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A hot water system accounting for up to half a home's energy use, so it's worth making the right choice when it comes to which system you get.
There are two basic types of water heating systems: storage or instantaneous. If you can remember a time you ran out of hot water (probably while covered in suds!) then you have a storage tank.
Storage water heaters heat the water in batches, keeping it in a tank to be used throughout the day. Instantaneous water heaters are much smaller units, connected to the mains water supply, and they quickly heat the water on its passage from the mains to the hot water tap.
Water entering your house will usually be a chilly 5-15ºC. Hot water systems have to reach a scalding 60ºC at least once a day to kill bacteria. Choosing the right fuel to heat the water can make a huge difference to running costs and greenhouse gas emissions.
Options are electricity, gas, solar and heat pumps.
Electric water heaters have metal elements inside the water tank that heat as electricity passes through them. Heating an element is inefficient, and electricity in most cases is produced through burning coal (unless you're on GreenPower).
Therefore, electric water heaters produce significantly more greenhouse emissions than other types of water heaters. The federal government has planned to stop electric water heaters from being installed in new homes within two years. They'll also be banned as replacements by 2012.
Instantaneous electric water heaters and small electric storage tanks heat whenever the temperature drops below a set level - so they can be drawing electricity at any time of the day or night.
This matters because coal-fired power plants are slow to get started and so are kept running day and night. But hardly anyone uses the electricity at night.
To encourage the use of this night-time surplus, electricity companies flog off the power cheaply at "off-peak" times. Larger storage tanks take advantage of this scheme, keeping the tank warm during the day, but doing the hard work of heating overnight.
A gas water heater has a similar set-up to an electric one, except a gas burner is below the water instead of electric heating elements in the water.
Because gas can be switched on and off easily, gas hot water services have smaller tanks that heat on demand.
Instantaneous water heaters run most economically off gas, and have similar greenhouse emissions as heat pumps and solar water heaters. Look out for the energy rating that comes with every gas heater: the more stars, the more efficient.
The Federal Environment Minister, Peter Garrett, is a big fan of solar hot water systems. He reckons that switching from an electric to a solar water heater will save the average household $300 a year on electricity costs.
Switching to solar also attracts a big rebate because the sun's energy is a renewable resource, and thus helps the government meet its renewable energy targets.
There are two types of technology available: flat-plate collectors and evacuated tubes. Both sit on your roof and use the heat from the sun to heat your water.
Flat plate collectors are older technology, consisting of a series of water pipes sitting on a black plate. But they are still cheaper and more cost-effective in most cases. Evacuated tubes are more sophisticated, consisting of an inner and an outer tube with a vacuum between.
The heat from the inner tube is transferred to the water. The vacuum prevents heat from escaping, and this low heat-loss means the system will use its booster less often. So if you live in a place with lots of sunshine but chilly air temperatures, evacuated tubes will be worth the investment.
Both types require a booster for cloudy days. A gas-boosted solar system is the most environment-friendly hot water system available today, creating less than 25 per cent of the greenhouse gas emissions produced by an electric hot water heater.
The purchase price of a solar water heater is $3,500 to $4,500 but if you qualify for multiple rebates, the actual out-of-pocket cost could be nothing.
If you get a lot of cloud cover, your roof doesn't face north, or it is shadowed by a tree then a heat pump is better suited to your home than a solar water heater.
Heat pumps source their heat indirectly from the sun, taking it from the air or from the ground and transferring it to the water, running like a fridge in reverse.
Air-sourced heat pumps transfer heat to a water tank using a fan and compressor.
It works even if the air temperature is below freezing. Heat pumps have the same overall efficiency as a solar water heater, producing, on average, 3 to 4 kWh of heat for every kilowatt hour of electrical energy used.
But unlike solar water heaters, they use a constant amount of energy, rather that the all-or-nothing electricity user pattern of the solar heater. Heat pumps cost between $4,000 to $4,500 for pump, tank and installation, but you may be eligible for a rebate.
Geothermal heat pumps use the ground to heat and cool an entire house, including pre-heating the water supply. Pipes flow from the house and into the ground or a nearby body of water. In winter, the heat trapped in the ground is transferred into house. In summer, the heat in the air is removed from the house and transferred into the ground. These geothermal heat pumps have been used in Europe and North America for decades, but their use in Australia is relatively recent.