What order should you do home energy upgrades in?

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A practical framework for Victorian homeowners

Most Victorians who want to improve their home's energy performance face the same frustrating question: where do I even start? Solar? A heat pump? New insulation? The answer matters more than most people realise, because the order you do upgrades in affects how much you spend, how much you save, and whether equipment you buy today is sized correctly.

The good news: there is a well-established sequence, grounded in building science and Australian research, that gives you a clear path forward.

Why order matters

The core principle, endorsed by building scientists and confirmed by Australian research, is this: you should start with your building envelope, air sealing and insulation, before upgrading mechanical systems like heating and cooling, and only consider renewable energy generation like solar after you've reduced your home's overall energy consumption.

The reason is practical, not ideological. If you improve insulation and airtightness first, your heating and cooling load is dramatically reduced, and any HVAC equipment you install later can be smaller and less expensive. Install the heat pump or ducted system first, and you risk buying an oversized, overpriced system for a problem you'll later fix; money you can't get back.

Air-sealing followed by insulation improvements will always yield the biggest energy savings in homes not built to recent building codes. Victoria is particularly well placed to benefit here: the ACT and Victoria demonstrate the strongest policy commitment to home energy efficiency of any Australian state or territory, and the financial incentives available to Victorians are among the best in the country.

The evidence-based sequence for Victorian homes

Step 0: Get a home energy assessment first

Before spending anything, understand what you're working with. A professional home energy audit identifies inefficiencies and helps you prioritise upgrades that will have the most impact. Think of it as a diagnostic roadmap, not a shopping list. Many Victorian providers offer these as part of the upgrade process.

Step 1: Seal air leaks and improve insulation

This is the unsexy but highest-ROI starting point. Insulation and air sealing can reduce your home's heating load by 20 to 40%, which means everything you install after this point can be smaller and cheaper. Within insulation, the priority order matters too: ceiling insulation delivers the biggest impact (heat rises), followed by underfloor, then walls. Windows are the lowest ROI insulation upgrade, with a payback period that can stretch to 15 to 20 years. Do everything else first.

Climateworks Centre's Renovation Pathways research program, which modelled upgrades across 16 common Australian home archetypes using CSIRO national housing data, identified three upgrade tiers: "quick-fix" (ceiling insulation, draught sealing), "modest" (adding underfloor and wall insulation), and "climate-ready" (double glazing, high airtightness). The median benefit-cost ratio for quick-fix and modest thermal upgrades is greater than one, meaning they pay for themselves, while the climate-ready level typically requires government support to be cost-effective for most households. Start where the economics clearly work.

Good news for Victorians: from 2026, the VEU program is introducing rebates for ceiling insulation, making this step even more affordable.

Step 2: Upgrade your hot water system

Hot water is one of the biggest sources of energy use in the home, accounting for 15 to 30% of household energy use. Once your home is better sealed and insulated, upgrading your hot water system is the next highest-impact step and right now it's one of the most heavily subsidised upgrades available. A heat pump hot water system, combined with solar, can cut annual combined energy costs by up to around $1,330 per year.

Victorian homeowners can currently stack two programs: the Victorian Energy Upgrades (VEU) discount, applied upfront by an accredited installer, and the Solar Homes hot water rebate of up to $1,400 for eligible households, or up to $1,400 for locally made products from mid-2025. This "stackable" approach makes the switch to a heat pump hot water system one of the fastest-payback upgrades available.

Note: from March 2027, gas hot water systems that fail cannot be repaired and must be replaced with efficient electric alternatives. Acting now means you do it on your terms, with better rebates, before the mandate.

Step 3: Upgrade space heating and cooling

With a well-insulated home and efficient hot water, your next step is the space conditioning system. A reverse-cycle air conditioner (heat pump) is the standard recommendation for Victoria's cool-temperate climate. It both heats and cools, and runs on electricity rather than gas. VEU rebates are available for eligible systems, applied as an upfront discount through accredited providers.

Roughly 40% of household energy is used for heating and cooling so this is a significant upgrade, but one that works far better in a home you've already improved thermally. The right-sizing of the system matters: a home that's been sealed and insulated needs a smaller, quieter, cheaper unit.

Step 4: Electrify the kitchen

Switch from gas cooking to an induction cooktop. This is relatively low-cost and is part of Victoria's broader Gas Substitution Roadmap. It also sets you up for the next step, because once you're off gas entirely, you can simplify your bills and potentially disconnect your gas connection altogether, saving the daily supply charge.

Step 5: Add solar PV

Only after reducing your home's overall energy consumption should you size and install solar panels. If you install solar to match your current consumption, then later cut that consumption through efficiency measures, you end up with an oversized system and most electricity providers only give you net metering credits up to your monthly consumption, not above it. Do the efficiency work first, then install a solar system matched to your actual needs.

Victorian households can receive a solar panel rebate of up to $1,400 through the Solar Homes program, which can be combined with the hot water rebate if you haven't already used it.

Step 6: Consider a home battery

Batteries remain the most expensive step per dollar of savings, and make the most sense once you have solar and a good sense of your consumption patterns. Interest-free loans are available through Solar Victoria for eligible households.

Your next step

If you're not sure where your home sits right now, the single best action is booking a home energy assessment. In Victoria, you can also use the Victorian Energy Upgrades website (energy.vic.gov.au) to find accredited providers for each upgrade type, and Solar Victoria (solar.vic.gov.au) to check your rebate eligibility for hot water and solar. Both sites allow you to see upfront what you'll pay after discounts, no rebate chasing required.

The framework isn't one-size-fits-all: a home with a broken gas heater today might jump straight to step 3 out of necessity. But the logic of the sequence; seal first, then upgrade systems, then generate, holds across almost every Victorian home, and following it means every dollar you spend works harder than the last.

The framework above gives you a single page to come back to when you're planning. The core logic; seal the house before you buy heating equipment, reduce consumption before you generate electricity, is backed by both building science research (including Climateworks Centre's Renovation Pathways work, which modelled upgrades across Australian housing archetypes with CSIRO data) and practical engineering. Every step makes the next one cheaper and better-sized.

For Victorians specifically, the timing is good right now. The combination of VEU upfront discounts and Solar Homes rebates is one of the most generous incentive stacks in the country, and the 2027 gas appliance regulations mean acting proactively on hot water avoids being forced into it at the worst possible moment.

Prefer to work out your steps to take action with a NatHERS accredited home energy assessor and professional project manager? 

Book a free, no-obligation 15 minute call with Jay.

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