How Much Can Your Business Save by Upgrading to a Heat Pump Hot Water System?

Quick Answer

Swapping out an old electric or gas water heater for a commercial heat pump can potentially cut hot water energy costs by 50% to 75%, depending on the existing system, hot water demand, and operating conditions.

If your business currently spends around $10,000 a year to heat water, and you reduce it by 70%, it brings that running cost down to about $3,000 a year. That means $7,000 is kept in your business each year.

Over 5 years, that adds up to $35,000, and over 10 years, you could be looking at around $70,000 in energy savings.

How Much Are You Currently Spending on Hot Water?

Before calculating how much a heat pump could save, start with the cost of the system you already have.

If your business uses an electric hot water system, a simple starting calculation is:

Annual hot water electricity use × electricity price = annual hot water cost

For example, a business using 20,000 kWh of electricity a year for hot water at $0.30 per kWh would spend:

20,000 × $0.30 = $6,000 per year

That $6,000 becomes the baseline for comparing a heat pump.

The potential difference becomes easier to see when we apply several possible reduction rates.

Current Annual Hot Water Cost	50% Saving	70% Saving	75% Saving
$2,000	$1,000	$1,400	$1,500
$5,000	$2,500	$3,500	$3,750
$10,000	$5,000	$7,000	$7,500
$20,000	$10,000	$14,000	$15,000

These are illustrative savings scenarios. They show what different reduction rates would mean in dollars rather than suggesting that every commercial heat pump will achieve those percentages.

That distinction matters because a business currently spending $20,000 a year on hot water has much more money at stake than a business spending $2,000.

How Much Can a Commercial Heat Pump Cut Your Energy Use?

The main reason heat pumps can reduce hot water costs is the way they produce heat.

A conventional electric resistance water heater uses electricity to heat a resistance element. Most of the electrical energy supplied to the element is converted directly into heat.

A heat pump works differently.

Instead of using electricity to create all the heat directly, it uses electricity to operate a refrigeration cycle that extracts heat from the surrounding air and transfers it into the water.

This is measured using the coefficient of performance, or COP.

High-end commercial heat pump systems achieve up to a COP of 4, meaning they may provide approximately four units of heat for each unit of electricity consumed under the right conditions.

These figures start making sense when you compare a commercial heat pump vs conventional hot water heaters.

Imagine a business needs 40 kWh of heat to produce its required hot water.

A conventional electric resistance heater would need roughly 40 kWh of electricity to deliver that amount of heat.

A heat pump operating at a COP of 4 would need approximately 10 kWh of electricity to deliver the same 40 kWh of heat.  How? Because the remaining 30 kWh of heat is directly harvested from the surrounding air for free.

	Electric Resistance Heater	Heat Pump at COP 4
Heat required	40 kWh	40 kWh
Electricity required	~40 kWh	~10 kWh
Heat transferred from air	—	~30 kWh
Electricity reduction	—	~75%

How Do You Calculate Your Potential Savings?

The easiest way to estimate your savings is to start with what your business spends on hot water today.

Take your current annual hot water cost and multiply it by the expected percentage reduction from the heat pump.

Current annual hot water cost × expected saving = potential annual saving

For example, if your business currently spends $10,000 a year on electric hot water and the new heat pump is expected to reduce energy costs by 70%:

$10,000 × 70% = $7,000

So, the potential saving is $7,000 a year.

Your new estimated hot water energy cost would be:

$10,000 − $7,000 = $3,000 a year

How Much Could Your Business Save Over 5 and 10 Years?

A business does not normally replace a commercial hot water system for just one year.

The equipment may operate for many years, which makes the long-term difference in running costs important.

Using a 70% annual saving as an illustrative scenario:

Annual Hot Water Cost	Annual Saving at 70%	5-Year Saving	10-Year Saving
$5,000	$3,500	$17,500	$35,000
$10,000	$7,000	$35,000	$70,000
$20,000	$14,000	$70,000	$140,000

These figures show gross energy-cost savings.

They do not subtract:

• Purchase cost
• Installation
• Maintenance
• Financing
• Future energy-price changes
• Changes in hot water demand
• Repairs or replacement components

They also assume the business achieves the same 70% reduction each year.

