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What is an efficient hot water system and why should I install one?

Hot water systems account for around 18 per cent of energy use in Victorian households. Upgrading to an efficient hot water system is a great way for households to save on energy bills and reduce greenhouse gas emissions.

The Victorian Energy Upgrades (VEU) program offers incentives for households to upgrade to efficient hot water systems. Only products meeting the VEU program requirements can be installed under this program. There are two types of efficient hot water systems available under the VEU program:

  1. Heat pump hot water systems: Heat pump hot water systems include a heat pump unit and an insulated storage tank. The heat pump unit may be integrated on top of the tank or it may be separate (split system) like the outdoor unit for an air-conditioner. The heat pump extracts heat from the surrounding air, which is used to heat water in the storage tank. These systems use around 60 to 75 per cent less electricity than a conventional electric hot water system.
  2. Electric boosted solar hot water systems: Solar hot water systems use heat directly from the sun to heat water in a storage tank. These systems generally include a hot water storage tank which is connected to solar collector panels. When the sun shines on the collector panel, the water inside becomes hot and is circulated to the storage tank.

For more information on how to organise a hot water system upgrade, visit the Hot water systems for households page.

Product quality and warranty

There is a range of hot water systems eligible under the VEU program:

  • Remember to do your research on these products. Not all products are of the same quality or suitability for all households.
  • Using a trusted installer and buying a reputable brand and model will ensure your hot water system works as it should.

The performance and energy efficiency of hot water systems also varies between products:

  • Choosing a more efficient system will deliver greater savings on household energy bills.
  • For system specific information and enquiries, we recommend that you contact the manufacturer of the water heater.

It is important to consider warranty when installing a new hot water system:

  • Not all hot water systems come with a warranty, and the warranties offered vary from one manufacturer to another.
  • Remember to read the warranty conditions carefully and note that some warranties are conditional on installation by appropriately qualified personnel.
  • A warranty is only as good as the company that provides it, so look for a company with experience in installing energy efficient hot water systems.

Choosing the right size hot water system

The size of a hot water system refers to how much hot water it can provide. This is determined by tank size (the amount of water stored, listed in litres) and how quickly new water entering the tank can be heated. Our recommendations rely on tank size because it is easily comparable.

Think carefully about what your household needs from a new system:

  • a system that is too small for your household may mean regularly running out of hot water
  • a system that is excessively large will cost more to buy and run.

Recommended tank size

Disclaimer: Sizing any hot water system should account for several factors and not only the number of bedrooms. We recommend that sizing and installation is always conducted by a fully qualified technician.

We recommend sizing your system based on the number of bedrooms, because the number of people in a household can change over the 10-15 year lifespan of a hot water system. For example, the demand for hot water might increase with the addition of children or tenants. The recommended sizes include some extra capacity to account for changes in water consumption and a range in the number of occupants.

These recommendations apply to both heat pump hot water systems and solar hot water systems. However, some solar hot water systems may benefit from larger tank sizes. It is important to discuss the particular sizing considerations of your chosen system with your installer.

Recommended tank size for water heaters

Number of bedroomsRecommended tank size
1-2150-225 litres
3225-300 litres
4 or moreMore than 300 litres

How does household behaviour impact recommended tank size?

When and how frequently your household uses hot water will impact the size of the hot water system needed to meet your household’s needs.

It is also important to consider the water efficiency of your appliances such as:

  • shower heads
  • washing machines
  • dishwashers.

Before investing in a larger water hot water system, consider upgrading the efficiency of your appliances. For example, efficient shower head upgrades are eligible under the VEU program and can reduce your water use and energy bills.

Consider a larger system than our recommended size if you have high hot water consumption. For example, if:

  • there are multiple people per room in your house
  • people in your house have long and/or frequent showers
  • your household has inefficient showerheads
  • people in your house shower directly after one another, or at the same time (in different showers)
  • people in your house have regular baths
  • your household has large spa baths or spas to fill
  • your household has plumbed hot water for clothes washing machine and/or dishwashers.

Existing hot water systems

When looking at a replacement hot water system and estimating its size, consider using:

  • your existing hot water system and water bills
  • the size of the tank, if your current system has a storage tank
  • your household hot water use and water bills, if your current system is instantaneous (without a storage tank).

