If you’re deciding between a heat pump and a gas hot water system for a NSW home in 2026, the short answer is that a heat pump will almost always cost less to run and comes with bigger rebates, while gas still has a place for households with very high, simultaneous hot water demand. The full picture depends on your current setup, your household size, and whether you’re replacing an existing system or starting from scratch.
This guide walks through the real numbers: running costs, upfront costs and rebates, what’s happening with NSW gas prices, and which system tends to suit which household.
How heat pumps and gas hot water systems compare
A heat pump uses electricity to move heat out of the surrounding air and into a tank of water. A gas hot water system burns natural gas or LPG to heat water directly, either in a storage tank or on demand through a continuous flow unit.
The core trade-off is straightforward. Gas has historically been cheaper to run than standard electric, and it heats water quickly with no reliance on ambient air temperature. A heat pump costs more upfront but uses a fraction of the energy a gas or electric system needs, and it comes with rebates that gas systems can’t access to the same degree.
Both technologies are proven and well established in Australian homes. Gas storage and continuous flow systems have been the default choice for households on mains gas for decades. Heat pumps are newer to the mainstream market but the underlying refrigeration technology, the same used in reverse cycle air conditioning, has been around just as long. If you want the full explanation of how a heat pump hot water system works, we’ve covered the refrigeration cycle in detail separately.
Running costs: heat pump vs gas in NSW 2026
For a typical NSW household, a 4 or 5 star gas storage system costs roughly $400 to $700 a year to run, with continuous flow gas sitting in a similar range. A heat pump on a standard electricity tariff typically costs $300 to $600 a year, and that drops further, sometimes to under $150, if it’s run during the day on rooftop solar.
| Factor | Heat pump | Gas |
| Typical annual running cost (NSW) | $300 to $600, less with solar | $400 to $700 |
| Upfront cost (supply and install) | Higher, partly offset by rebates | Moderate |
| Rebates available | Federal STCs plus NSW ESS | Federal STCs only in some cases |
| Direct emissions | None | Combustion emissions |
| Typical lifespan | 10 to 15 years | 8 to 15 years depending on system |
| Policy direction in NSW | Actively incentivised | No ban, but incentives favour electrification |
The gap between heat pump and gas running costs isn’t huge on its own. What tips the decision is everything else: rebates, the direction gas prices are heading, and what happens to your gas supply charge once you’re not using gas for anything else in the house.
Household size and habits move these numbers around more than the technology itself. A family of five showering back to back in the morning will use more energy on either system than a couple who spread their hot water use through the day. If your property has rooftop solar and you can run a heat pump during daylight hours, the running cost advantage over gas gets considerably larger.
Upfront costs and rebates: what you’ll pay
A heat pump costs more to buy and install than a comparable gas system, but government rebates close a lot of that gap. Federal Small-scale Technology Certificates reduce the purchase price by roughly $400 to $900, and the NSW Energy Savings Scheme adds a further point-of-sale discount. Combined, most Newcastle households replacing an old system with a heat pump can expect $800 to $1,400 off the upfront cost.
Gas systems can also qualify for STCs in some cases, but the NSW ESS discount is generally lower for a gas replacement than for an electric one, since the scheme is weighted toward the biggest emissions and energy reductions. Hogan Hot Water handles all rebate paperwork as part of the quote, so the discount shows up on your invoice rather than requiring separate claims.
Supply and installation prices vary depending on tank size, whether any electrical or plumbing upgrades are needed, and whether the job is a straightforward like-for-like swap or involves relocating the unit. As a rule of thumb, gas storage and continuous flow systems generally cost less to install than a heat pump before rebates are applied, but once the STC and ESS discounts are factored in, the gap narrows considerably, and the ongoing running cost saving usually makes up the rest within a few years.
Gas prices in NSW: what is happening in 2026
Gas prices in NSW have risen 15 to 25 per cent since 2022, and that trend has continued into 2026. It hasn’t dramatically changed the day-to-day cost comparison between gas and heat pump systems yet, but it’s a real factor if you’re thinking about the next 10 to 15 years rather than just next year’s bill.
There’s also the supply charge to consider. If you’re on mains gas purely for hot water, you’re paying a daily supply charge on top of usage, regardless of how little gas you burn. Switching to a heat pump and disconnecting from gas altogether removes that charge entirely, which adds up over the life of the system even before you factor in the running cost difference.
Environmental impact: emissions from gas vs heat pump
Gas hot water produces direct combustion emissions every time the system runs. A heat pump produces none, and because it runs on electricity, its emissions profile improves automatically as the NSW grid adds more renewable generation. That’s not something a gas system can do, no matter how efficient the unit is.
Is gas still being installed in NSW in 2026?
Yes. NSW hasn’t banned new gas hot water connections, and gas systems remain a legitimate option, particularly for larger households with continuous flow demand or properties already connected to mains gas. Victoria is a different story: from 1 March 2027, gas hot water systems in existing Victorian homes must be replaced with an electric alternative once they reach end of life. NSW hasn’t followed suit, but the direction of state and federal policy, rebates included, is clearly toward electrification.
Which system suits which household?
Gas still makes sense for a household with high, simultaneous hot water demand, such as a large family running multiple showers and a bath at once, particularly if the property already has a gas connection and no plans for solar. A continuous flow gas system in particular can handle that kind of demand without running out, which is harder for a heat pump tank to match during a single busy morning.
A heat pump makes more sense for most other households, especially anyone replacing an ageing system, anyone with rooftop solar, and anyone who wants to get off gas altogether and stop paying a supply charge for an appliance they no longer need on that connection. For most 3 to 5 person households, a correctly sized heat pump tank, generally 270 to 315 litres, comfortably covers daily demand without the recovery time being an issue.
How to switch from gas to a heat pump in Newcastle
Switching involves capping the existing gas line, which has to be done by a licensed gas fitter, plus the electrical and plumbing work to install the new heat pump. Most plumbers can’t cap a gas line, and most gas fitters aren’t licensed electricians, which is where jobs like this tend to get complicated with multiple contractors.
Hogan Hot Water holds gas fitting, plumbing and electrical licences in-house, so one team manages the whole switchover rather than coordinating three separate trades. A straightforward like-for-like outdoor replacement is usually a one day job. If your switchboard needs an upgrade to run the new circuit, or there’s extra plumbing involved, it’s worth allowing a bit longer, and that’s something we’ll flag during the quote rather than on the day.
If you’re weighing up your options or you already know you want to switch, get in touch for a free quote or site assessment and we’ll walk you through what it involves for your specific property.