Heat pump vs gas hot water: which is cheaper in 2026?

This is the question Terry hears most in 2026, and the honest answer has shifted over the last few years. Rebates and power prices now tilt the running-cost maths toward heat pumps for a lot of homes, but gas is far from dead, especially if you already have a gas line and want hot water that never runs out. Here is how the two compare.

Running costs: heat pump takes it

A heat pump does not make heat, it moves it, pulling warmth out of the air and using it to heat your water. That means it uses roughly a third of the power of a standard electric element, and its running cost is the lowest of any hot water option once it is installed. Even against gas, a heat pump usually comes out cheaper to run day to day, particularly if you run it during the day on a timer alongside solar panels.

Gas continuous flow is still cheap to run compared with old electric storage, because nothing sits in a tank losing heat. But gas supply charges and unit rates mean it rarely beats a heat pump on pure running cost in 2026.

Up-front cost and rebates

Here is where it used to favour gas, and where the rebates have shifted things. A heat pump costs roughly $3,500 to $5,500 before rebates, more than a gas continuous flow unit at around $1,900 to $3,500 fitted.

The difference is the rebate. In NSW you can usually combine federal Small-scale Technology Certificates, worth roughly $640 to $860 depending on the system and your postcode, with the NSW Energy Savings Scheme incentive of up to around $640 when you replace electric. Together that is commonly worth roughly $1,000 to $2,500 off, and it is applied as an up-front discount at installation through accredited suppliers, so there is no rebate to chase afterwards. After the rebate, a heat pump can land close to the price of a good tank.

Terry will tell you honestly whether a heat pump stacks up for your place and point you to how the rebate is applied. He does not lodge the certificates himself, but he knows how the discount works and who handles it.

When gas still makes sense

Gas is still a strong choice in plenty of Western Sydney homes:

• You already have a gas connection, so there is no cost to bring gas to the site.
• You want continuous flow that never runs out, even with a full house showering back to back.
• You have limited outdoor space or a shaded, cold spot where a heat pump would work harder and slower.
• You want the longest life: continuous flow units last roughly 15 to 20 years, against 10 to 15 for a heat pump.

If you are already on gas and happy with endless hot water, replacing like for like with a good Rinnai or Rheem Infinity is a sensible, lower-fuss option.

Terry's verdict

For most homes looking purely at long-term cost in 2026, a heat pump wins once the rebate is counted, thanks to its low running cost and the up-front discount. If you are already gas connected, value endless hot water, or have a tight or cold install spot, gas continuous flow is still a smart, reliable choice.

The wrong move is guessing. Terry looks at your existing connection, your usage, your outdoor space and your switchboard, works out the real numbers for your home, and quotes a fixed price before any work starts. If a heat pump does not suit your place, he will say so.

Weighing up heat pump against gas around Berala, Lidcombe, Auburn or Merrylands? Call Terry on 0415 274 542 and he will run the honest comparison for your home.