Hot Water System Upgrade in New South Wales

Free Heat Pump Hot Water Systems (Under VIC Government Program)

Free Residential & Commercial Hot Water Upgrade in VIC

Water heating contributes to 36% of the total energy cost in Australian businesses. This number rises up to 40% if you’re living in colder regions of Australia. The energy cost arising from water heating also depends on the type of water heater you’ve installed.

To recompense the high upfront cost, the Victorian government is offering rebates to eligible Victorian businesses (under Victorian Energy Upgrades or VEU program) who are planning to replace a traditional water heater with an efficient air-sourced heat pump water heating unit.

Victorian Energy Upgrades Scheme performance

VEU program milestones.

A hot water heat pump extracts heat from outdoor air and transfers it to the water storage tank. Heat pumps deliver a sizable reduction in energy costs and emissions because it harnesses ambient heat quite efficiently.

An air-sourced heat pump hot water system works on the principle of vapour compression refrigeration cycle. Your home appliances like fridge and aircon also work on the same principle.

A hot water heat pump is more like a fridge working in the opposite. Instead of pumping the heat out—as the fridges and air-conditioners do—it extracts heat from ambient air and transfers it to the water.

Now you might be wondering how a heat pump will work in winter when it is cold outside and air temperature is well below zero °C? Even if you’re living in an alpine region where ambient temperature drops to minus 40 °C, the air still holds some thermal energy that a heat pump can draw out.

Remember, the absolute zero (when there is no heat left) is 0 degrees kelvin, i.e.-273.15 °C.

Annual energy cost of water heating (in a 4 member Australian household having a heat pump and consuming 150 litres of hot water a day) in off-peak tariff is about $145. If the same household had installed a gas water heater, it would have cost them $505 – which is 348% more.

To know about the 348% rise in the energy cost, let’s see what Air Source Heat Pump (ASHP) water heating system is and how it works?

Government rebates for replacing conventional water heaters with heat pumps

Under the Victorian Energy Upgrades (VEU) for businesses, the government is offering rebates for replacing an existing electric hot water system with a brand-new heat pump hot water system. The incentive amount varies, corresponding to the values of variables like:

  • Heat pump kW rating
  • Installation and administrative costs
  • Coefficient of Performance (CoP)/efficiency of the installed heat pump unit
  • VEU certificate price
  • Potential reduction in water heating energy usage

Homeowners and businesses in NSW can also apply for heat pump hot water rebates under the ESS (Energy Savings Scheme) program, similar to Victoria’s hot water rebate program.

Who are eligible?

Victorian households and businesses who have conventional electric resistance water heaters are eligible for rebates on water heater replacement or upgrade.

Is the replacement free?

Water heater replacement and heat pump installation if free. However, a business / homeowner may be charged (or not if the product is completely covered by government rebates) on the product price.

How does a Victorian business claim the rebate?

Here are the steps involved in claiming rebates on water heater replacement with air-source heat pump in Victoria:


  • You share a document verifying the property ownership and the details of your current water heater.
  • Give us a rough estimate of daily hot water consumption at your business.
  • We’ll offer you a quote based on the product picked by our licensed plumbers and heat pump water heater technicians.
  • Our plumber and heat pump installer will inspect the installation site for feasibility and convenience of wiring and piping.
  • Once the installation is complete, we will claim the rebate on your behalf and deduct the rebate amount from the cost of the product.

What is an air source heat pump water heater?

It is a reverse refrigerator. The natural heat flow (from hot to cold body) is reversed in ASHPs. These water heaters absorb heat from ambient air and transmit it to water storage in your home or business.

It is an electricity powered appliance that amplifies the heat extracted from outdoor air by running the refrigerant in the refrigeration cycle through evaporator coils, compressor, condenser coils (or heat exchanger) and expansion valve.

How does ASHP water heater system work?

In simple terms, an ASHP water heater moves heat from ambient air to water. The electricity is used in moving the heat. The refrigerant liquid flowing through the evaporator coils absorbs ambient heat. The liquid then flow through compressor.

Working mechanism of air source heat pump

Types of heat pump water heaters

We can classify heat pumps into three major groups:

Air source heat pumps

ASHPs move heat from ambient air to refrigerant liquid to heat the water. The heat pumps are 50% more efficient than conventional electric resistance water heaters. ASHPs can be used both for space and water heating purposes.
Based on its design, air-source heat pumps can further be classified into:

  • Integrated heat pumps (Evaporator coils and fan are mounted on water storage tank to form a single unit).
  • Split system heat pumps (Evaporator and fan are separate from water tank and the system will work even if the both units can be placed at different locations).

Ground source heat pumps (GSHPs)?

GSHPs exploit heat from below the ground to heat/cool your home or supply hot water during winter. Temperatures remain relatively constant (below 12–40 feet) in the earth’s crust.

Compared to ASHPs, GSHPs have the drawback of higher capital and installation cost. But, lower operating and maintenance costs coupled with more durability, reliability, long lifespan and ability to work in the coldest regions of the earth make them a better alternative.

Absorption heat pumps (AHPs)

Instead of a vapour compression cycle, AHPs employ an ammonia-water absorption cycle. In this cycle, ammonia is used as a refrigerant and water as heat absorbent. AHPs do not use electricity as the water-ammonia mix in AHPs is heated by natural gas, solar or geothermal energy sources.

Advantages electric heat pump powered water heater offers over conventional water heaters?


