Best Bang for your Buck: Heat Pump Water Heaters

heat pump water heater diagram

One of the best “bangs for your buck” with electrification upgrades is to replace your electric water heater with a heat pump water heater. Did you know that water heaters are one of the most inefficient appliances in your home and heating water accounts for up to 18% of home electricity usage (U.S. Department of Energy)? By just switching to a heat pump water heater you could save ~$630 annually because they are 63% more efficient when compared to a conventional electric water heater and up to 5 times more efficient compared to a gas water heater (Pacific Northwest National Laboratory).

First, it is important to understand the different types of water heaters. You may be familiar with these already. There are a few main types:

  1. Conventional Storage water heaters
    These are the most common. They store and heat water in a large tank 24 hrs a day, even when not in use, so highly inefficient.
  2. Tankless, or on-demand water heaters
    These produce hot water on an as-needed basis by using electric heating elements or a gas burner. They are more efficient than conventional water heaters because they are only on when the hot water is needed and are not wasting energy keeping many gallons of water in the tank warm. They heat up quickly to respond to demand for hot water. At the same time, they are not as efficient as heat-pump water heaters.
  3. Solar water heaters
    While uncommon, these are worth mentioning because they are another green solution. These use sunlight to heat up the water but take a long time to heat and usually have a lower capacity than conventional water heaters. They are also dependent on the climate.
  4. Tankless coil and indirect water heaters
    These use a home’s space heating system to heat water.
  5. Heat pump water heaters
    These are the most efficient because they move heat from one place to another instead of generating heat directly for providing hot water.
Energy Saver 101 graphic from
Infographic from

How a Heat-Pump Water Heater Works

A heat pump water heater, is similar to heat pumps for space heating, except they produce hot water instead of hot air.

This video explains how the heat pump water heater works. These water heaters use a quiet fan to move air from your home through the evaporator coils which heat the refrigerant. This hot, evaporated refrigerant moves to the condenser coil inside the unit, which releases the heat into the water, warming it. This is a far more efficient process than using electricity or burning fossil fuels to generate heat, and it produces no harmful greenhouse gas byproducts.

Although most heat-pump electric water heaters require a 240-volt electrical connection, some are available using a 120-volt connection. If you want to upgrade to a heat pump electric water heater, it is helpful to understand what connections you have currently. Most conventional electric water heaters require a 240-volt connection, while many gas water heaters only have a 120-volt connection. Also, if you have a gas water heater and want to upgrade to an electric heat-pump water heater, there is a tax credit available for electrical panel upgrades (more on that below), but that may not be required with 120-volt models entering the marketplace.

Heat pump water heaters should last about as long as a normal water heater which is 10-15 years and will continue to improve with more advanced refrigerants.

The Pros and Cons of a Heat Pump Water Heater

The main benefits you’ll receive is savings on your electricity bill (they typically cost only about $100/yr to operate), especially if can eliminate your gas/propane bill by switching from gas to electric. Another big benefit is that they heat water faster and longer than an electric resistance water heater and they warm your water without warming the planet. And last but not least, you can add a dehumidifier option to your heat pump water heater in order to remove water from the air since they’re usually located in a basement area. This saves money by reducing electricity spent on dehumidification and reduces waste as fewer dehumidifiers must be produced and eventually disposed of. Read this CleanTechnica article on All I Want For Christmas Is A New Voltex AL Heat Pump Water Heater.

The Cons are the higher upfront cost and that they don’t work well, or sometimes at all, in colder climates. To compare costs, a standard 50-gallon hot water heater can cost $500 to $1,000 (not including installation) while a heat pump water heater can cost  $1,500 and $3,000 but don’t forget you get a discount and a tax credit – see below. Check out Forbes’ Guide on Heat Pump Water Heaters for more info on how to estimate cost savings and factors to consider when buying.

How to Qualify and Save

The Inflation Reduction Act (IRA), a landmark piece of climate legislation signed into law by the Biden Administration, helps to make heat pump water heaters more affordable by offering BOTH an upfront discount AND a tax credit. Below is more info on the savings you can receive based on your income and what you do.

  • The upfront discount funds up to 100% (up to $1750) of water heater replacement for households making less than 80% of median area income, and up to 50% (up to $1750) for households making between 80% and 150% of median area income. Please note the maximum rebate for both is $1750. Rebates are provided through state and tribal governments at the time of purchase through the High-Efficiency Electric Home Rebate Act (HEEHRA) program and should be available starting at the end of 2023. Please keep in mind that the rebates are only applicable to Energy Star-certified and weatherization products.
  • The 30% tax credit is available for heat pump water heaters on top of these rebates, capped at $2,000 per year per household. The tax credits can be claimed by filling out IRS Form 5695 and attaching it to your Form 1040 when you file your taxes at the end of the year. See the IRS’s instructional page on this form.
  • This credit also resets each tax year, so it can be applied again next year to a heat pump if you installed a heat pump water heater this year, or vice versa.
  • Contractors also receive a $500 rebate per project to install these purchases, so they should be incentivized to perform these tasks.
  • And lastly, there is a 30% tax credit up to $600 for electrical panel upgrades, but only if it is upgraded at the same time as the installation of a heat pump or heat pump water heater, so it is advantageous to do both at once. An upgraded electrical panel will provide higher capacity for these appliances and can make it easier to install an electric vehicle charger. This is all part of an initiative to reduce reliance on combustion appliances and vehicles, which produce more greenhouse gases at scale than large scale electricity generation.