Heat pump installs surge to record highs as households go electric, quit gas

The push to slash home energy costs by swapping out gas hot water systems for efficient, electric air source heat pumps has delivered a new record for uptake of the technology in Australia, according to the latest Quarterly Carbon Market Report.

The Clean Energy Regulator says an all-time high of 34,000 air source heat pumps (ASHPs) was installed in the third quarter of 2023 and subsidised through the federal government’s Small-scale Renewable Energy Scheme.

The record quarter brings the total number of ASHP hot water systems installed for the year to 94,000 – well past the total 86,000 installed in 2022.

But state-based incentives are also playing a key role in the uptake of air-source heat pumps. CER notes that households in New South Wales installed an impressive 60,000 for the quarter – a near 12-fold increase on the 5,000 installed over the same period in 2022. It’s unclear if the NSW numbers include air conditioners, too.

The ACT, South Australia and Victoria also have incentives in place to cut the cost of switching to heat pumps, while the Queensland Climate Smart Energy Savers rebate kicked off in September and is expected to boost uptake in that state, too.

As SunWiz managing director Warwick Johnston wrote here, the rise and rise of heat pump hot water, in particular, in Australia is, indeed, part of an overall trend of electrification that government policies are helping along.

But the trend is also being driven by new 7-star requirements for new-build homes; its compatibility with rooftop solar to soak up excess daytime generation; and the fact that in some states, like Victoria, eligible households can “double-dip” and claim a rebate for both PV and ASHP.

It’s also got a great deal to do with the amount of savings that can be achieved – a particularly attractive prospect for home owners stung by rising energy costs and squeezed by rising interest rates and other cost of living pressures.

A Victoria-focused report earlier this year found that households in the chilly southern state can save hundreds of dollars – or up to 75% – on their winter home heating bills by switching from gas to electric.

The report by Environment Victoria, based on modelling by Renew, compares the costs and emissions of gas and heat-pump electric heating in a state where roughly 80 per cent of households have an active gas connection – and where home heating accounts for almost two-thirds of household gas use.

Rooftop solar also back in record territory

Things are also looking very healthy in the rooftop solar market, with CER Chair David Parker joining SunWiz in forecasting a possible record year of new installations.

“Australia is on track to install more than 3 gigawatts (GW) of rooftop solar this year, which is equivalent to powering about 700,000 homes. A big fourth quarter could mean 2023 matches the 3.2GW record set in 2021,” he said.

According to the report, the highest capacity typically is installed in the fourth quarter of each year. “Hence, we may match the 2021 record of 3.2 GW in 2023 if we see a big Q4,” it says.

The CER says a record capacity of 813MW of rooftop PV was installed in the third quarter of 2023, across 88,000 systems – 3,500 more than in the same period in 2022. The average system size increased to 9.3kW over the quarter – also a record for that period.

The record quarter for rooftop solar was boosted by a record November, which according to market analysts SunWiz delivered just over 330MW of new rooftop solar systems, smashing the previous monthly record of 314MW set in December 2020. For the month, SunWiz put the average system size even higher, at 9.9kW.

The CER report says that half of the rooftop solar systems installed over the quarter had a capacity of more than 10kW, while systems between 10-15kW accounted for 27% of total installations, up from 20% in Q3 2022.

Like the boom in electric hot water heat pumps, the bigger rooftop system sizes reflects a growing push towards electrification, electric vehicles and energy independence, and puts further pressure on the country’s remaining coal generators, and the gas industry.

Prices and payback

On rooftop solar system prices, the CER report points to the Solar Choice price index, which puts the total retail price (factoring in STC rebates) for a 7kW system at around $7,190, with a payback period of around four years – as at October, 2023.

CER says this payback period is based on 40% of the solar produced by the rooftop system being used by the household – a big proportion thanks to feed-in tariffs falling to new lows. But it also notes that rooftop solar costs have fallen, overall, by round 18% since 2018.

“On average, a 7 kW system cost around $8,500 in 2018. Solar prices reached a low in October 2021 and then increased slightly until mid-2023. The Solar Choice price index suggests that prices have since begun to turn downwards,” the report says.

“It seems falling retail prices and rising energy costs are keeping payback periods relatively stable. These factors may help to partially offset the shorter deeming period.”

Batteries included?

According to the CER, just 7% of systems installed in the thirds quarter had a battery included – although the regulator notes that, considering this data is voluntarily reported, the real proportion is likely higher.

“To the end of September 2023, there have been more than 17,000 reported battery installations. This is a 14% increase on the reported 15,000 batteries installed in the same period in 2022,” the report says.

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