Smart Electric Hot Water or a Heat Pump on Solar? An Honest Comparison for Northern Rivers Homes

Written and checked by our licensed electricians: November 2026. Tariffs in the examples checked 13 November 2026.

Short answer: a smart electric tank run on surplus solar (with a solar diverter or a midday timer) is cheaper to buy and can be genuinely competitive for a home with a big roof, lots of spare solar, no battery and a healthy electric tank. A heat pump uses about a third of the electricity for the same hot water, so it costs less to run in winter, on cloudy days, on smaller roofs and in homes with a battery, and it earns rebates. For most Northern Rivers homes replacing gas, we suggest the heat pump; for some homes with an electric tank and plenty of surplus, the diverter is the smarter first step.

On this page: How each one works · The numbers for a family of four · When the smart electric tank wins · When the heat pump wins · With a battery · Northern Rivers notes · Questions we get asked

How each one works

• Smart electric tank (solar diverter or timer). An ordinary electric storage tank whose element is fed by your surplus solar: a diverter sends whatever you would have exported into the element, or a timer runs it in the solar window. Every kWh of electricity becomes about one kWh of heat in the water. Cheap power in, but a lot of it.
• Heat pump. Works like a fridge in reverse: it pulls heat from the air into the water, delivering about three to four units of heat for each unit of electricity. A timer runs it at midday on solar. Less power in, but a dearer appliance.

The question is simple: is it better to use about three times as much electricity that is nearly free, or a third as much that is sometimes full price? The honest answer depends on how often your solar has enough to spare.

The numbers for a family of four

Four people use about 200 litres of hot water a day. Heating it (a 45 degree lift) plus tank losses takes about 12 kWh of heat a day. An electric element supplies that as about 12 kWh of electricity; a heat pump averaging a COP of 3.5 in our climate needs about 3.4 kWh. Pricing solar you use yourself at the 5 c/kWh feed-in credit you give up (IPART’s 2026-27 benchmark is 3.4 to 6.5 c/kWh) and grid power at the 2026-27 price cap of 35.01 c/kWh for the Essential Energy area:

Estimates, not promises: your water use, your tank, your plan and your weather decide the real figures. A controlled-load (off-peak) tariff for the top-ups narrows the gap in the middle row. What the table shows:

• On days with plenty of surplus, both cost little, and the gap is a couple of hundred dollars a year at most.
• Every kWh that has to come from the grid costs the electric tank about three times what it costs the heat pump, so winter and cloudy weeks decide it.
• The electric tank needs about 12 kWh of spare solar every day: on an average Northern Rivers day that is the whole output of about 3 kW of panels, and more in July. Many roofs do not have that to spare, particularly once a battery and an EV want it too.

When the smart electric tank wins

• Your electric storage tank is in good condition, so you only add a diverter or timer rather than buying a new appliance.
• You have a large solar system and export a lot most days, with no battery to soak it up.
• A small household (less hot water) or a holiday home where the payback on a heat pump would be long.
• A tight budget now, with a heat pump planned for when the tank wears out.

When the heat pump wins

• You are replacing a gas system or a failed tank anyway, so you are buying an appliance either way.
• A modest roof, a battery, or an EV competing for the midday solar.
• A bigger household using more hot water, or a family that showers in the evening and empties the tank.
• You want the lowest running cost in winter and on cloudy weeks, plus the STCs and the NSW Energy Savings Scheme discount off the price.
• Details on brands, noise, refrigerants and sizing in the hot water heat pump buyer’s guide and sizing calculator.

With a battery

A battery changes the maths. A diverter and a battery both want the same surplus, and the battery stores it for the evening at the full grid price. Heating water with three kWh where one would do takes solar away from the battery, so in a battery home the heat pump usually wins. If you have a big battery and still export a lot, a diverter can take what is left after the battery is full.

See the Northern Rivers home battery buyer’s guide and what size battery do I need.

Northern Rivers notes

• Our mild climate suits heat pumps well, and solar output is good most of the year (about 3.8 kWh per kW of panels on an average day, less in July).
• Essential Energy offers controlled-load tariffs for hot water on a dedicated circuit; with a smart meter, timing matters: see smart meters, controlled load and time-of-use tariffs.
• Coastal homes: salt air limits where a heat pump can go; see solar and batteries near the coast.
• Our electricians do the electrical side of both options: the circuit, the timer or diverter, and the solar. The water side is done by a licensed local plumbing partner; if you ask us to pass your details on, we may receive a referral fee for the introduction, which does not change the price you pay.

Hot water is one step of going all-electric: see the full home electrification guide, and try the home electrification calculator for an estimate across hot water, cooking, heating and your car.

Questions we get asked

Is a smart electric hot water system cheaper than a heat pump?

Cheaper to buy, usually dearer to run. A solar diverter or a timer on an existing electric tank costs a fraction of a heat pump, and it heats the water with surplus solar that would otherwise earn only a small feed-in credit. A heat pump uses about a third of the electricity for the same hot water, so it costs less to run whenever the power is not free, especially in winter and on cloudy days. Which comes out ahead depends on your roof, your battery, your tank and how long you plan to stay.

What is a solar diverter?

A device that watches what your solar is exporting and sends the surplus into the hot water element instead, either proportionally or by switching the element on when there is enough. A simpler version is a timer that runs the element in the middle of the day. Both turn cheap surplus solar into stored hot water.

Does a heat pump work well in the Northern Rivers?

Yes. Our mild winters and warm days keep a heat pump near the efficient end of its range, especially when it is timed to heat in the middle of the day. Most units here rarely need their backup element for cold weather.

Which suits a home with a battery?

Usually a heat pump. A battery and a diverter both want the same midday surplus, and the battery stores it for the evening at full value. A heat pump needs about a third of the energy, leaving more solar for the battery.

I am replacing a gas hot water system. Which should I choose?

You need a new tank either way, so the cheaper-to-buy advantage of a diverter mostly disappears. For most gas replacements we suggest a heat pump, which can earn STCs and a NSW Energy Savings Scheme discount; a solar-timed electric tank can suit a big roof with lots of spare solar and a tight budget.

Is legionella a worry with solar-heated water?

Any storage hot water system must reach at least 60 degrees regularly to control legionella, and both heat pumps and electric tanks are set up to do that. On a run of cloudy days a diverter system relies on its timer or controlled-load top-up to get there.

Sources

Australian Energy Regulator, Default Market Offer 2026-27 final determination (May 2026); IPART, solar feed-in tariff benchmarks 2026-27; Energy Matters, “Heat pump vs solar diverter” (2026); Why Solar, “Heat pump vs solar diverter”; SolarQuotes, heat pump guides; Clean Energy Reviews, Northern Rivers solar output; Essential Energy, controlled load fact sheet. Hot water use (50 L per person per day, 0.052 kWh per litre, 15% losses) and the COP of 3.5 are our planning figures from those sources.