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How to reduce your hot water bill

Did you know that most households use between a quarter to a third of their total energy on heating water? This of course does not apply if you are one those hard-core monks who regularly practices ice-bathing.

Wim Hof ice bathing

Fig 1. Popular ice bathing practitioner, Wim Hoff, enjoying his daily routine

The amount of energy that your house spends on heating water mostly depends on the number of baths and showers taken per day, and the length of those showers. Although this is a hard one to bite, if you are looking at saving energy, our first recommendation is to try reducing the length of your showers. This measure will also reduce your overall water consumption… awkward silence…

I can already hear you saying, ‘I’m happy to do whatever I need to, to save energy but, NOT THE SHOWER!" Ok, ok, don’t worry, you’re not the only person who feels this way; even the biggest energy nerds that I spend time with struggle to compromise on their hot showers…

So let’s take a look at some more ‘realistic’ ways to save energy on your hot water consumption. In order to be able to identify your options, you’ll need to know some details about your hot water system. Since most hot water systems are installed in an out-of-sight location, you may not know the type of water heating system that you have. Generally, water is heated by using one of the following energy sources: electricity, gas or solar thermal

1)     Electricity

a)      Electric hot water tank (with storage): Water is heated by a resistive heating element and stored within a well-insulated hot water tank, which is generally placed outside your home. The water temperature is controlled by a thermostat which automatically heats the water as soon as the temperature drops below a certain level. With electric hot water tanks, there can be a significant amount of heat loss to ambient air from the tank (imagine a kettle that automatically heats up each time the water gets cold, regardless of whether you have a cuppa or not). The size of the hot water tank depends on the hot water requirements of the household. For a family with 4-6 members, usually a 300 L tank is sufficient. The power rating of the heating element varies between 1.2kW, 2.4kW, 3.6kW to 4.8kW depending on how quickly you want to heat your water. Electric hot water tanks are one of the cheapest options on the market to purchase upfront, however they are not the most energy efficient, cheap or environmentally-friendly option to run (this will depend on a few other factors which will be discussed later on.)  

b)      Electric hot water tank (instantaneous): Water is also heated by a resistive heating element, however the storage tank is much smaller in size (100L or less). So, in contrast to a hot water tank storing a large amount of hot water, the instantaneous option allows the water to be heated on the go, whenever it is needed. Therefore, this option is more energy efficient than the storage option as there is less heat loss. However, this option is usually more expensive to run than the storage tank option.

c)      Heat pump (with storage): Heat pumps with storage tanks are the most energy-efficient electric water heating option. Heat pumps have a similar working principle to air-conditioners: they use refrigerants and compressors and utilise the heat of ambient air. As a result, for every unit of electricity consumed, they can provide multiple amounts of energy for heating water (based on their so-called Coefficient of Performance – COP and ambient temperature they can provide up to five times more energy). Therefore, heat pumps require much less energy to heat water.

It’s important to note that heat pumps operate most effectively in temperate and warm climates. It can still operate in colder climates like inland areas and Tasmania, but its efficiency will be much less. In the worst case, it’s COP will be equal to one which means it can only provide the same amount of energy that it consumes (this is still more efficient than gas heaters).

Another minor issue is that heat pumps have a compressor unit which can be noisy during operation (this depends on the brand and model of the unit). Additionally, this more sophisticated water heating technology comes with a higher upfront cost. But thanks to the government energy efficiency schemes, heat pumps attract rebates which can cut a great deal from the initial cost. The payback time will depend on the climate of your region: shorter in temperate climates and longer in colder climates.

How to save more on your electric hot water heating

If you have an instantaneous electric water heater, unfortunately your saving opportunities are quite limited.

If you have a storage tank, you can save a great deal through choosing the right electricity tariff and connection type.

... with controlled load tariff

For example, if you have a storage tank and are living in NSW or QLD, there are two different ‘controlled load’ options offered by electricity utilities. If you choose to go with one of these, your hot water tank will have a dedicated electricity meter which is installed on a separate electrical circuit than the rest of the house. As a result, you can get much cheaper electricity rates.

However, in return, the operational hours of your water tank are restricted: for example for ‘controlled load 1’ in NSW or ‘Tariff 31’ in QLD, your tank will only keep the water heated between 10pm-7am. But don’t worry; if you have a well sized tank, you will have enough hot water for the entire day.

If you have a smaller size tank, you may choose to go with ‘controlled load 2’ in NSW or ‘Tariff 33’ in QLD option as it only restricts tanks’ heating during peak hours (generally between 4-8pm but may vary according to the state and season). Therefore, there is less risk of running out of hot water. This increased availability makes Controlled 2/Tariff 33 more expensive than Controlled 1/Tariff 31 yet, they are still cheaper than regular household electricity rates.  

