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The Complete Guide to Heat Pump Water Heaters

  QuitCarbon Team  ·  8 minute read

In recent years, heat pump water heaters (HPWHs) have gained popularity in the United States for several good reasons.

Heat pump hot water heaters, also known as hybrid hot water heaters, are the most energy-efficient type of water heater available on the market. They operate on electricity and use energy-efficient heat pump technology to move heat from the air to heat water.

Compared to traditional gas or electric water heaters, HPWHs are more cost-effective to run and have a significantly lower carbon footprint. Homeowners in Colorado, California, and Massachusetts, for example, can save anywhere from $200 to $600 annually by switching to a hybrid heat pump water heater. Although the installation cost of HPWH systems may be higher than that of electric water heaters, gas water heaters, or tankless water heaters, the savings they provide often result in a quick return on investment.

At QuitCarbon, we highly recommend heat pump water heaters as they offer the most efficient, sustainable, and cost-effective solution for supplying hot water to your home. The demand for HPWHs is steadily increasing, but they require both plumbing and electrical work for installation. As a result, it is challenging to have them installed urgently, such as overnight. That means you should get it done before your hot water stops working – preparation matters!

If your current water heater is getting older (typically lasting about 10-15 years) and you believe a heat pump water heater might be the right choice for your home, it is crucial to plan ahead. No one wants to be without hot water for an extended period! Not yet in need of a new water heater? Upgrading your heating and cooling system with a heat pump HVAC system and enhancing your home insulation can also increase efficiency and affordability when it comes to powering your home.

How Do Heat Pump Water Heaters Operate?

Heat pump water heaters extract existing heat from the surrounding air to heat water, eliminating the need for electricity or gas to generate new heat. In other words, they transfer energy instead of creating it. This process is comparable to how a refrigerator, air conditioner, and heat pumps are used for space heating and cooling work.

According to Department of Energy researchers, "Heat pumps function like a reverse refrigerator. A refrigerator removes heat from an enclosed space and releases it into the surrounding room. A stand-alone air-source heat pump water heater extracts heat from the surrounding air and transfers it, at a higher temperature, into a tank to heat the water."

Most modern heat pump water heaters are equipped with an additional electric resistance heater as a backup in case the surrounding air temperature is too cold. This is why they are often called hybrid water heaters, combining both a heat pump and electric resistance.

For optimal performance, heat pump water heaters should be installed in an area of your home that maintains a year-round temperature range of 40º–90ºF (4.4º–32.2ºC). Suitable locations include mechanical rooms, garages, crawl spaces, or unfinished basements. Additionally, these water heaters require approximately 700 cubic feet (28.3 cubic meters) of air space around them to function efficiently.

Pros and Cons of Heat Pump Water Heater Installation

Pros:

  • Energy efficiency: Heat pump water heaters are highly energy efficient, rivaling solar water heaters in this regard. Their efficiency is measured by the "energy factor," which reflects the amount of hot water produced per unit of fuel consumed over a typical day. Most heat pump water heaters have energy factors of at least 2, compared to 0.6-0.7 for most conventional tanks. HPWHs have energy factors exceeding 3.0. This translates to lower annual electricity costs compared to traditional electric or gas water heaters.
  • Environmentally friendly: Due to their increased energy efficiency, heat pump water heaters have a significantly lower carbon footprint. They emit 50% less carbon than conventional electric tanks and 66% less than conventional natural gas tanks.
  • Rebates and incentives: Many utilities offer rebates ranging from $600 to $3,000 for heat pump water heater installations. Local incentives are often available as well. The new Inflation Reduction Act (IRA) provides substantial rebates and tax credits for heat pump water heaters (30% discount up to $2,000). There are also additional federal rebates coming for low- and middle-income families (you are eligible if your income is less than 150% of your area average). 

Cons:

  • Higher upfront cost: In areas without incentives for heat pump water heaters, the initial cost is typically higher. These units are often more expensive than electric and gas tank water heaters, and the installation process is slightly more complex, requiring more time from the plumber. However, when considering rebates and partnering with the right provider, the total cost of ownership often becomes lower. The operational costs of a hybrid heat pump water heater are lower than traditional water heating systems.
  • Background noise: The operation of the heat pump does generate a certain level of noise. However, if installed in an appropriate location, this noise should not pose a problem.