The purpose of the table is to show the scale of the opportunity. A business with high hot water demand can potentially save tens of thousands of dollars over the operating life of an efficient system.

How Much Could You Save Compared With Gas?

If your business currently uses a gas water heater or boiler, the potential savings need to be based on the actual cost of the gas you use compared with the electricity a heat pump would need to produce the same amount of hot water.

The two systems use energy very differently.

Gas Water Heaters and Boilers

Gas systems burn fuel to produce heat. Some of that heat is lost through the flue, exhaust gases and other parts of the system rather than going directly into the water.

Typical commercial gas systems can operate at around 75% to 85% thermal efficiency, depending on the equipment and operating conditions.

In simple terms, if you buy 100 units of energy from gas, around 75 to 85 units may be available as useful heat for the water, with the remainder lost through the system.

Commercial Heat Pumps

A heat pump does not burn gas to create heat.

Instead, it uses electricity to run a refrigeration cycle that takes heat from the surrounding air and transfers it into the water.

Commercial heat pumps can achieve COP values of around 3.5 to 4.0 under suitable operating conditions. A COP of 4 means the system can deliver around four units of heat for every one unit of electricity it consumes under those conditions.

That is why a heat pump can produce the same amount of hot water using significantly less purchased energy than conventional electric heating.

The important point is that COP is not the same as a gas system’s thermal efficiency percentage. They measure performance differently, so the fairest comparison for a business is ultimately the cost of producing its required hot water.

Compare Your Actual Gas and Electricity Costs

Once you know how much energy each system needs, you can compare what that energy actually costs your business.

Current gas cost = Gas used × Gas rate

Heat pump cost = Electricity used × Electricity rate

For example, suppose your existing gas system uses 40,000 kWh of gas per year, and your business pays $0.10 per kWh:

40,000 × $0.10 = $4,000 a year

Now suppose the proposed heat pump requires 10,000 kWh of electricity to provide the same hot water, and your electricity rate is $0.30 per kWh:

10,000 × $0.30 = $3,000 a year

The potential operating-cost savings would be:

$4,000 − $3,000 = $1,000 a year

Your real savings could be higher or lower depending on your gas and electricity rates, the efficiency of the existing system, hot water demand and the performance of the proposed heat pump.

How Much Can Your Business Save With Solar and a Heat Pump?

If your business already has rooftop solar (or plans to get it), pairing it with a heat pump creates a double layer of savings:

• Layer 1 (The Heat Pump): Uses roughly 70% less power than a regular heater.
• Layer 2 (Your Solar Panels): Covers the remaining 30% using free power generated right on your roof.

By putting your heat pump on a simple timer so it runs during the day (say, between 10 AM and 3 PM), you heat your water using your own solar power instead of buying electricity from the grid. Plus, heat pumps run at their absolute best during warm daytime hours.

How Much Can You Save With Government Incentives and Rebates?

You can slash the upfront cost of a commercial heat pump through government incentives, rebates and certificate schemes.

The Australian Government says eligible heat pump water heaters can qualify for Small-scale Technology Certificates (STCs) under the Small-scale Renewable Energy Scheme, with certificates able to be traded for cash or used to reduce the purchase price.

Eligibility is not universal; however, you will need to check the type and size of the system, project circumstances, and applicable rules needed to qualify.

NSW Commercial Heat Pump Incentives

For businesses in NSW, the Energy Savings Scheme (ESS) can further slash the commercial heat pump costs.

The current NSW ESS Rule came into effect on 1 July 2026 and includes changes affecting commercial heat pump water heaters.

The scheme provides incentives for eligible energy-efficiency upgrades, with commercial heat pump water heater activities included under the current rules.

If you claim for all these, your new costs become:

Net investment = Upfront system and installation cost – Eligible government incentive or certificate benefit

That net investment can then be compared with the expected annual energy saving.

Other Australian Incentives

Support also varies between states, territories and local government areas.

For example, the Australian Government’s energy information portal lists state and territory programs, while some local councils also offer energy-efficiency assistance. The City of Darebin in Victoria, for example, currently lists rebates of up to $3,500 for eligible businesses and households, including hot water heat pump systems.

These programs can change, so businesses should check the current eligibility rules before purchasing equipment.

The important financial lesson is simple:

A rebate does not increase the heat pump’s energy efficiency. It reduces the amount the business has to pay upfront.

