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Ultimate Heat Pump Water Heater Guide

Elephant Energy’s Guide to Heat Pump Water Heaters 

Note: A lot of the information in this guide initially came from Carbon Switch‘s Hybrid Heat Pump Water Heater Guide (with their permission). We have adapted it based on our experience installing dozens of hybrid heat pump water heaters in Colorado’s Front Range and New England.

What is a Heat Pump Water Heater, and why should you care?

In the last few decades heat pump water heaters (HPWHs) have become increasingly popular in America. And for good reason too.

Heat pump hot water heaters — sometimes also referred to as heat pump hybrid water heaters —  are the most energy efficient breed of water heaters on the market. Because they are powered by electricity, you may also hear them called electric heat pump water heaters.

They are less expensive to operate and have a much lower carbon footprint than traditional gas or electric water heaters. Homeowners in Colorado and Massachusetts can typically save $200 to $600 per year by switching to a hybrid heat pump water heater. They can be more expensive to install than electric water heaters, gas water heaters, or tankless water heaters.  But because the savings are so high HPWH systems often pay themselves back quickly.

Here at Elephant Energy, we prefer heat pump water heaters. They’re the most efficient, sustainable, lowest overall cost way to provide your home with hot showers and baths. HPWHs are in increasingly high demand and usually require both plumbing and electrical work to be done. As a result, they are difficult to install on an ‘emergency’ (overnight) basis. 

Therefore, if your water heater is on the older side (most last about 10-15 years) and you think a heat pump water heater might be the right solution for your home, it’s important to plan ahead.  No one wants to be without hot water for a couple weeks! If you’re interested in getting a heat pump hot water heater in the coming months, get in touch today.

In this guide, we’ll cover everything you need to know about switching to a heat pump water heater. Not in need of a new water heater quite yet? Replacing your heating and cooling with a heat pump HVAC system and improving your home insulation can also it more efficient and affordable to power your home. If you’re in the Colorado Front Range or Boston area, we can also help with those, too.

Heat pump water heaters
Source: Carbon Switch

How do heat pump water heaters work?

Heat pump water heaters pull heat out of the surrounding air to heat water, rather than relying on electricity or gas to generate heat. In other words, they move energy instead of generating it. This is similar to a refrigerator, an air conditioner, and heat pumps used for space heating and cooling.

As researchers at the Department of Energy put it, “Heat pumps work like a refrigerator in reverse. A refrigerator pulls heat from inside a box and dumps it into the surrounding room. A stand-alone air-source heat pump water heater pulls heat from the surrounding air and dumps it — at a higher temperature — into a tank to heat water.”

How a heat pump water heater works
Source: EnergyStar

Today most heat pump water heaters include a backup electric resistance heater in case the surrounding air temperature isn’t warm enough. That’s why these are also called hybrid water heaters (hybrid = both heat pump + electric resistance).

Because they use surrounding air, heat pump water heaters should ideally be placed in an area of your home that remains in the 40º–90ºF (4.4º–32.2ºC) range year-round. Examples include a mechanical room, garage, crawl space, or unfinished basement.

They also need 700 cubic feet (28.3 cubic meters) of air space around the water heater in order to work.

Pros and Cons of Installing a HPWH


Energy efficiency — With the exception of solar water heaters, heat pumps are the most energy efficient. This is expressed by a metric called the “energy factor.” This is a water heater’s overall energy efficiency based on 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 0.6-0.98 for conventional  tanks).  The heat pump water heaters installed by Elephant Energy have energy factors above 3. That means you’ll spend less money on electricity each year than with a traditional electric water heater or gas water heater.

Environmentally friendly —  Thanks to their energy efficiency, heat pump water heaters are also the most eco-friendly. Their carbon footprint is 50% lower than a conventional electrical tank and 66% lower than a conventional natural gas tank.  That’s why environmental groups like the National Resources Defense Council and the Rocky Mountain Institute love them.

Rebates and incentives — Many utilities in Colorado, like Xcel, will give you a rebate of $600 – $800 for installing a heat pump water heater. There are often local incentives as well. Residents of Boulder, if replacing a natural gas tank, can receive hundreds of dollars of additional incentives.  Same for Denver residents.  The new Inflation Reduction Act (IRA), will offer significant rebates and tax credits for heat pump water heaters. Get in touch to see what rebates might be available in your area.

If you’re in the Boston area, the Mass Save program offers a rebate of $750 for a heat pump water heater installation.


More expensive upfront cost — If you live in a place that doesn’t offer incentives for heat pump water heaters, it will likely cost more upfront. That’s because units are often more expensive than electric water heaters and tankless water heaters and the installation is more complex. In other words, it takes the plumber longer. However, with rebates and the right partner, the total cost of ownership can often be lower. Operating costs of a hybrid heat pump water heater are significantly lower.