Costs of Heat Pump Water Heater Installation

The cost of a heat pump water heater (HPWH) consists of upfront expenses and annual operating costs. While the initial investment may be higher, the long-term savings in operating expenses should be taken into account when considering an HPWH purchase.

Upfront Cost

  • Unit cost: The price of a heat pump (hybrid) water heater ranges from $1,900 for a 50-gallon tank to $2,800 for an 80-gallon tank. The cost is influenced by tank size and product quality. Smaller tanks cost less.
  • Installation labor: The installation of a hybrid heat pump water heater typically requires 6-8 hours of a plumber's time, costing $2,000 or more.
  • Electrician labor: If replacing a conventional electric tank, the existing electrical setup may be compatible. However, replacing a gas heater may necessitate an electrician to install a 30A 240-volt circuit, costing around $1,000 or more, excluding any drywall repair expenses. New, 120-volt models are appropriate for many situations and can plug into an existing outlet, saving you the cost of an electrician.
  • Supplies and tools: Additional supplies such as a Thermostatic Mixing Valve (TMV) and a Thermal Expansion Tank (TET) may be recommended for optimal performance and safety. While these increase the overall cost, the TET is required by code -- even for new gas tank heaters -- and the TMV enhances the efficiency and safety of the heat pump water heater.
  • Disposal cost: No extra cost is incurred as the old water heater can be recycled.
  • Financing cost: If you are financing the water heater, there may be associated charges. It is important to consider the interest costs when opting for financing.

On average, the total cost of installing a hybrid water heater ranges from $5,000 to $8,000. However, with available rebates and incentives, many customers end up paying significantly less upfront. Considering the lower operating costs, an HPWH often proves to be the most financially sound and sustainable choice when replacing a water heater.

Annual Operating Cost

The operating cost of a heat pump water heater depends on factors such as its efficiency rating, energy costs, location, and hot water usage.

  • Energy factor: This metric indicates the amount of electricity required by the HPWH to heat water. Most heat pump water heaters have an energy factor of 3 or more, meaning that they are at least 3 times more efficient than conventional tanks. We recommend HPWHs with energy factors exceeding 3, resulting in comparable upfront costs and significantly lower long-term expenses.
  • Energy consumption/usage: The monthly or yearly energy usage of the heat pump affects the operating cost. The average heat pump water heater consumes approximately 1,000 kWh per year. Larger tanks generally require more energy. In Colorado, with an electricity cost of $0.12/kWh, the annual operating cost is around $120. 
  • Cost of energy: The price of electricity varies depending on the location. Electricity is typically cheaper in Southern states and more expensive on the coasts, but your prices may vary.

According to the Department of Energy, the average hybrid water heater recommended by QuitCarbon costs less than $200 per year to operate, compared to $400-800 for conventional gas and electric tank water heaters. For a family of four, the average cost to run an HPWH is $200-300 per year, while electric storage water heaters cost $600+ annually, according to Energy Star.

Choosing the Right Heat Pump Water Heater

When choosing the right heat pump water heater (HPWH) for your home, it's important to consider the brand, size, and specific hot water usage requirements. Here are some factors to consider:

Sizing Guide

The most common HPWH sizes are 50 gallons, 65 gallons, and 80 gallons. The following sizes work best based on the number of family members:

  • 50 gallons: Suitable for families of 3-4
  • 65 gallons: Recommended for families of 4-5
  • 80 gallons: Suitable for families of 5 or more

However, it's essential to consider your specific hot water usage patterns. If you frequently use large amounts of hot water, such as for big baths or when hosting guests, it might be beneficial to size up. This may come with a higher cost upfront but can provide peace of mind.

We also recommend using a Thermostatic Mixing Valve (TMV). This valve allows you to store more hot water than you use since it mixes hot water from the tank with enough cold water to achieve the desired temperature. This feature can reduce hot water consumption by approximately 15% for each shower, dishwasher, or other hot water usage.

Other factors

First Hour Rating: Evaluate the "first hour rating" of each HPWH model you are considering. This rating indicates the amount of hot water the unit can provide within the first hour before the tank needs to refill and reheat incoming water.

