What Is a Heat Pump Water Heater?

When you think about your utility bill, you're likely thinking about appliances -- things like the electricity going to your TV and refrigerator or the gas for your stove. You probably don't think about the hot water coming from your faucet. But, according to the Department of Energy, hot water heat is usually the second-largest energy cost in most homes.

While you can lower your energy bills by reducing your hot water usage, you can also do it by getting a much more efficient method for heating water. That's where a heat pump water heater comes in. By reducing the amount of electricity needed to generate heat, these water heaters can be two to three times more efficient than traditional gas or electric water heaters.

Here's what you need to know before considering a heat pump water heater.

How does a heat pump water heater work?

A traditional water heater works by pulling cold water in through a tube and heating it with built-in heating elements. Once the water is hot, it can be circulated throughout the home. The problem is that, through this method, electricity has to be used to generate all of that heat.

By contrast, a heat pump water heater uses electricity to move heat from the air to heat the water. DR Richardson, co-founder of Elephant Energy, an electrification company that installs heat pump water heaters along with other appliances, explains: "Heat pumps take existing energy and move it from one place to another instead of generating it via combustion." Richardson compares the process to that of a refrigerator, just in reverse. 

For context, a refrigerator cools the contents inside of it by pulling heat from inside and releasing it into the room. A heat pump water heater flips that process around. It takes heat that's in the air and transfers it to a storage tank where it can heat water for your home.

Heat pump water heater pros and cons

Heat pump water heaters promise the same results as a traditional water heater but perform in a significantly more efficient way. While this sounds ideal, there are still situations in which a heat pump water heater may not be the right choice. Homeowners considering a switch will need to weigh the benefits and trade-offs that they may experience in adopting a heat pump water heater. 

Heat pump water heater pros

Cheaper energy bill: According to the Department of Energy, water heating accounts for nearly 20% of the average American's monthly energy bill. A heat pump water heater is two to three times more efficient than traditional options, meaning it can require just one-third of the typical energy consumption to heat water for your home, depending on your existing hot water system.

Cooling effect during the summer: Heat pump water heaters carry some unexpected impact too. Because these systems work by taking heat from the air, they have a natural cooling effect. "Another benefit that may appeal to those living in hotter, more humid climates is that heat pump water heaters help cool and dehumidify the surrounding space they are in," Richardson said.

Cleaner air in your home: If your home uses natural gas, which principally consists of the fossil fuel methane, for water heating, you may be exposed to a higher level of hazardous air pollutants. A heat pump water heater reduces your reliance on gas, potentially improving the air quality within your home.

Heat pump water heater cons

Limited installation options: Heat pump water heaters need to be kept in specific temperatures to operate properly, typically in an area of your home that can be kept between 40 to 90 degrees Fahrenheit. While most indoor spaces can work, it is potentially limiting.

Time and cost of installation: Heat pump water heaters are efficient, but they can also take some time to get installed, as it is a somewhat dramatic shift to your home's infrastructure. "If you're interested in getting one of these units installed, it's important to make a plan ahead of time," Richardson said. "Especially if you're switching over from a gas unit, there may be some electrical work involved, so it's best to replace your old unit proactively." He said you can expect the lead time for installation to be one to three weeks on average. 

How much do heat pump water heaters cost?

While heat pump water heaters are typically money savers, they aren't without their own costs. HomeAdvisor suggests a standard water heater costs, on average, between $880 and $1,778. By contrast, Richardson said that a new heat pump water heater can run between $5,000 and $7,000 -- parts and installation included. 

That said, Richardson said there are financial programs that can bring the cost down significantly. "Many of our customers have paid closer to $1,000 to $2,500 due to the myriad of incentives available at the federal, state and local levels," he said. That cost may drop further as Inflation Reduction Act rebates are made available. 

While the cost of heat pump water heaters may remain slightly higher than traditional water heaters even with incentives, they tend to save households money over time. This makes them a worthwhile investment for most homes. "The homeowners we've worked with in Colorado and Massachusetts have typically been able to save between $200 to $600 per year by switching to a hybrid heat pump water heater," Richardson said. 

The Department of Energy noted heat pump water heater units tend to last longer than traditional water heaters, meaning you'll be replacing the unit less often too -- adding on to your long-term savings.

Should you buy a heat pump water heater?

If your existing water heater is approaching the point of needing to be replaced, or if you would simply like to make a change to a more efficient heating method, a heat pump water heater is worth your consideration. In most situations, the upfront cost of purchasing the unit and having it installed will be the biggest expense you'll face -- but you'll start seeing savings on your energy bill almost immediately.

There are situations in which a heat pump water heater might not be ideal. If you are in a typically colder climate or a place that experiences harsh winters, you'll need to remember that the heat pump water heater will pull heat and humidity from the already cold, dry air. You may end up spending more on your heating bill to counteract this -- though typically the savings on hot water works out to a net positive.

You'll also need to make sure you have a place to install the unit, as it needs to be kept in a stable climate in order to operate effectively. But as long as your home meets the necessary conditions for installation, and you are willing to deal with the potential trade-offs of this heating method, a heat pump water heater will likely save you money and lower your carbon footprint in the long run.