Heat Pump Water Heaters (HPWHs) are the most energy-efficient water heaters on the market. Like many other water heaters, HPWHs use a large tank to store hot water that is available whenever you need it. However unlike other water heaters, HPWHs transfer heat from the surrounding air instead of creating it with fuel or electricity, saving energy!

HPWHs are more efficient than tankless water heaters, which use a tremendous amount of energy to instantly heat water when needed.

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How do Heat Pump Water Heaters work?

A HPWH works by moving heat from the surrounding air to heat water, rather than generating heat like traditional water heaters. Think of a refrigerator in reverse. While a refrigerator pulls heat from inside a box and sends it into the surrounding room, a HPWH pulls heat from the surrounding air and transfers it – at a higher temperature – to heat water in a storage tank.

HPWHs heat water less quickly than traditional water heaters. To make up for this, most HPWHs are “hybrid” models. If they fall behind on heating water, they will revert to equipment that provides quicker electric-resistance water-heating.

hpwh diagram

Image source: Building America Solution Center

How much does a HPWH cost? Can it save me money?

PSE&G Rebate

The size and brand of the HPWH you choose will determine the cost. The HPWH itself (before installation) can range in cost between $1,200 for 50-gallon tanks to $2,500 for 80-gallon tanks made by higher-end manufacturers. PSE&G currently offers a $750 rebate on Heat Pump Water Heaters.

Federal Incentives (Expires December 31, 2025)

The Federal Inflation Reduction Act (IRA) provides households a 30% tax credit for HPWHs, up to $2,000 per year. To qualify for the credits, HPWHs must meet ENERGY STAR standards. For those with up-front affordability concerns, the Electrification Rebates in the Inflation Reduction Act (IRA) can cover 50-100 percent of your HPWH costs, up to $1,750. Check out Rewiring America’s IRA Savings Calculator to see how much your household is eligible to receive. These federal savings expire at the end of 2025.

Installation Costs

Expected costs for labor to install a heat pump water heater can vary widely due to several considerations. Some experienced installers charge a flat rate for installation, though most rely on an hourly rate plus materials approach.

If you are switching from a fuel-based water heater, you may need to expand the electrical capacity of your home at the breaker box. An electrical contractor will tell you whether an upgrade is required and how much it will cost. See the “considerations” section below for more details on electrical requirements for various HPWH models.

Energy Savings

Due to the superior efficiency of HPWHs, they can also save households on their utility bills compared to natural gas and electric resistance models. In some cases, that can amount to 50% or more in savings depending on the natural gas model you are switching from.

What should I consider before purchasing a heat pump water heater?

Types of HPWHs

  1. Hybrid HPWHs have the ability to heat water quickly if needed using higher-powered electric resistance elements in the tank. These models typically use 240 Volt/30 Amp circuits, though some are 240 Volt/15 Amp (and therefore take up less space in your electrical panel).
  2. Non-Hybrid HPWHs do not have electric resistance elements and rely fully on the Heat Pump system to create hot water. They can be plugged into standard wall outlets and therefore eliminate the need to add new wiring in most cases.

Electrical Requirements

  • If you currently have an electric water heater with a tank: You probably already have a 240 Volt circuit and don’t need to upgrade your wiring to install a Hybrid HPWH.

  • If you have a gas, propane, or oil water heater: You’ll likely need a new 240 Volt/30 Amp circuit to install a Hybrid HPWH. Doing this in advance will make it easier to upgrade to a HPWH if yours breaks down. Or, you may choose a Non-Hybrid HPWH that can be plugged into a standard 120-V available outlet.

Tank Size

If you’re happy with your current water heater size in gallons, you should consider upsizing with a HPWH (e.g., 40 → 50 gallons, or 50 → 65 gallons). This is because HPWH’s are less powerful than other types of water heaters, and therefore need more time to heat water.

Drainage

As the HPWH pumps heat into your water, it dehumidifies the room and creates condensation that needs to be drained out. Discuss with your installer how you want to drain the water that is removed from the air. In many cases, the condensate can be pumped out of your home with a small floor pump, or routed to a floor drain if you have one nearby.

Location

HPWHs require installation in locations that remain in the 40º–90ºF (4.4º–32.2ºC) range year-round and provide at least 1,000 cubic feet (28.3 cubic meters) of air space around the water heater. If being installed in a closet or similar enclosed space, an intake and exhaust need to be installed on the HPWH to the room or to the outside of the home.

Tankless Water Heaters vs HPWHs

  • HPWHs are more energy efficient. Heat pump water heaters are much more efficient than tankless water heaters. Since the heat comes from the surrounding air for the HPWH, any heat loss can just be pumped back into the water to maintain it at a given temperature. In fact, bigger tanks kept at higher temperatures are the most efficient. Electric tankless water heaters draw over 120 Amps of power, an enormous amount of energy that is not available in many SOMA homes. Even though they are not running all the time, this energy is many times more than what is required by HPWHs.
  • HPWHs produce lower emissions. Gas tankless water heaters emit a puff of methane when they turn on. Methane is one of the worst greenhouse gases impacting climate change. HPWHs avoid this, and reduce emissions compared to conventional water heaters by about 85%.
  • HPWHs provide more immediate capacity. Heat pump water heaters offer much more reliable hot water capacity than tankless water heaters. A 50-gallon heat pump water heater can easily handle a family of four showering in a row. Tankless water heaters typically take time to heat water for showering, and will struggle to keep up with multiple showers.

Where can I find contractors for this job?

You can start with EnergyStar’s vetted list of NJ plumbers with experience installing HPWHs. You can ask for suggestions and referrals from friends, neighbors, co-workers, and local trade organizations. Contact an electrical contractor if you are considering a Hybrid HPWH and don’t have a dedicated 240 Volt circuit nearby (if you are switching from a natural gas, propane, or oil water heater).

Be sure to check online reviews of the referrals you receive. Look for plumbers or contractors who mention HPWHs on their website, or look for reviews that mention HPWHs. Always ask for multiple quotes, as you will for any home improvement projects!