Estimate Maximum Hot Water Usage: Determine the maximum hot water usage you and your family may have within a given hour. Calculate the flow rate of all your hot water end uses, such as showers, faucets, dishwashers, etc. Add up the flow rates for activities that may occur simultaneously.

Larger tanks come with higher costs, so you can also consider reducing hot water usage. That includes running the dishwasher at night and showering in the morning, or shortening shower durations to potentially require a smaller tank.

How Heat Pump Water Heaters Compare to the Competition

When comparing heat pump water heaters (HPWHs) to other options on the market, here are some key considerations:

HPWHs vs. Electric Water Heaters:

  • Operating Costs: HPWHs are much more energy-efficient than conventional electric water heaters, resulting in significantly lower operating costs. The average household can save around $300-400 per year with an HPWH, making it a cost-effective choice over time.
  • Warranty: HPWHs often come with longer warranties compared to conventional electric water heaters.
  • Rebates and Incentives: HPWHs typically have better rebate opportunities, with various utility and government programs offering incentives that significantly reduce the installation cost.
  • Lower Carbon Footprint: HPWHs have a much lower carbon footprint than traditional electric models, emitting about 4x fewer emissions.

HPWHs vs. Gas Water Heaters

  • Safety and Health: HPWHs are a safer option compared to gas water heaters, as they eliminate the risk of carbon monoxide poisoning, a significant cause of emergency room visits and fatalities. Gas appliances, including water heaters, can emit carbon monoxide, while HPWHs operate using electricity.
  • Energy Efficiency and Environmental Impact: HPWHs are highly energy-efficient and environmentally friendly. They consume less energy and emit fewer greenhouse gas emissions compared to gas water heaters. This is particularly important as natural gas prices have been increasing, making it an unsustainable fuel for home energy. The increased energy efficiency also means less electricity is required to get things done. 
  • Rebates and Incentives: HPWHs often have better rebate opportunities and incentives compared to gas water heaters. The federal government and many utilities offer tax credits and rebates for HPWH purchases, including a tax credit of up to $2,000 for qualifying Energy Star water heaters. Gas water heaters generally have fewer rebate options available.

HPWHs vs. Tankless Water Heaters:

  • Immediate Capacity: HPWHs generally offer more immediate hot water capacity, making them suitable for situations where multiple showers or high hot water demand occur simultaneously. Tankless water heaters may struggle to meet high demand unless expensive models with high gallons per minute (GPM) ratings are installed.
  • Lower Carbon Footprint: While tankless water heaters are more energy-efficient than conventional gas and electric water heaters, HPWHs still have a lower carbon footprint. HPWHs move heat, whereas tankless water heaters generate heat.

Overall, HPWHs offer significant advantages in terms of operating costs, rebates, warranties, and environmental impact when compared to both electric and tankless water heaters. They provide long-term savings and contribute to reducing carbon emissions.

Installing a Heat Pump Water Heater

The installation process for heat pump water heaters (HPWHs) is generally straightforward. They can be installed similarly to a standard electric water heater. HPWHs are designed to fit into the space where your current water heater is located.

However, there are a few considerations to keep in mind. HPWHs have a fan that may generate some background noise, similar to a portable fan. Additionally, they release cold air, which can be beneficial in warmer climates but may not be ideal in living spaces during cold winter days. It is generally recommended to install HPWHs in areas such as the garage, basement, or mechanical room, away from bedrooms. If none of these options are available, you can duct the cold air out of your home.

On the other hand, tankless water heaters offer more flexibility in terms of installation. They are often installed for specific use cases, such as saving space in closets or mechanical rooms or supplying hot water to a guest bathroom. Tankless water heaters can be easily installed in compact spaces like bathroom closets without occupying significant closet space.

In conclusion, if your priority is to optimize for the lowest operating cost and carbon emissions, installing a heat pump water heater is recommended. It offers energy and cost savings that can outweigh the initial investment. If you're interested in getting a heat pump water heater, you can get a free "Electrification Plan" from QuitCarbon that will lay out your next steps. From there, we can connect you with our network of trusted contractors who can get the work done.