Heat pump hot water units are the most efficient way to heat water for your home. But the cost of a heat pump hot water system varies and it’s not always clear whether a new unit will lead to ongoing savings. In this article, we set out how much you can expect to pay for a quality unit and the savings you can expect.
How much does heat pump hot water cost?
There are a number of variables that affect the price of a heat pump hot water system. In addition to simple matters like the cost of the unit and the cost of installation, there are a number of government incentives and rebates. These can be a little confusing and they also vary in value, so we are often asked by customers how the rebates and incentives affect the price of a unit.
We have seen new units supplied and installed from as low as $33 to as high as $9,000. It’s safe to say customers will get what they pay for a $33 unit, and unfortunately we’d suggest people paying $9,000 have been exploited.
The full price for a good quality unit supplied and installed is around $3,000 (not including Solar Vic rebate). Some customers will pay a premium for top-line units, which might cost between $5,000 and $6,000.
Below we break down each of the line items that go into the price of a heat pump hot water system.
1. Heat Pump Hot Water System Cost
This is straightforward – the price of the new heat pump hot water unit sold by the manufacturer. Powrhouse and other installers add their margin on top.
Let’s say a good quality unit costs around $2,500-$3,000.
2. Installation
Both a plumber and electrician are usually required to install a heat pump hot water unit. The plumber comes in first, disconnects the old unit, removes it and fits the new unit. When replacing gas storage and electric storage units, this is straightforward as we replace them in the same spot. It can be a little difficult where we replace instant gas hot water, as instant units are usually mounted on the side of the house. The replacement unit will be bigger, so we need to make sure there is adequate space. If there’s not enough space, we’ll need to find another spot and replumb to the new spot.
An electrician will then come in after the plumber and wire the new unit, usually directly to the switchboard. Wiring to the switchboard can be a little cumbersome if there’s no clear path, either through the roof or under the house. Costs will increase for double storey houses and where the unit is a long way from the switchboard. We also need to check there is space on the switchboard for the heat pump. If not, we’ll need to update the switchboard which adds further costs.
Typically installation of the units is around $1,500. It can be lower, and as high as $2,000 in more difficult scenarios.
3. Incentives – STCs and VEECs
The cost of the unit is equal to supply (1) + installation (2).
Now the good news – the discounts.
STCs are small-scale technology certificates equal to 1 megawatt hour of renewable electricity either generated or displaced by eligible systems. STCs create a financial incentive to install these systems by reducing the upfront installation costs. Eligible systems including solar, wind and hydro and heat pumps. STCs are governed by the federal government.
VEECs are Victorian Energy Efficiency Certificates and are effectively the Victorian Government equivalent of STCs. Under the Victorian Energy Upgrades program, certain people can claim VEECs for certain activities, all designed to reduce emissions.
Most heat pump hot water units are eligible systems and attract STCs and VEECs, thereby reducing the upfront cost of installation to customers. Systems are deemed to be eligible for a certain number of STC and VEEC units. The value of these units fluctuates on the open market. In theory more efficient systems will attract greater incentives, but in practice, most heat pump hot water units attract a similar number.
When installing a heat pump hot water unit, Powrhouse and our installers are required to capture certain documentation, including signatures from customers that prove the installation was carried out. We then sell our STCs and VEECs (or the right to them) to trading desks who then sell them to buyers.
In practice, customers don’t need to worry about STCs and VEECs, other than ensuring they are captured on quotes and receiving a discount.
4. Solar Victoria Rebate
The Victorian government offers a rebate of up to $1,000 for eligible heat pump hot water installations.
The rebate is 50% of the installation value up to $1,000. As detailed in our article on how to choose a heat pump hot water unit, Powrhouse will only ever deal in reputable units, all of which cost more than $2,000 to install, so Powrhouse customers will obtain the full rebate if eligible.
The rebate is a wonderful initiative by the Victorian government and can make a big difference to the economics of installing a heat pump hot water unit. We include whether customers will be eligible for a rebate in our calculator on our home page.
5. Total cost of a heat pump hot water system
Putting this altogether, the units that we deal in typically cost around $3,000 fully installed ($2,000 if you are eligible for the rebate). We suggest customers exercise a great deal of caution if they are paying any less for heat pump hot water units.
Premium units like Reclaim and Sanden typically cost $5,000 to $6,000 to source and install. While we agree these are wonderful units, we suggest these are probably not worth the premium given they only come with a slightly longer warranty. The extra cost also makes it harder for the financials to stack up.
How much will you save?
How much you save on heat pump hot water depends on a few factors:
- Usage – while heat pump hot water is significantly more efficient than alternatives, savings will be proportional to usage. Low usage will result in modest savings and large usage will result in significant savings. If usage is low, the key question is whether usage and savings will be enough to justify the cost of a new unit.
- Solar – as we outline in our article on smart hot water, we can combine heat pump hot water with solar to run during the day. Solar panels will generate free electricity, meaning hot water can be heated effectively for free.
- Last gas appliance – we stand to save an extra $350 per year if, by switching to heat pump hot water, we remove our last gas appliance and can remove the gas connection to the home.
- Existing service – the value of savings will depend on the efficiency of your current service. Electric storage, gas storage and services powered by LPG (gas in tanks, not through mains pipes) are inefficient and cost a great deal to run. Solar hot water and instant gas hot water are relatively efficient and depending on the factors above, could in fact be cheaper than heat pump hot water.
The easiest way to determine whether you will save with heat pump hot water is to use the calculator on our homepage. You can input your details like the number of people in your home, whether you have solar, your current service and if you are able to remove the gas connection to your home. With the help of Sustainability Victoria’s data in the background, the calculator will display an estimate for your current running costs, expected running costs and expected yearly savings.
Clear Savings – Current Unit Has Expired
So far we have discussed savings of heat pump hot water compared to other gas services. We have compared the cost of a new heat pump hot water unit to ongoing yearly savings from a more efficient system.
We need to be clear though where the current unit has died and we need a replacement. In this instance, the “cost” of the heat pump hot water unit is only the value above what we’d need to pay for a replacement. For example, let’s say we have a gas storage hot water unit that expires. Let’s say it costs $2,500 to install a new gas storage unit. If we can install a heat pump hot water unit for $3,000, the “cost” is only $500 ($3,000 less $2,500). In this case, the merits and savings of heat pump hot water are crystal clear.
In practice, as we outline in When to switch to heat pump hot water, we usually recommend switching to heat pump hot water pre-emptively, as units approach expiry. We’re not going to time it perfectly. Old units may continue to last another 5 years, but they most likely will not and it’s undesirable to have cold showers for a week or two while we source and install a new heat pump hot water unit. The key is to have a plan!
Summary
The cost of heat pump hot water units continues to fall with helpful rebates, government incentives and continued innovation. As gas prices in particular continue to increase, the expected savings from more efficient systems continues to increase. Combining all these factors together, the financial case for a heat pump hot water unit continues to improve. In most cases, but not all, we suggest switching to a heat pump hot water unit will help homeowners save on their energy bills for many years to come.
If you are interested in a heat pump hot water unit, we’d love to hear from you.
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