Hot water system costs: A life cycle analysis
About to buy a new hot water system? We all want the best price for a new system, but what about the impact it will have on your electricity or gas bills over the next 10 to 20 years? Those running costs could be as much as seven times the purchase price of a system over a 10-year period. It’s worth looking at closely.
Working out the cheapest hot water option over its lifetime is no simple task. But we’ve done the hard work so you don’t have to. We’ve worked out the typical upfront purchase and installation costs of the main types of hot water systems and their running costs over 10 years. Adding those together we arrive at a 10-year `life of system’ total.
The systems we covered are:
- traditional electric storage hot water systems
- gas storage hot water systems
- instantaneous gas hot water
- solar hot water, and
- heat pump water heaters (also a form of solar hot water).
We also compared their environmental performance, working out how many tonnes of greenhouse gases they would typically emit over a 10-year period.
An analysis like this is tricky because there are many variables. Retailers charge different prices for hot water systems, installation costs vary, different households use different amounts of hot water, and electricity and gas prices vary by retailer. They also vary across states, across different energy distribution zones, and across different tariff regimes.
To make this manageable, we have focused on the `average’ Australian household, which these days according to the ABS is a household of three persons. We located our typical household in western Sydney.
Hot water system purchase and installation costs
While purchase costs are fairly predictable, installation costs vary considerably depending on whether it’s a like for like replacement, whether it’s going up on the roof, and whether you need tempering or other valves. We’ve assumed that with electric and gas systems, it’s a simple replacement of like for like at minimum cost. Since solar hot water usually means a new installation, we’ve priced it that way. Since renewables-based systems attract government rebates, we’ve factored those in as well (STCs or Small-scale Technology Certificates).
Table 1: Typical hot water system purchase and installation costs
| Hot water system type | Purchase price $ | No. of STCs | Discount for STCs | Installation cost | Total cost rounded $ |
|---|---|---|---|---|---|
| Electric storage, 250-315L | 1,100 | – | n/a | 250 | 1,350 |
| Gas storage, 170L, 5 star | 1,200 | – | n/a | 280 | 1,500 |
| Gas instantaneous, 26L, 5 star | 1,100 | – | n/a | 350 | 1,450 |
| Solar hot water, electric boost | 4,000 | 28 | 1,000 | 1,800 | 4,800 |
| Solar hot water, gas boost | 4,200 | 28 | 1,000 | 1,800 | 5,000 |
| Heat pump, 150-220L, state of the art | 4,800 | 31 | 1,100 | 500 | 4,200 |
| Heat pump, 150-220L, efficient mid-range | 3,500 | 28 | 1,000 | 500 | 3,000 |
Sources: Major retail websites including Bunnings, Myshopping, Elgas, Gstore, and Enter-shop. Direct enquiries with a range of suppliers and installers in Sydney and Canberra. Clean Energy Regulator 2017, Register of solar water heaters, Version 31, and Register of air sourced heat pumps, Version 31.
What is this table telling us?
- As you’d expect, the cheapest upfront payments involve traditional electric and gas hot water systems, all coming in at around $1350 – $1500.
- If you want to do the right thing by the environment, solar hot water is a great option, but it’s quite expensive at around $5000 even after renewable energy credits. Rooftop installation is a major cost factor.
- The top of the range Sanden heat pumps are quite pricey as well, coming in at close to $5000, and the Stiebel Eltron heat pumps cost around $4,000.
- However, a range of efficient mid-range heat pumps average around $3,000 installed. One of these, the 170 litre Midea (not listed separately) can cost as little as $2600 installed, while the Midea HP280 comes in at around $3,100.
But remember, the upfront cost is only part of the equation. Let’s look at how much each of these systems would cost to run, in terms of your electricity or gas bills, over a 10-year period.
Hot water system running costs annually and over 10 years
For the next table we have assumed that the average 3-person household uses about 160 litres of hot water a day. That provides for three five-minute showers a day, and additional minor hot water use in the kitchen and laundry.
We’ve used two modelling studies to ascertain the energy needed for 160 litres a day, and we’ve used 2017-18 gas and electricity pricing data for western Sydney.
We have included the daily supply charge in instances where the hot water system has caused the charge to be incurred. The classic example is the supply charge for off-peak electricity, when the hot water system is the only appliance on that tariff. We have also included the daily gas supply charge where a household’s only gas appliance is a hot water system. In NSW that costs around $250 a year.
