quoting. On its water heating running-cost figures, a two-person Melbourne household using 90 litres a day runs about $545 a year on a 5-star gas storage system, $350 on a 7-star gas instantaneous unit, $670 on peak-rate electric storage and $295 on a heat pump. Every one of those numbers is conditional, and the conditions are stated: a Melbourne household, that daily hot water volume, electricity at a 29.2 c/kWh general rate and 21.3 c/kWh off-peak, natural gas between 4.18 and 4.34 c/MJ depending on the water heater and household size, and appliance efficiencies as certified for water heating zone 4, all at mid-2025 energy prices (source: Sustainability Victoria, Compare water heating running costs, read 30 July 2026). Move any one of those and your answer moves with it. That is not a weakness in the figures; it is what an honest set of figures looks like. The Australian Energy Regulator and the Essential Services Commission in Victoria publish reference material on how energy pricing is structured, which is useful background, but no regulator publishes the number for your house, because no one can without your usage.

The test of a trustworthy comparison is brutally simple: does it state its assumptions? A comparison that hides its assumptions is not a comparison, it is an advert.

The part you can actually calculate today

We are not going to tell you which system to buy. We do not know your climate, your household, your roof, your tank space, or your plumbing, and neither does anyone else offering a one-line answer.

What can be calculated, today, with no assumptions borrowed from a brochure, is what each fuel currently costs you on your own real usage, and whether the plans you are on are the best available for the way your house actually runs. That is the foundation any hot water decision should stand on, because the same appliance can be cheap on one tariff and dear on another. Our engine at Fix Your Bill reads your actual bills and prices both fuels across every retailer in your state from the public CDR data, so the tariff side of this equation, at least, stops being a guess.

Get your own numbers first. The appliance maths can only be honest once the fuel maths is.