If you are in SA, VIC or TAS, you can still choose the single ‘controlled load’ offer to benefit from cheaper rates. Choosing a controlled load tariff requires electrical circuit alteration as hot water gets installed on a separate electrical circuit. It may come with an initial installation cost for the new meter depending on your state and electricity distribution service provider (DNSP) so it is best to check the costs involved. Also, depending on your retailer, it may also attract an additional daily supply charge for the new controlled load circuit on top of the household’s main electricity supply charge (once again the rates vary between different retailers).

In spite of having these potential extra costs, having a controlled load will most likely pay for itself in a short amount of time. And it may attract an additional daily supply charge for the additional meter. To find out whether your hot water system is already a ‘controlled load’ type, you can simply open one of your recent electricity bills and look for the words ‘controlled load’.

...with a 'time of use' tariff

If you don’t want to or can’t go ahead with the controlled load options for any reason, there are some other great ways to save on your hot water energy consumption. A simple solution for households who are on a ‘time of use’ tariff is to put a timer on your electric hot water tank so that it will only actively heat water during cheaper electricity rate periods. (Check your electricity bill for words such as ‘peak, shoulder or off-peak’ which indicate that you are on a time of use tariff and take note of these time periods. If they are not listed on the electricity bill, they should be listed on your electricity company’s website).

...with your solar energy

Another great way to save on your hot water electricity consumption is of course using the energy from your solar panels. This is an especially great option for households who are not usually at home during the day so there is an abundance of excess solar generation that you can use to heat water.

Let’s have a look at few examples below from a Solar Analytics dashboard to show you how to identify your hot water tank’s electricity consumption and understand whether using solar energy for heating water is a good option for you. Just a reminder, to see your hot water usage on your Solar Analytics Dashboard, the circuit with the water heater needed to have been connected, identified and labelled when your Solar Analytics monitoring device was installed.

Go to your dashboard and un-toggle ’consumed’ and all other appliances except ‘hot water’ and ‘produced’ (your solar production). Below you see an example of daily operation of the hot water tank against the solar production. You can clearly see that this house has a 3.6 kW hot water tank, and as per the operational characteristics of electric water tanks, they draw constant power throughout their operation. This household has a 4 kW solar system and depending on the season, time of day and other system losses such as shading, the system will be producing less than 3.6 kW most of the time, which is essentially smaller than their water tank’s power requirement.

For this household, potential savings by using their excess solar generation on water heating will depend on their tariff arrangements. For example, if the household and hot water are on a flat rate tariff, the savings from using solar generation for heating water could be substantial. On the other hand, if the hot water tank is already on a ‘controlled load’ connection, there may not be any savings, as the electricity used for the hot water during the off-peak period, may be cheaper than the difference between the ‘free’ solar energy and the peak period extra electricity that will be used by the hot water heater during solar-producing hours.

hot water usage and solar energy on Solar Analytics dashboard

Let’s take a look at another example. This time we see that the hot water unit has a smaller heating element of 1.2kW and the solar system is 4kW. For this household, using a timer and setting the water heating to operate during  solar production hours (to use the ‘free’ solar energy’) is a no-brainer and the solar can easily provide power for the majority, if not the entire, hot water consumption of the household. (Note that this will also depend on what other appliances the house is using during the day).

hot water usage and solar energy on Solar Analytics dashboard

You can also see what proportion of your electricity consumption is attributed to heating water through your Solar Analytics dashboard. In the below example, the household’s hot water consumption ranges from between 15-25% of total consumption based on the time of the year.

hot water usage and solar energy on Solar Analytics dashboard

Using your solar panels for heating water

It is important to remember that, in order to be able to use your rooftop solar system generation for water heating, you will need to have an electric storage tank or a heat pump unit with storage. Also, your electric hot water shouldn’t be connected on the controlled load. Believe it or not, if you have the right size PV system and small day time appliance consumption, your hot water tank can be a highly effective storage solution and you may not need invest in batteries.

If you think your water tank and PV system ticks these boxes, you have a few different options to use your rooftop solar generation for heating water:

Timers: The simplest option is to use a ‘timer’ and set it to times where your solar system is producing maximum energy (usually in the middle of the day). This option is the cheapest alternative and can be effective if you have a large solar system and/or small water tank.

However, depending on your daily consumption habits and tariff arrangements a simple timer can also end up increasing your bills. This is because timers operate hot water tanks at set times regardless of the solar generation. So on a cloudy day with minimal solar generation, if your hot water systems starts operating in the middle of the day, you may pay higher day-time rates such as a shoulder or flat tariff, in contrast to paying off-peak rates (this is for customers who have a controlled load or are on a Time of Use tariff and can heat their hot water with off-peak rates).

