Why heat-pump water heaters could soon take off

New federal efficiency standards, local air quality regulations, and government incentives are spurring a shift toward the up-and-coming clean energy tech.
By Alison F. Takemura

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heat-pump water heater
(Binh Nguyen/Canary Media)

Canary Media’s Electrified Life column shares real-world tales, tips, and insights to demystify what individuals can do to shift their homes and lives to clean electric power. 

Planning on replacing your water heater in the next few years? You could find yourself in the midst of an appliance revolution: Heat pumps are set to soar in the world of water heating. 

In the U.S., about half of the roughly 9 million water heaters sold each year use gas. The other half mostly rely on electric-resistance elements. 

These appliances are inefficient, expensive to operate, and worse for the planet than the up-and-coming alternative, heat-pump water heaters. Also known as hybrids because they typically have electric resistance for backup, these water heaters eschew fossil fuels, can run on just a third or a quarter of the energy of conventional tech, and typically save hundreds of dollars annually on the utility bills of consumers who switch.

On April 30, the Biden administration finalized efficiency standards — the wonky rules that govern appliances sold in the U.S. — that will supercharge sales of heat-pump water heaters. But that’s not the only force making it more and more likely that your next water heater will have a heat pump in it. Time to get acquainted.

Why heat pump water heaters are primed to take off in the U.S.

Let’s start with the new efficiency rules and how they work.

The rules, which go into effect in five years, set a high bar for the efficiency of most electric water heaters sold. Conventional electric-resistance models simply can’t meet that threshold. As the rules kick in and resistance models phase out, electric-powered heat-pump water heaters will rush in to fill the resulting market vacuum. The new rules don’t apply to the gas side of the market.

This rule will ensure that heat-pump water heaters are going to be the de facto electric water heater in five years,” said Joseph Wachunas, senior project manager at the nonprofit New Buildings Institute. It’s really monumental.” 

To understand the rules, we need to nerd out about efficiency for a minute. Water heater efficiency boils down to dividing how much energy ends up as heat in the water by how much energy comes into the appliance — for water heaters, this metric is known as the uniform energy factor (UEF).

A resistance water heater runs electricity through a conductor to generate heat the same way a toaster does. It physically can’t reach a UEF greater than 1; there’s no way to get more heat into the water than is being pushed into the conductor. 

Water heaters with storage tanks of 35 gallons or under can still get away with a UEF of less than 1 and therefore use electric resistance under the new efficiency standards. But electric water heaters with tanks larger than 35 gallons will need to meet a UEF of at least 2.3 in order to hit U.S. shelves. 

How’s that possible? 

Heat-pump water heaters use energy to move heat, not to make it. Just like air conditioners, they circulate refrigerant to pull heat from surrounding air. This allows them to use a comparatively small amount of electrical energy to push three or four times the amount of thermal energy into water, giving them efficiency levels that gas and pure electric-resistance can’t come close to. 

The efficiency standard will apply to water heaters that are manufactured or imported into the U.S. starting May 6, 2029. That gives manufacturers a chance to ramp up production, according to Wachunas.

Over 30 years, the Department of Energy estimates, the new standards will slash carbon pollution by 332 million metric tons — the equivalent to the combined annual emissions of almost 43 million homes — and save 17.6 quadrillion British thermal units of energy. That would make it the largest energy savings ever from a single DOE efficiency standard. 

And because heat-pump water heaters use so much less electricity than resistance heaters, they’re guaranteed to reduce consumer electricity bills, Wachunas noted. Savings depend on a number of factors, such as your household’s hot-water demand, the cost of energy, and whether you’re switching from gas, but the DOE estimates that the new rules will save consumers on average $1,800 on their utility bills over the life of the water heater. 

The DOE expects the market share of heat-pump water heaters out of total electric water heater sales to grow from just 3 percent today to approximately 12 percent in the years leading up to the standards. Once they kick in, the DOE anticipates that fraction will shoot up to 61 percent of the electric water-heating market. That means going from about 141,000 shipped in 2022 to 3 million annually after 2029

The other factors pushing up heat-pump water-heater sales

Not everyone wants new rules that support more efficient, electric heat-pump water heaters. Republicans have introduced multiple bills to thwart appliance standards, including those for water heaters. And a Trump administration could choose not to enforce the agency’s rules.

But even so, a number of other forces are helping drive sales.

One key element is local and state action to curb air pollution. In 2022, California became the first state to effectively ban the sale of new gas water heaters and furnaces by 2030 — a move intended to limit ozone emissions. 

The Bay Area, home to more than 7 million people, has pursued an even more aggressive timeline with the specific aim of curbing nitrogen oxide (NOx) emissions. In 2023, the Bay Area Air Quality Management District adopted a zero-emissions standard that will halt the sale of new gas water heaters starting in 2027

The Golden State is a hot spot for gas water heating, so these air-quality standards could drive adoption of heat-pump water heaters in a big way, Wachunas said. And while California is by far the largest and most aggressive state on this front, others such as Hawaii, Maryland, and New York are exploring similar moves. 

Public and private commitments are also fueling the spread of heat-pump water heaters. Nine states pledged to increase the heat-pump share of residential water heating, as well as space heating and cooling, to 65 percent by 2030. And one of the biggest manufactured-home builders in the country, Clayton, has been installing Rheem heat-pump water heaters in almost all of its new homes since July 2023

That Clayton-Rheem partnership alone could have a sizable impact on heat-pump water heater deployment, Wachunas said. In 2022, Clayton built more than 60,000 homes; if all had had a heat-pump water heater installed, they would have made up more than 40 percent of units shipped that year. Since July, the company has built more than 23,000 homes with the climate-friendly appliance.

A final factor spurring the popularity of heat-pump water heaters is the bevy of incentives available. 

The appliances cost more than conventional models upfront; for example, a 50-gallon Rheem model has a price tag of $1,699, while a comparable gas version costs $739. But the 2022 Inflation Reduction Act provides a 30 percent tax credit (25C), up to $2,000, for the cost and installation of an Energy Star heat-pump water heater. Just make sure to use it in a different year than when you get a heat pump so that you can claim the credit twice.

Another provision of the climate law will unleash state-administered rebates: Low-income families will be able to get 100 percent off the cost of a heat-pump water heater, up to $1,750. That can make the tech more affordable than fossil-fired or resistance options. (New York’s program, the sole one awarded federal funding so far, is coming online in the summer.) 

Many state, local, and utility incentives for the tech are also available around the country; try the Energy Star Rebate Finder to see which ones apply to you. 

So if you’re planning to electrify your home — or you fear your water heater is about to conk out — consider the heat-pump water heater. This carbon-cutting, energy-slashing tech will soon transform from a trickle on the market to a tsunami; you could get in on the first wave.

Alison F. Takemura is staff writer at Canary Media. She reports on home electrification, building decarbonization strategies and the clean energy workforce.