Other considerations when planning a heat pump hot water system

When upgrading to an efficient hot water system, it is important to choose a reliable system that will last. A well-designed and efficient system will help to reduce energy bills and will serve your household for many years to come.

There are two types of heat pump hot water systems:

  • Integrated systems: an integrated unit combines the heat pump components with tank in a single unit. An integrated system is more compact and has a simpler installation process.
  • Split systems: in a split system, the heat pump component is housed in a separate unit, similar to a split system air-conditioner. A split system allows flexibility in locating the two components.

  • The required size of a heat pump hot water system depends on how quickly the new system reheats water after use.
  • Heat pump systems can efficiently heat water at any time of the day however some heat pumps are more powerful than others and can reheat water faster.
  • Not all products will perform the same or deliver the same hot water output or efficiency.
  • It is important to do your research on products to ensure they can perform efficiently and effectively in your location.

  • Heat pumps primarily heat water using the heat from outside.
  • Some heat pumps have an element to ‘boost’ hot water production using electricity. This can increase the speed that water is heated and can be useful in cold conditions.
  • Electric elements increase energy use that will increase the running costs of the system. Therefore, you may wish to research products that can operate in colder conditions without the use of a booster element.

  • Many heat pumps have a timer to control when water is heated to make the most of off-peak electricity prices and electricity generated from a solar photovoltaic (PV) system.
  • Some heat pumps also include ‘smart’ functions to communicate with the solar PV system to optimises the use of solar electricity.
  • If your household has solar or is on a time-of-use plan (e.g. peak and off-peak prices for your electricity bill) consider installing a heat pump that includes a timer, which may reduce your energy bills.
  • A larger tank may be required for households using timers to reduce the risk of hot water running out between reheating times.

  • Heat pumps generate noise comparable to an air-conditioner.
  • Some heat pump systems are noisier than others.
  • When installing a heat pump, it is important to select a location that is appropriate for you and your neighbours.
  • Generally, heat pumps should not be installed close to bedrooms (outside a kitchen or bathroom might be more appropriate).
  • Installing heat pumps near the bathroom or kitchen may also help to minimise heat loss from hot water pipes.

  • It is important to do your research on models best suited to the climate of your location.
  • All water pipes should be insulated to reduce heat loss and to minimise or eliminate frost damage.
  • The energy use and performance of hot water systems is impacted by the local climate.
  • It can take more energy and time to heat water in colder climates, reducing the efficiency and increasing the risk of running out of hot water.
  • Some products may also rely more on the booster element as discussed above.
  • Some systems also include ‘frost protection’ features to ensure they function effectively in cold conditions.

Other considerations when planning a solar hot water system

Types of solar hot water systems

There are two common types of solar hot water systems: close-coupled systems (or thermosiphon systems) and pumped systems (or split systems).

Close-coupled systems have solar collector panels and a storage tank, which are all located together on the roof. These systems are simpler than pumped systems, require less maintenance and also help to reduce heat loss through pipes because the components are located together. However, close-couple systems require a roof that can support the weight of the tank.

In pumped systems, the storage tank is located on the ground like a conventional hot water system. These systems use a pump to circulate water from the ground-mounted tank to the collectors on the roof. Pumped systems might be a suitable option if your roof cannot support the weight of the storage tank.

Collector types

There are two common types of solar hot water collector panels: flat plate and evacuated tube.

Which type of collector you use depends on personal preference and your climate:

  • In colder climates, evacuated tubes can be more efficient and tend to work better in cooler months.
  • In warmer climates, either type of collector will perform well.

The number of collectors or tubes in the system will vary, depending on the local climate and the expected pattern of water use at home.


The required size of a solar hot water system also depends on how quickly the system reheats water after use.

Solar hot water systems usually can’t collect enough solar energy to heat the water during winter or if it’s cloudy, so they also use booster elements to heat water. The size and number of elements will impact how quickly your water can be heated.

Only electric-boosted solar hot water systems are eligible under the VEU program.

Frost protection

Solar hot water systems also offer frost protection systems, which can prevent damage to pipes in cold temperatures. Speak to your installer about models best suited to the climate of your location and whether frost protection is recommended.

Page last updated: 03/07/23