Gas versus electric hot water
The received wisdom is that gas hot water is cheap and electric hot water is expensive. That was true for decades. It is now true only for some households, and which ones turns on a question most comparisons never ask.
The question that decides it
Not "is gas cheaper than electricity per unit of energy". It is:
If you stopped using gas for hot water, would the gas bill disappear, or just get smaller?
A gas connection costs $0.80 to $0.96 a day in daily supply charge before a single megajoule is used — around $300 to $350 a year. If hot water is the only thing you use gas for, that entire charge is part of what hot water costs you, and going electric saves all of it. If you also cook and heat with gas, the connection is staying either way, and hot water should carry only a share.
The size of that swing is larger than the difference between the fuels. Here is the same comparison run both ways, for a three-person household using 120 litres a day:
| State | Heat pump | Gas instant — gas for hot water only | Gas instant — gas also for cooking and heating |
|---|---|---|---|
| New South Wales | $411 | $579 heat pump wins | $367 gas wins |
| Victoria | $384 | $567 heat pump wins | $365 gas wins |
| Queensland | $336 | $511 heat pump wins | $319 gas wins |
| South Australia | $524 | $650 heat pump wins | $418 gas wins |
| Western Australia | $409 | $579 heat pump wins | $513 |
| Australian Capital Territory | $526 | $610 heat pump wins | $398 gas wins |
Annual running cost for a three-person household using 120 litres a day, at each state's current reference rates. The heat pump column does not move, because a heat pump does not care what else you cook with. The two gas columns are the same appliance burning the same gas — the only difference is how much of the daily supply charge hot water is asked to carry.
Read across the rows. Where hot water is the only gas appliance, the heat pump wins in every state. Where the gas connection is staying anyway, gas instantaneous wins in five of the six. Same house, same hardware, opposite answer.
Why electric stopped being the expensive option
Two things changed.
Heat pumps became normal
The comparison people remember is gas against an electric element, and an element really is expensive — a Sydney household pays about $916 a year to run one on a flat tariff. A heat pump doing the identical job costs about $360, because it moves heat rather than making it. Comparing gas to a heat pump is a completely different comparison from comparing gas to an element, and most of the folklore predates heat pumps being a mainstream choice.
Gas stopped being cheap
Australian residential gas is now 2.45 to 3.05 cents a megajoule across the eastern states, and Western Australia's regulated tariff is 5.29 cents. Meanwhile the fixed cost of simply having a connection has risen faster than the commodity. For a low-volume application like hot water, the fixed component dominates.
What about emissions?
This is where the answer is least comfortable, and where a site with something to sell would move on quickly.
Burning natural gas emits 51.53 kg of CO₂-equivalent per gigajoule. Grid electricity emits between 0.20 and 0.78 kg per kilowatt hour depending on the state. A heat pump uses far less energy than a gas system — but if the energy it uses comes off a coal-heavy grid, less energy does not automatically mean fewer emissions.
| State | Grid intensity, kg CO₂e/kWh | Heat pump, kg a year | Gas instant, kg a year | Lower emissions today |
|---|---|---|---|---|
| South Australia | 0.22 | 249 kg | 476 kg | Heat pump |
| Western Australia | 0.50 | 539 kg | 476 kg | Gas |
| New South Wales | 0.64 | 698 kg | 489 kg | Gas |
| Australian Capital Territory | 0.64 | 824 kg | 543 kg | Gas |
| Queensland | 0.67 | 683 kg | 466 kg | Gas |
| Victoria | 0.78 | 948 kg | 535 kg | Gas |
Emission factors from the National Greenhouse Accounts Factors 2025, published by the Department of Climate Change, Energy, the Environment and Water. Sorted by how clean the grid is. These rows will change as the grid decarbonises, and the table is regenerated from the data every time the site is built rather than typed into the paragraph above it.
So: in 2026, on today's grid, a gas instantaneous water heater produces fewer emissions than a heat pump everywhere except South Australia and Tasmania. That is the opposite of what most people assume and the opposite of what the rebate schemes imply.
Three things are worth saying alongside it. The grid is decarbonising quickly and this comparison flips as it does — a heat pump installed now will still be there, getting cleaner every year, while a gas system will not. If you have rooftop solar and time the heat pump for daylight, the grid factor barely applies and the heat pump wins immediately. And gas emissions are fixed at the point of combustion; there is no path by which they improve.
The reason to state it plainly anyway is that a calculator you can catch being convenient is a calculator you cannot use for anything.
What we would actually do
- No gas connection now? Heat pump. It wins on cost everywhere in Australia against every electric alternative, and connecting gas costs $1,000 to $2,500 before you buy the appliance.
- Gas for hot water only? Heat pump, and drop the gas connection entirely. That is where the $300-odd of supply charge goes.
- Gas for cooking and heating too, and the system still works? Leave it. Replacing a functioning system to save nothing is not an upgrade.
- Gas for cooking and heating too, and the system has failed? This is the genuinely close call. Gas instantaneous is cheaper to run and much cheaper to install; a heat pump is the better long-term position and attracts $1,100 to $3,800 in rebates depending on your state. Run it through the calculator with your own numbers rather than taking a rule of thumb.
Frequently asked questions
Is gas hot water cheaper than electric in Australia?
Cheaper than an electric element, yes, almost everywhere. Cheaper than a heat pump, only if you are keeping the gas connection for other appliances. Once the daily supply charge is attributed properly, a heat pump beats gas instantaneous in every Australian state for a household whose only gas appliance is the water heater.
How much does it cost to disconnect gas?
Abolishing a gas connection typically costs a few hundred dollars and varies by distributor, and some networks charge nothing if the meter is simply removed. That is a one-off against $300 to $350 a year saved, so it pays for itself inside a year or two — but get a figure from your distributor before committing, because the cost is not standardised and it is not always trivial.
Is gas being phased out in Australia?
Not uniformly. Victoria has moved furthest, with new homes required to be all-electric, and several councils elsewhere have similar rules for new builds. No jurisdiction is forcing existing households to disconnect. The practical effect for a household deciding today is about the direction of prices and rebates rather than about compulsion: rebate schemes fund electric systems and not gas ones, and that gap is widening.
Does an instantaneous gas system really cost less to run than a gas tank?
Yes, and the difference is standing loss. A gas storage tank spends about 8 megajoules a day keeping 130-odd litres hot whether anyone uses it or not, which is roughly $80 a year. An instantaneous unit burns gas only while a tap is running. Instantaneous also lasts around 18 years against a tank's 11, so it wins on both running cost and replacement cycle.
What about LPG?
LPG is the most expensive common way to heat water in Australia, at roughly 7.6 cents a megajoule against 2.45 to 3.05 for mains gas. If you are on bottled gas and have mains electricity, a heat pump will typically halve your hot water running cost — the comparison is not close, and LPG is the one case where the financial argument for switching is strong enough to justify replacing a system that still works.