Table 2: Typical annual and 10-year energy consumption and running costs
| Hot water system type | Grid electricity kWh/year | Gas usage MJ/yr | Annual running cost rounded $ | 10 year running cost $ |
|---|---|---|---|---|
| Electric storage | ||||
| Electric storage, 250-315L, continuous tariff | 3,282 | – | 970 | 9,700 |
| Electric storage, 250-315L, Offpeak 1 tariff | 3,622 | – | 460 | 4,600 |
| Gas storage | ||||
| Gas storage, 5 or 6 star | – | 16,175 | 570 | 5,700 |
| Gas instantaneous | ||||
| Gas instantaneous, one of several gas appliances | 69 | 14,960 | 540 | 5,400 |
| Gas instantaneous, sole gas appliance | 69 | 14,960 | 800 | 8,000 |
| Solar hot water | ||||
| Solar hot water, electric boost | 510 | – | 150 | 1,500 |
| Solar hot water, gas boost | 58 | 2,901 | 120 | 1,200 |
| Heat pump – state of the art | ||||
| Heat pump, 160-260L, continuous tariff | 939 | – | 280 | 2,800 |
| Heat pump, 160-260L, Offpeak 2 tariff | 939 | – | 200 | 2,000 |
| Heat pump – efficient mid-range | ||||
| Heat pump, 160-260L, continuous tariff | 1,044 | – | 310 | 3,100 |
| Heat pump, 160-260L, Offpeak 2 tariff | 1,044 | – | 220 | 2,200 |
| Heat pump, 160-260L, Offpeak 2, 90% powered by solar | 265 | – | 50 | 500 |
Sources: Electric storage, gas and solar hot water system energy consumption data is adapted from Energy Consult Pty Ltd (2010), Estimated hot water system running costs in Victoria, prepared for Sustainability Victoria, Tables 11 and 12: Zone 3. Heat pump data is derived from a modelling study undertaken by Pitt & Sherry 2012, Running costs and operational performance of residential heat pump water heaters, Table 6. Gas and electricity prices are compiled from Origin, Energy Australia and AGL standing offers for 2017-18 in the Endeavour and Jemena distribution networks.
The main findings from this table are:
- Electric hot water on the standard day tariff is hugely expensive, at around $970 a year, or $9700 over 10 years.
- Off-peak electric hot water is cheaper, but still costs around $460 a year or $4600 over 10 years.
- Gas hot water, as one of several appliances, is no longer cheap, at $550 a year.
- If your gas hot water system is your only gas appliance, factoring in the daily supply charge takes the cost to a seriously expensive $800 a year.
- Renewable systems have by far the lowest running costs. Solar hot water costs just $120 to $150 a year, and most heat pump options cost $200 to $300 a year.
- The lowest running cost scenario involves powering your renewables-based hot water system using green energy from rooftop solar. The example we provide in the table is an efficient mid-range heat pump powered by rooftop solar. Here the energy bill is just $50 a year. Even adding in the foregone income from exporting 800 kWh of solar electricity to the grid at the newly generous rate of 11 c/kWh ($85 a year), the annual running costs are just $135.
Hot water system greenhouse emissions
How emissions intensive are the various hot water system options?
In the next table we’ve calculated the greenhouse emissions resulting from each hot water system, both annually and over a 10-year period.
Table 3: Typical hot water system greenhouse emissions
| Hot water system type | Grid electricity kWh/year | Gas usage MJ/yr | Tonnes CO2-e/year | Emissions over 10 years (tCO2e) |
|---|---|---|---|---|
| Electric storage | ||||
| Electric storage, 250-315L, continuous tariff | 3,282 | – | 2.8 | 28 |
| Electric storage, 250-315L, Offpeak 1 tariff | 3,622 | – | 3.0 | 30 |
| Gas storage | ||||
| Gas storage, 5 or 6 star | – | 16,175 | 0.8 | 8 |
| Gas instantaneous | ||||
| Gas instantaneous, one of several gas appliances | 69 | 14,960 | 0.8 | 8 |
| Instantaneous gas, sole gas appliance | 69 | 14,960 | 0.8 | 8 |
| Solar hot water | ||||
| Solar hot water, electric boost | 510 | – | 0.4 | 4 |
| Solar hot water, gas boost | 58 | 2,901 | 0.2 | 2 |
| Heat pump – state of the art | ||||
| Heat pump, 160-260L, continuous tariff | 939 | – | 0.8 | 8 |
| Heat pump, 160-260L, Offpeak 2 tariff | 939 | – | 0.8 | 8 |
| Heat pump –efficient mid-range | ||||
| Heat pump, continuous tariff, 160-260L | 1,044 | – | 0.9 | 9 |
| Heat pump, 160-260L, Offpeak 2 tariff | 1,044 | – | 0.9 | 9 |
| Heat pump, 160-260L, Offpeak 2, 90% powered by solar | 265 | – | 0.1 | 1 |
Sources: Grid electricity emission factor for NSW and ACT is 0.84 kg CO2-e/kWh (Scope 2: indirect emissions from consumption of purchased electricity). Source: Department of Environment 2015, National greenhouse accounts factors, p. 17-18. Emission factor for natural gas is 51.5 kg CO2-e/GJ (same publication, p. 12-13).