Some background noise —  The heat pump does create a bit of noise when it runs.  But if you install it in the right place, this shouldn’t be a problem.

How much does a Heat Pump Water Heater Cost?

These typically cost more upfront, before rebates, but cost significantly less over time to operate. So while upfront cost is certainly an important factor, you should consider the bigger financial picture over the 10-15 year life of the appliance when evaluating a HPWH purchase. 

Upfront cost

The upfront cost of a heat pump depends on the type of unit, install complexity, and incentives.

Unit cost — Heat pump (hybrid) hot water heaters cost between $1,900 for 50 gallon tanks to $2,800 for 80 gallon tanks. The tank size and product quality influence the unit cost most.

Labor to install — Based on our experience, it should take a plumber 6-8 hours and cost $2,000+ to install a hybrid heat pump water heater (HPWH).

Electrician labor — If you’re replacing a conventional electric tank then you may already have the electric set up for a HPWH. But if you’re replacing a gas heater, you may need to bring an electrician out to run a 30A 240 volt circuit. This typically costs $1,000+, not including the cost of any drywall repair.

Supplies and tools — Your plumber will need some supplies to set up your HPWH. Elephant Energy typically installs a Thermostatic Mixing Valve (TMV) for safe, excellent temperature control. Additionally, we always installs a Thermal Expansion Tank (TET) for water pipe safety. While these add to the total cost, the TET is required by code, and the TMV enables your heat pump water heater to operate more efficiently and safely, especially when paired with Xcel’s Demand Response program.

Disposal cost — No extra cost for this. Let’s send this dinosaur to the recycle yard!

Financing cost – Depending on how you choose to pay for your water heater, you may incur financing charges. Similar to buying a car, financing can definitely make the upfront cost more accessible – but just be sure to account for the interest costs of financing the unit.

All in all, installing a hybrid water heater costs $5,000 to $7,000 for an average installation. With financial incentives and rebates, many customers end up paying significantly less upfront.  Given the lower operating costs, it’s often the smartest financial and most sustainable choice when replacing your water heater.

Annual operating cost

The operating cost, or the expected annual cost to run your heat pump hot water heater, will depend on your HPWH’s efficiency rating, energy costs, where you live, and how much hot water you use.

Here’s what impacts the operating cost most:

Energy factor — This is a measure of how much electricity your HPWH will need to heat your water. Most heat pump water heaters have an energy factor of 2, which is about 2-3 times as efficient as conventional tanks. As Elephant Energy, we only install the most efficient HPWHs, since they end up costing about the same upfront and significantly less over time. These energy factors are greater than 3.

Energy consumption / usage — This is how much energy your heat pump will use each month or year. According to the Department of Energy, the average heat pump water heater uses 2,195 kWh per year of electricity (kWh/yr). The bigger the tank, however, the more energy  you should expect to use. In Colorado, at $0.12/kwh, that’s an annual operating cost of ~$263. Since we install the most efficient HPWHs at Elephant Energy, this is the high end of what you should expect to pay annually. Most units use significantly less energy, typically $150 / yr or less.

Cost of energy — This depends on how much electricity costs where you live. Electricity costs are  measured in cents per kilowatt hour ($/kWh). In Colorado, Xcel customers typically pay about $0.12/kwh.

The average hybrid water heater installed by Elephant Energy costs less than $200 per year to operate compared to $400-800 for many conventional gas and electric tank hot water heaters according to the DoE.  For a family of four the average cost to run a HPWH is $200-300 per year compared to $600+ for electric storage water heaters according to Energy Star.

Choosing the right HPWH for your Home


Choosing the right HPWH for your home is important – Elephant Energy works primarily with Rheem and AO Smith, manufacturers that produce the two most efficient, cost-effective units on the market. We can help you select the best unit for your home’s unique needs. Read below for our heat pump water heater size guide.

What size heat pump water heater do I need?

The most common HPWH sizes are 50 gallon, 65 gallon, and 80 gallon. At Elephant Energy, we typically recommend 50 gallon hybrid water heaters for families of 3-4. There are different tiers of heat pump water heaters. The higher the tier, the more energy efficient the water heater. For families of 4-5, we recommend 65 gallons. And for families of 5+, we recommend 80 gallon tanks.  However, you know your water usage best! If you use lots of hot water, like taking big baths, and frequently have guests, you may want to size up. It will cost a little more, but the peace of mind is often worth it.

In addition, we always install a Thermostatic Mixing Valve. This lets you store more hot water than you use (since the tank keeps water at 140F but mixes with enough cold water to bring down the temp to 120F, meaning your hot water heater uses ~15% less hot water for each shower, dishwasher, etc.