That can shorten the time needed for the energy savings to recover the investment.

When Will the Savings Pay Back the Upgrade?

A commercial heat pump generally requires a larger initial investment than a basic electric water heater.

The question is whether the lower running cost can recover that investment within a reasonable period.

A simple payback calculation is:

Additional investment ÷ annual energy saving = simple payback period

For example:

Additional investment: $10,000

Annual energy saving: $7,000

$10,000 ÷ $7,000 = approximately 1.4 years

Now consider the effect of an eligible $2,000 incentive.

The effective additional investment becomes:

$10,000 − $2,000 = $8,000

The simple payback becomes:

$8,000 ÷ $7,000 = approximately 1.1 years

As you may not know, the efficiency of the heat pump has not changed. The business simply has less capital to recover because part of the upfront cost has been offset.

This is why you should always consider government incentives when installing commercial heat pumps in your business.

To be even more accurate, also consider installation costs, maintenance, equipment life, energy-price changes, financing and changes in hot water demand.

Which Businesses Have the Most to Save?

1. Hotels and Accommodation

With guests taking showers and laundry running constantly, hot water demand never really stops. Slashing the cost of every litre of hot water makes a huge difference to the monthly operating budget.

2. Restaurants and Commercial Kitchens

Constant dishwashing, floor cleaning, and food prep take a huge amount of hot water. Replacing power-hungry booster systems with an efficient heat pump keeps kitchen overheads down.

3. Gyms and Sports Clubs

Morning and evening shower rushes put massive strain on hot water tanks. Heat pumps paired with good storage tanks handle those peak rushes without blowing out your power bill.

4. Laundries

Laundries heat thousands of liters of water every single day. Because their water use is so high, they usually see some of the fastest paybacks of any business type.

5. Schools and Healthcare Facilities

Hospitals, aged care homes, and schools have constant daily hot water needs across amenities, kitchens, and cleaning. An upgrade delivers steady, predictable budget savings year after year.

What Will Determine Your Actual Savings?

The percentage on a product brochure is only a starting point.

Your actual business savings will depend on several factors.

Current Hot Water System: Replacing an older electric system may produce a different result from replacing a newer, more efficient system.

Annual Hot Water Consumption: A business using large quantities of hot water has more potential to reduce its annual energy bill.

Electricity Price: The higher the price paid for electricity, the greater the dollar value of each kilowatt-hour saved.

Gas Price: For a gas-to-heat-pump conversion, the current gas tariff needs to be compared with the expected electricity cost.

Heat Pump COP: A higher COP generally means less electricity is required to produce the same amount of heat, but COP is measured under specified conditions and can change during operation.

Required Water Temperature: The temperature the business needs affects energy requirements and heat pump performance.

Climate: Air-source heat pumps extract heat from the surrounding air, so ambient conditions can affect performance.

System Size: A commercial system needs to match both daily demand and peak recovery requirements.

Operating Schedule: Operating a heat pump during lower-cost electricity periods or when solar is producing can affect the final bill.

Solar Generation: The amount and timing of rooftop solar generation determine how much of the heat pump’s electricity demand can be supplied without purchasing from the grid.

Storage and Recovery: Commercial businesses may experience large peaks in hot water demand. Storage capacity and recovery rate therefore affect both system performance and cost.

Government Incentives: The availability and value of STCs, Energy Savings Certificates, rebates or other incentives can change the effective upfront investment.

Estimate Your Potential Commercial Heat Pump Savings

The easiest way to start is with the numbers from your current hot water system. Take a note of the following:

Current annual hot water cost: $________

Expected energy reduction: ________%

Potential annual energy saving: $________

Potential government incentive: $________

Net upgrade cost: $________

Potential 5-year energy saving: $________

Potential 10-year energy saving: $________

For example:

Current annual hot water cost: $10,000

Illustrative energy reduction: 70%

Potential annual savings: $7,000

Potential 5-year savings: $35,000

Potential 10-year savings: $70,000

Then factor in the upfront cost and any eligible incentive.

The final calculation should use the business’s actual electricity or gas bills, hot water consumption, operating schedule, electricity tariff, available solar generation and the performance of the proposed heat pump.

Commercial Heat Pump Cost Savings Calculator