Again various findings stand out:
- Electric storage hot water systems on the off-peak tariff generate a whopping 30 tonnes of emissions over 10 years.
- Gas hot water systems have much lower emissions at around 8 tonnes over 10 years.
- The emissions from heat pump water heaters that derive their electricity from the grid are on par with gas hot water.
- Solar hot water is much lower at 4 tonnes over 10 years, down to as low as 2 tonnes for those that use gas boosting.
- The top performers once again are hot water systems that are mostly powered by rooftop electricity. The example above shows that efficient mid-range heat pumps generate just 1 tonne of emissions over 10 years.
Putting it all together: Hot water costs and emissions over the life of the system
In the final table we add together the initial upfront costs, the running costs over a 10-year period, and greenhouse emissions, to provide a comprehensive overall estimate of the full cost and the environmental impact of the main types of hot water systems.
Table 4: 10-year `life of system’ costs and environmental impacts of various hot water systems
| Hot water system type | Upfront cost $ | Annual running cost $ | 10 year running cost $ | 10 year life of system cost $ | Emissions over 10 years (tCO2e) |
|---|---|---|---|---|---|
| Electric storage | |||||
| Electric storage, 250-315L, continuous tariff | 1,350 | 970 | 9,700 | 11,050 | 28 |
| Electric storage, 250-315L, Offpeak 1 tariff | 1,350 | 460 | 4,600 | 5,950 | 30 |
| Gas storage | |||||
| Gas storage, 5 or 6 star | 1,500 | 570 | 5,700 | 7,200 | 8 |
| Gas instantaneous | |||||
| Gas instantaneous, one of several gas appliances | 1,400 | 540 | 5,400 | 6,800 | 8 |
| Instantaneous gas, sole gas appliance | 1,400 | 800 | 8,000 | 9,400 | 8 |
| Solar hot water | |||||
| Solar hot water, electric boost | 4,900 | 150 | 1,500 | 6,400 | 4 |
| Solar hot water, gas boost | 5,100 | 120 | 1,200 | 6,300 | 2 |
| Heat pump – state of the art | |||||
| Heat pump, 160-260L, continuous tariff | 4,300 | 280 | 2,800 | 7,100 | 8 |
| Heat pump, 160-260L, Offpeak 2 tariff | 4,300 | 200 | 2,000 | 6,300 | 8 |
| Heat pump –efficient mid-range | |||||
| Heat pump, 160-260L, continuous tariff | 3,000 | 310 | 3,100 | 6,100 | 9 |
| Heat pump, 160-260L, Offpeak 2 tariff | 3,000 | 220 | 2,200 | 5,500 | 9 |
| Heat pump, 160-260L, Offpeak 2, 90% powered by solar | 3,000 | 50 | 500 | 3,500 | 1 |
Conclusions: What is the cheapest and most environmentally friendly hot water system?
The data above allows us to draw some firm conclusions as to the best options for a new hot water system:
- The lifetime cost (purchase plus running costs) of an electric hot water system on the day tariff is around $11,000 over 10 years. And it will emit around 28 tonnes of greenhouse emissions. It is a seriously bad idea!
- An electric hot water system on off-peak will be cheaper – about $6,000 – but will emit even more greenhouse emissions – 30 tonnes a year.
- Gas is more expensive than off-peak electric at around $7,000, but if it’s your only gas appliance, it will cost you close to $9,500.
- Solar hot water is a little cheaper than gas at around $6,000, and will entail significantly lower emissions.
- The top of the range heat pumps using grid electricity cost about the same as gas, at $6-7,000, with emissions also around 8 tonnes.
- Efficient mid-range heat pumps, with a lifetime cost of $5-6,000 beat electric, gas and solar hot water systems on price, and produce about 9 tonnes of greenhouse emissions.
- The best performance, both on price and emissions, is an efficient mid-range heat pump powered by rooftop solar. It comes in at around $3,500 and involves just 1 tonne of greenhouse emissions over a 10-year period.
Final comments
The happy finding from these numbers is that we have a virtuous cycle: the hot water option that is gentlest on your pocket on a life-of-system basis is also the one that is gentlest on our fragile climate.
While the above calculations assume a hot water system life of 10 years, this need not be the case. With good maintenance, hot water systems can run for up to twenty years. That means you should place much greater weight on the annual running costs than on the upfront cost in your purchasing decision.