Every guide to getting a house off gas puts hot water near the top, and it is good advice. The Commonwealth’s own energy site puts water heating at 15 to 30 per cent of household energy use and calls it the second largest segment; the Energy Rating programme, which runs the labelling scheme, puts it at around one quarter. Both describe the same thing, and both make the same point: this is not a marginal appliance. energy.gov.au also calls water heating the largest single source of greenhouse gas emissions from an average Australian home, at up to 25 per cent.
It is also the appliance most households already have in its least efficient form. Electric storage systems, a tank kept hot around the clock by a resistive element, are used by around 50 per cent of Australian households. Replacing one with a heat pump is the change the whole policy apparatus is pointed at, and on the numbers it is a large one: a heat pump moves heat rather than making it, and energy.gov.au puts its consumption at 30 per cent of what a conventional electric system uses for the same job.
What the rules actually require
Here is the part that surprised us, and it is stated plainly by the two government bodies involved rather than inferred from anything.
Water heater types, by what the regulations demand of them
| System | Minimum energy performance standard | Energy Rating Label |
|---|---|---|
| Electric storage | Required | Not required |
| Gas storage | Required | Not required |
| Gas instantaneous | Required | Not required |
| Solar | None | Not required |
| Heat pump | None | Not required |
| Electric instantaneous | None | Not required |
Sources: energy.gov.au, Hot water systems, energy performance requirements section; and energyrating.gov.au, Water heating. Both state that minimum energy performance standards apply to electric storage, gas storage and gas instantaneous water heaters, and that solar, heat pump and electric instantaneous systems have no energy efficiency requirements. Both also state that water heaters are not required to display an Energy Rating Label. Checked 19 August 2026.
Read the table in the order the money runs and it inverts. Minimum standards land on electric storage, gas storage and gas instantaneous, which are the three systems policy is working to retire. The two it is paying to install carry no efficiency requirement at all. On labelling there is no distinction to draw, because there is nothing: energy.gov.au states that regulations do not require water heaters sold in Australia to display an Energy Rating Label, and that the label seen on gas water heaters is industry run rather than government regulated.
And the subsidy is real
This is not a case of a subsidy that exists on paper. The Clean Energy Regulator runs a
dedicated calculator on the REC Registry for exactly these two technologies: its stated
purpose is to calculate small-scale technology certificates
for solar water heater or air source heat pump systems
under the Small-scale
Renewable Energy Scheme. Those certificates are normally taken off the purchase price by
the installer, which is why the discount is often invisible as a line item.
Two things about that calculator are worth knowing before you rely on a quote. The Regulator describes it as an approximate guide that does not account for every variable, so a number from it is an estimate and not an entitlement. And certificates can only be created within 12 months of installation, which matters if a system goes in before the paperwork is sorted.
Our view: the information gap sits exactly where the decision is hardest
This is a view rather than a finding, and it is built on the facts above. We think the arrangement is the wrong way round. A household replacing a failed hot water service is making a decision with a high up-front cost, a fifteen-year consequence, and roughly a quarter of its energy use riding on it. It is being nudged by public money toward two technologies. And it is the one appliance category where the state has decided not to require a comparable efficiency figure on the box.
None of that means a heat pump is a bad buy. On the government’s own numbers it is usually the efficient choice, and we would still point most households at one. The point is narrower: the absence of a standard means the range of what you might be sold is wider than the technology’s reputation suggests, and nothing on the product tells you where in that range a given unit sits. A minimum standard is not there to describe the good products. It is there to remove the bad ones, and for these systems it has not been asked to.
What to ask, given there is no label
The useful questions are the ones the government pages raise as caveats and then leave to the buyer:
- How does it perform where you actually live? energy.gov.au notes that not all heat pump models are designed for cold locations where temperatures regularly drop below 5°C in winter. A unit’s headline efficiency is measured somewhere, and that somewhere may not be your winter.
- Where will the compressor go, and who will hear it? The same page describes the compressor as capable of being noisy, like an air conditioner. On a narrow block this is a siting question, not a footnote.
- Integrated or split? Both configurations exist, tank and compressor combined or separate, and they place differently.
- What is the certificate estimate, and who is keeping it? Ask for the STC number the quote assumes and check it against the Regulator’s own calculator.
- What is the running cost on your tariff? An electric storage system on a restricted or off-peak tariff is a different proposition from one on a continuous tariff, and the Energy Rating page is explicit that how the tank reheats depends on which you are on.
We will keep an eye on whether minimum standards are extended to heat pumps, because that is the single change that would close this gap. If they are, this page gets updated and says so.