Is a Heat Pump Water Heater the Same as a Tankless Water Heater?

In Australia, hot water accounts for nearly 21% of a household’s total energy use, which makes it the second-highest source of energy expenditure after heating and cooling.

Choosing a water heater is not just a technical choice.

This is a long-term decision on comfort and sustainability, and in an era where energy prices are rising at a rapid pace and sustainability is ever-so-important. Actually, we are seeing smart homeowners choosing to invest in heat pumps and tankless water heaters.

Both types of water heaters market themselves as being energy-efficient, but they operate in very different ways. The unfortunate part is that the differences are not always apparent, and picking the wrong system can be annoying.

In this article, we will highlight the major differences so you do not have to struggle.

What Is a Heat Pump Water Heater?

The heat pump water heater does not actually release heat of its own. Instead, it takes the heat from the air and then uses it to heat the water. In fact, it works like a refrigeration system, except that it works in reverse.

It is electrically driven, but the energy that it uses is much smaller compared to that of a traditional electric water heater. The heat pump water heater is most suitable for hot or mild climates, like those in the coastal areas of Australia.

Hot water will be stored in a tank, which is typically found in a standard system. Therefore, when the tank is full, the hot water is available for use. If the tank is left empty, you have to refill and heat the water again.

What Is a Tankless Water Heater?

A tankless water heater (also called an instantaneous or on-demand system) works quite differently.

It doesn’t store water. But it heats water instantly as it flows through the unit. As a result, you get hot water whenever you need it.

These appliances are available in electric and gas models. The units are small, typically mounted on the wall and work well with smaller properties with limited space.

However, when multiple taps are used simultaneously, one unit may not be able to keep up with demand in larger households.

Heat Pump vs Tankless Water Heaters: What is the difference?

Here’s a simple side-by-side breakdown:

Feature	Heat Pump	Tankless
Water Storage	Yes (with tank)	No
Energy Source	Electricity	Gas or electricity
Heating Method	Absorbs heat from air	Heat water as it flows
Best Climate	Warm, mild	Works in any climate
Space Required	Needs outdoor airflow & tank	Absorbs heat from the air
Running costs	Low (right climate)	Low to moderate
Suitability	Eco-focused homes	Homes with high hot water use

Which Water Heater Saves More Energy?

While both systems are designed to save on energy, they work towards it in different ways.

Heat pumps are the energy-efficient choice for warm surroundings because they use the warmth in the atmosphere. Under the right conditions, they can be around three times more effective than conventional electric heaters.

Meanwhile, tankless water heaters are designed to prevent heat losses that are present in the case of water storage. They perform only when the water is required; therefore, no energy is lost in the standby mode. 

If the usage pattern of your home is for short showers or quick handwashing, the tankless may be the best option. However, if you engage in the habit of taking a large family, the heat pump will presumably be a better overall performer.

Installation and Space Considerations

Heat pump water heaters are larger. They need enough room for the tank and good airflow around the unit. They can also make a humming noise when running, so location matters.

Tankless units are more compact and quieter.

They can be installed on the inside or outside, often in a little corner space or mounted on a wall. They’re perfect for an apartment or home with limited space.

Costs Difference

The average cost to install a heat pump water heater is in the $2,500-$4,500 range. 

However, there are state and federal energy programs that offer rebates, making these systems potentially more affordable.

Costs for tankless units can be between $1,500 and $3,000, depending on size and fuel type. Gas models may need gas supply ventilation, and electric units may require a circuit upgrade, which should be discussed with the installer.

Climate Matters in Australia

Australia isn’t one-size-fits-all. What works in Brisbane might not suit Ballarat.

Heat pumps thrive in warm and humid areas. If you live in Queensland, coastal NSW, or parts of WA, they can be a fantastic option.

In colder regions like Victoria’s highlands or Tasmania, heat pumps can struggle in winter. They’ll still work, but not as efficiently. Some models come with electric boosters for those colder mornings.

Tankless heaters aren’t climate-dependent. Gas models in particular can perform well even when temperatures drop. That makes them a safer choice for homes in variable weather zones.

Heat Pump Vs. Tankless: Which One Is Right for You?

There’s no universal answer. But here’s a quick guide:

Choose a Heat Pump Water Heater If:

• You want to lower your carbon footprint
• You live in a warm or mild climate
• You don’t mind waiting for the tank to refill after heavy use
• You have an outdoor space for the unit
• You qualify for government rebates

Choose a Tankless Water Heater If:

• You want endless hot water
• You have limited space
• You live in a colder region
• Your household has variable water use
• You prefer a “set-and-forget” system

Quick Call: Which Should You Use?

Heat pump hot water systems and tankless hot water systems are both energy-saving, but they work differently. 

What is best for you depends on your geography, your hot water usage, and which of your priorities is paramount: money, space or sustainability. 

Before you decide, talk to your licensed plumber about estimated rebates, operating costs, or the best choice for you and your home.

Think carefully now, and you will have savings and hot water comfort for many years.