Timers usually cost between $50-150 depending on the model and functionality and if you install them at the same time as your solar, you may avoid the extra installation fee. Otherwise, installing timers may cost you between $200-300 including installation.

Diverters: An alternative method for using your solar system output for water heating is using a ‘diverter’. Diverters can be highly effective tools for utilizing your excess solar energy and can bring you substantial savings, depending on the smart meter you have. However, they have high initial costs. The installed cost of a diverter may range between $900 to $2000 depending on the brand and functionality of the diverter.

So far we have only looked into using electricity as the energy source for water heating. Besides electricity, you may also use gas or solar thermal for heating water at home. Let’s have a brief look at these options as well:

2)     Gas

If you have gas connected to your house, you can use gas as a fuel to heat water. Similar to electric heating, there are two main options for gas heating:

a)      Gas heater with storage tanks: With the storage option, water heated by gas is stored in a well-insulated hot water tank.

b)      Gas heater instantaneous: Instantaneous gas heaters heat water on the go, as hot water is needed in the house. As hot water is used immediately after being heated, there are less heat losses compared to the storage options hence this type of heating is usually more energy efficient.

The upfront capital cost of gas heaters is generally not so different from electric water tanks for a similar size tank and heating capacity. Gas has traditionally been a cheaper source for heating water than electricity in Australia, but this highly depends on the price of gas and considering the high volatility in gas prices, running gas heaters has become more expensive and is likely to continue to be so in the future. If you do choose a gas heater, look for one with a high efficiency star rating. Electric heaters do not have efficiency ratings, so it is difficult to compare, but it is possible that a gas heater with a high energy efficiency rating may be more energy efficient than an old electric heater.

If you use gas for your heating, unfortunately, you won’t be able to monitor your hot water energy consumption through the Solar Analytics dashboard. In addition, having a gas heater limits you from using your solar system for heating water.

3)     Solar thermal

Solar thermal water heaters are quite different to the electric or gas heater options. They are generally installed on the roof of the house and they can use the sun’s radiation directly for heating water. Solar thermal systems require a water tank which can either be installed on the roof (roof mounted system) or on the ground (split system). There are two main solar thermal technologies that are used:

Flat plate collectors:  Dark coloured glass panels absorb the radiation from the sun. As the cooler water absorbs heat, it rises through the pipes contained within the collectors and is stored in the water tank (also known as the thermos syphon effect). The amount of heating that is provided by a flat plate collector is highly dependent on how much radiation it can absorb. This in turn depends on the location of the roof, tilt angle and orientation of the collectors. For cloudy and cold days there may not be enough energy provided by the collectors, so these systems usually require an electric or gas booster to compliment the required water heating energy.

Evacuated tubes: Evacuated tubes also use the sun’s radiation for heating water but thanks to their round shape and more sophisticated technology, they are more efficient in collecting energy than flat plate collectors. This higher efficiency comes with higher capital cost. Like the flat plate collector, for cloudy and cold days, evacuated tubes may not be able to provide the entire hot water energy requirement of the house and therefore need a gas or electric booster.

Solar thermal systems are more expensive then electric or gas heaters, and their installation costs are higher. However, they are much more environmentally friendly as a primary heating source, as they use the sun’s energy to provide the majority of the water heating energy. Being renewable energy technology, solar thermal systems attract government rebates in the form of small-scale renewable energy technology certificates (STC) which reduces their capital cost.

In summary...

If you have electric water tank and looking for an easy solution to save, you should try moving your hot water tank onto a controlled load.

If you are looking for an environmentally friendly/renewable energy option for water heating whilst still being affordable, using an electric water tank or heat pump coupled to your solar PV system is the way to go, given that your solar system and water tank meets the criteria discussed above.

If you have a solar thermal system installed, good on you as you have already done your part in terms of choosing environmentally friendly hot water heating.

If you have gas, replacing it with a more environmentally-friendly alternative may not recover its costs with savings in the short run but this also depends on the gas prices.  

The following table summarizes and compares the different water heating options. This table is certainly not a blueprint and it is just intended to provide a general idea of the comparative merits of each method. The given attributes and prices are gathered through investigating various products from leading manufacturers however it may also change depending on a specific product.

Comparison of the efficiency of different water heating methods

I hope this article has provided you with some helpful guidelines on what to look out for when you are choosing your water heater. If you have any questions or comments please add them below or alternatively shoot us an email at

Written by Baran Yildiz, Research associate at UNSW & Data Scientist at Solar Analytics.

Solar Analytics
We are Australian Photovoltaic Engineers, Software Developers, Scientists, Solar Technicians and Designers, all passionate about sustainable energy and the power of solar.
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