ASHP water heaters outrun conventional water heaters on the following parameters:

  • Efficiency: ASHP electric water heaters are 50-60% more efficient than conventional electric resistance and natural gas powered water heaters
  • Carbon emissions: Electric ASHP water heaters are a low (even zero if they are powered by solar panels) carbon-emission and environment-friendly alternative to the conventional water heaters.
  • Coefficient of performance (COP): High COP between 2.5-3.5
  • Lower running / operating cost
  • Lesser maintenance cost
  • Long lifespan
  • Safety: ASHP water heaters are safer than natural gas fuelled water heaters as they are not combustion based and don’t pose a risk of fire.
  • Government rebates

What are heat pump water heaters best suited for businesses?

There are several factors that determine the best suitability of ASHP water heater for a business and household. Before replacing your water heater with ASHP, you need to consider:

  • Size
  • Constant temperature function
  • Thermal insulation of water tank
  • COP
  • Heating capacity
  • Flow rate in case of tankless ASHP water heater
  • First hour rating
Rheem air sourced heat pump unit

Will it work in colder climates?

Even in sub-freezing temperatures, ASHP hot water heaters are the best appliance to decarbonize and reduce energy use and save money on utility bills.

Modern heat pumps (that includes heat pumps we install under the VEU program) have variable speed air compressors driven by a variable frequency drive (a motor controller that supplies varying frequency and voltage to control the speed of the heat pump compressor).
This enables the heat pumps to move heat even in freezing weather conditions when the temperatures are well below -20 °C.

Heat pumps are more than twice as efficient as fossil fuel heating systems in cold temperatures, research shows. Even at temperatures approaching -30C, heat pumps outperform oil and gas heating systems, according to the research from Oxford University and the Regulatory Assistance Project thinktank — The Guardian.

Present-day heat pumps also use lower boiling point refrigerant liquid. Such refrigerants are able to draw heat from sub-zero ambient temperature and continue to flow through the evaporator coils of the heat pump.

Factors affecting the performance of heat pump

A host of factors affect the performance and efficiency of ASHP. The major factors are:


  • Frequent changes (increase/decrease) in temperature set point.
  • Stained and grubby evaporator coils.
  • Not doing regular maintenance tasks.
  • Leaks.
  • High hot water usage.
  • Outdated shower-heads and faucet fixtures.
  • Exposed water pipes.
  • Uninsulated water tank .
Rheem hot water heat pump system installed in a backyard

Things to consider before installing air-source heat pump water heaters

Before installing the heat pump, an installer should:

  • Check the location and space where the homeowner or business is planning to install the pump.
  • Ensure that the bearing surface is level and able to bear the weight of the heat pump water heating system.
  • Think about the final position of the exhaust fan.
  • The circuit breaker and power cable current ratings match with the recommended current ratings.
  • Airflow at the planned installation site.
  • Ensure that the heat pump system is kept upright all the time (even during the installation).
  • Discuss the operational noise level with homeowner or business manager.
  • Read the installation instructions listed in the product manual.

After the installation, ensure that:

  • All the components of the heat pump are working fine.
  • The pump system and pipe work are earthed to avoid electric shocks.
  • The minimum inlet water pressure is maintained at the recommended level.
  • All the mandated building and plumbing standards are being met.

How to choose among different sizes of heat pumps?

Picking a suitable size heat pump hot water system is a crucial step in the conventional water heater to heat pump upgrade process.

If you install a larger size heat pump that don’t match your business or household hot water needs, there will be standing/operational losses, and you won’t find any significant drop in electricity bills.

In the case of a smaller size heat pump, you’d often find running out of the hot water in the depths of freezing winters.

Before picking a heat pump for certain water tank capacity, consider hot water intensive activities and peak hour hot water demand at your home or workplace. Also, check the first hour rating — volume of hot water the unit can supple in one hour — of the heat pump unit you’re planning to install.

Here is our recommended water tank size for households:

Number of peopleRecommended tank size
1-2150–250 litres
3250–300 litres
4-6300–400 litres

Factors contributing to energy cost of heat pump water heater

Products offered under heat pump water heater rebate in Victoria
  • Air compressor efficiency and type
  • Electricity tariff
  • Efficiency of water heater
  • Hot water usage
  • Length and insulation of connecting pipes and water storage tank
  • Leakages (if any) in connecting pipes, faucets, or water heater system
  • Local climate


Q: After the upgrade, how much energy savings can I expect?

Q: How is the upfront cost of heat pump water heaters compared to conventional water heaters?

Q: How long will you take to remove the existing system and install a heat pump water heater?

Q: What maintenance task (and schedule) would you recommend for a heat pump water heater?

What is the average lifespan of heat pump water heaters?

Q: Will the heat pump water heater work in the cold climes of Australia?

Q: Can I use my existing plumbing with a heat pump water heater?

Q: Are there any rebates or incentives available for switching to a heat pump water heater?

Q: What is the installation (and rebate claiming) process for electric heat pump water heater upgrade?

Q: Can I install an electric heat pump water heater myself, or do I need to hire a professional?

Q: What electrical requirements should be met for an electric heat pump water heater installation?

Q: How much space is needed for an electric heat pump water heater installation?

Q: Can an electric heat pump water heater be installed outdoors?

Q: Are heat pump water heater noisy?

Q: How efficient are heat pump water heaters?

Check If You Qualify For Free Heat Pump Upgrade!