Heat Pump vs Continuous Flow (Instantaneous) Hot Water (2026)

The core difference is storage. A continuous flow system (also called instantaneous or on-demand) has no tank. It fires a gas burner to heat water only as it flows through the unit, so it can supply hot water indefinitely without ever emptying a tank.

A heat pump heats water in advance and stores it in an insulated tank, ready for use. It uses electricity to move heat from the air rather than burning gas, which is why it runs so cheaply. The trade-off is that a tank can be depleted during very heavy simultaneous use and then needs time to reheat.

In short: continuous flow gas trades higher running costs for genuinely endless hot water, while a heat pump trades a finite tank for far lower running costs and no gas.

Continuous flow gas is more efficient than gas storage because it has no standby heat loss from a hot tank sitting idle. But it still burns gas, so it costs considerably more to run than a heat pump.

On top of the gas usage itself, keeping a gas connection carries a daily supply charge that can run to $300-$500 a year. If hot water is your last gas appliance, switching to a heat pump lets you disconnect gas entirely and drop that charge, which sharpens the saving further. Continuous flow gas also cannot use rooftop solar, whereas a heat pump run during the day on your own solar can approach near-zero running cost.

Continuous flow gas is cheaper to install, typically $2,000-$3,200, and its compact wall-mounted unit is a real advantage in homes tight on space. A heat pump costs more, around $2,200-$4,500 after rebates, and needs room for both a tank and an outdoor unit with airflow clearance.

The rebate difference is significant. A heat pump qualifies for federal STCs (about $400-$1,200 off) and most state schemes, which is what brings its installed price down. Continuous flow gas does not attract these incentives, so its price is close to its real cost. Once you factor the rebates in, the upfront gap is smaller than the sticker prices suggest, and the running-cost saving closes it within a few years. See our rebates guide for current figures.

Continuous flow gas may still suit you if:

• You have very high, unpredictable peak demand (for example a large household where several people shower at once at random times) and want water that never runs out.
• You genuinely have no room for a storage tank and an outdoor heat pump unit.
• You are outside Victoria and have cheap gas with no plans to electrify.

A heat pump is the better choice if:

• You want the lowest running cost and lifetime cost, which is most households.
• You have or plan to add rooftop solar.
• You are in Victoria, where the gas ban means an end-of-life gas system in an existing home must be replaced with electric from 1 March 2027.
• You want to qualify for federal and state rebates.

A correctly sized heat pump tank comfortably handles normal back-to-back showers and household demand, so for most homes the "endless hot water" advantage of continuous flow is more theoretical than practical. Our sizing guide shows how to pick a tank that will not run short.