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Most homes heat their water in a large storage tank that is warmed by a natural gas-fired flame or metal coils inside the tank that create heat via electric resistance (the same power that makes a hair dryer work). Less conventional but more energy-efficient methods for heating water include solar-powered systems and heat pump technology to create our steamy showers.

If you’re looking to improve your home’s energy efficiency, lower your bills, or just in the market for a replacement, the good news is that major rebates and tax credits are coming down the pike for high-efficiency heat pump water heaters through the Inflation Reduction Act. So there’s never been a better time to make the switch. Here’s a primer to get you started.

How Does a Heat Pump Work?

Heat pump water heater systems are also known as hybrid systems as they combine a water storage tank with a heat pump. A heat pump alters the water temperature by using electricity as opposed to relying on combustion of fossil fuel, such as natural gas, propane, or oil. The technology behind a heat pump follows the same principles that make a refrigerator work. Combining an evaporator, a compressor, refrigerant, and a fan produces a system that can capture heat from the surrounding air or a water source, make it warmer or cooler, and then condition a space.

Why Switch to a Heat Pump Water Heater?

There are two big reasons. First, the energy efficiency is off the charts, especially when compared to other electric water heaters that use electric resistance. According to the U.S. Department of Energy (DOE), “Heat pump water heaters use electricity to move heat from one place to another instead of generating heat directly. Therefore, they can be two to three times more energy-efficient than conventional electric resistance water heaters.”

The DOE pegs the percentage of energy used in the average home to heat water at 20% of the total. Combining that much efficiency with that amount of usage adds up to a very low-cost way to fill the soaking tub.

The second reason ties back to combustion. Unlike electric heat pumps, combustion heat pumps burn fuel to heat your water, which means they produce toxic byproducts that can impact your home’s indoor air quality. Burning fossil fuels also produces greenhouse gases, which contribute to global warming. Switching to a heat pump water heater is a win-win for your health and the environment.

Related Post: Is a Heat Pump Right for Your Home?

What Are the Downsides to a Heat Pump Water Heater?

As with anything that is more efficient in the long run, a heat pump water heater system will tug at your purse strings more upfront. In a very detailed study conducted by the DOE’s National Energy Renewable Laboratory, the installation cost of a heat pump system ranged from $2,100-$3,100 as compared to an electric resistance system of $590. A standard quality, natural gas-fired system rings in at $700. The heat pump system will stick around for about 10 years, whereas the other two will make it to about age 13.

Keep in mind, however, that rebates and tax credits are coming for heat pump water heaters as states adopt the Inflation Reduction Act’s programs. Depending on your income, you could receive up to $1,750 in rebates under the High Efficiency Electrified Homes program, plus up to $2,000 in tax credits. Factor in the potential energy savings over time and you can chart a path to positive return on your investment pretty quickly.

Related Post: Homeowner’s Guide to Energy-Efficiency Rebates and Tax Credits

The other limiting factor for a heat pump hot water system is the surrounding air temperature — meaning they don’t perform well outside or in a cold room. According to the DOE, “Heat pump water heaters require installation in locations that remain in the 40°F-90°F range year-round and provide at least 1,000 cubic feet of air space around the water heater. Heat pump water heaters will not operate efficiently in a cold space since they tend to cool the space they are in. Installing them in a space with excess heat, such as a furnace room, will increase their efficiency.”

Related Post: Thinking About Switching to a Heat Pump? Ask Your Contractor These Questions First.

Added Benefits of a Heat Pump Water Heater

Bringing a heat pump into your mix of heating and cooling options creates some other interesting scenarios. If your home faces frigid temperatures every winter, you can buy a stand-alone heat pump water heating system that also includes back-up resistance heating elements.

If your home already has a heat pump that’s warming and cooling the house, it may be possible to tack on another job by adapting it to work with an existing storage tank system. If you are starting from scratch or replacing an existing furnace or boiler, you might want to consider an air-source heat pump system that combines heating, cooling, and water heating.

Geothermal heat pump systems, also known as ground source or groundwater systems, provide a whole house solution too. There are several geothermal subtypes, but they all rely on tapping into the near-constant temperature of the earth or a body of water. The existing heat is used as a baseline for the heat pump to warm up from or cool off to. In a geothermal system, a device called a desuperheater can be used to tap excess heat to warm your abode’s agua.

Other Considerations

Before taking the plunge into a new hot water system, carefully consider all relevant factors. How many bathrooms does your home have and how many showers may be running simultaneously? Flow rates come into play here, which is a measurement of how fast hot water can fill a gallon bucket.

What type of fuel (e.g., natural gas, propane, oil) is available in your area and how do the costs compare to what you are paying for electricity? Energy efficiency and actual usage expenses don’t always go together. If you aim to be as green as possible, you may have to spend more on monthly energy costs. 

Long-term benefits usually justify a higher upfront cost, and home resale values improve depending on the quality of the home’s major systems. To make the right decision about whether a heat pump water heater makes sense for your family, connect with a Pearl Network Contractor in our free Green Door app. After installation, be sure to update your home in the app to receive coveted Pearl Points toward a high-tier Pearl Certification.

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