If you’re more analytical, read on for a more in-depth sizing guide…

In order to figure out what size hybrid hot water heater you’ll need, you should look at the “first hour rating” of each model you evaluate.  This will help you learn what is the best mode for a heat pump water heater in your home. The first hour rating tells you how much hot water you’ll be able to use in any given hour before the tank must refill and reheat more incoming water.

Then you’ll want to estimate the maximum hot water that you and your family will use in any given hour. The way to do this is to look at the  flow rate of all your end uses (showers, faucets, dishwashers, etc) and then add up the ones that you’ll use within the same hour.

The average shower uses 2 gallons per minute (with low-flow shower heads using 1 gallon or less per minute). If two people live in your home and take 10 minute  showers back to back, then that requires 40 gallons of hot water.

But let’s say one of you needs to shave after your shower. The  average flow rate of a sink is 0.5 gallons per minute. If it takes 2 minutes that could be another 1 gallon of needed capacity.

Now let’s say you want to run the dishwasher after your shower. The  average dishwasher uses 6 gallons (with energy efficient models using 4  gallons).

If you add all those up you get 40 + 1 + 6 which is 46 gallons. That means you’d probably want to get a 50 gallon tank.

But remember the bigger the tank, the more it costs. So if you wanted  to save money you could elect to run the dishwasher at night and shower  in the morning. Or you and your partner could take 3 minute shorter showers and only need a 40 gallon tank.

HPWHs vs the Competition

In case we haven’t made it clear already, here at Elephant Energy we think that HPWHs blow the competition out of the…water. If you’re not yet convinced, below is an overview of some of the other options on the market today and their pros and cons.

Heat pump water heaters vs. electric water heaters

Heat pump water heaters are about $800 more expensive than the cheapest conventional electric water heaters – this may be seen as a disadvantage of a heat pump water heater. However, that begs the question: is it worth the extra money?

Much lower operating costs

In addition to looking at the upfront cost of a water heater, it’s important to look at the annual operating cost. And this is really where heat pump water heaters shine. That’s because water heaters generally use about 20% of your home’s total energy. Considering the typical homeowner spends between $1,500 and $2,500 per year on energy, that adds up.

Heat pump water heaters are generally 2-4x more efficient than conventional electric water heaters. That means the average household will save about $300-400 per year.

In other words a hybrid heat pump will pay itself off in 2 or 3 years. Over 10 years it’ll save you between $3,000 and $4,000. Not bad. In this case, cheaper isn’t better!


Hybrid water heaters often have a longer warranty than a conventional electric water heater.  For example, the base Rheem electric water heaters come with a 6 year warranty. To get a 9 year warranty costs about $100. The heat  pump water heaters installed by Elephant Energy, on the other hand, come with a 10 year warranty.

Better rebates and incentives

As mentioned above, there are also a lot of rebate opportunities when you buy a hybrid water heater.

Many Colorado utilities like Xcel offer $600 – $800 rebates. In Massachusetts, homeowners are eligible for a similarly sized $750 rebate via the Mass Save program. There’s currently a $1,750 Federal tax credit for heat pump water heaters, too. Many local cities and counties offer rebates, including both Boulder and Boulder County.  The Inflation Reduction Act offers additional rebates, starting sometime in 2023.

All told, tax credits and upfront cash rebates significantly lower the cost of installing a hybrid heat pump water heater compared with electric tanked water heaters.

Lower carbon footprint

By far the best feature of heat pump water heaters is their low carbon footprint. Other than solar water heaters — which are still prohibitively expensive in most of the United States — heat pumps are  the most energy efficient water heater available.

Thanks to their high energy efficiency, the average heat pump water  heater emits 4x less emissions than traditional electric models.

Heat pump water heaters vs. tankless water heaters

Many people that consider heat pump water heaters also look at tankless water heaters (note: it’s common to hear people refer to these  as an on demand water heater). That’s because both are more energy efficient than conventional gas and electric water heaters. Therefore, both lead to savings over the long run.

So how do heat pump hybrid water heaters compare to tankless water heaters? Read below for our hot water heat pump design guide.

More immediate capacity

The best heat pump water heaters on the market offer much more immediately hot water capacity than tankless water heaters.

Let’s say you and your family get home from a camping trip or a soccer game and everyone wants to shower at once.  If you have a heat pump water heater, no problem. The Rheem 50 gallon water heater for example can give you 4 back to back showers.  But if you bought a low GPM tankless water heater your family will likely run into problems when three of you go to shower at once.  There are tankless water heaters that offer as much as 10 GPMs, but  they start to get pricey, especially when considering the massive electrical current required to heat the water (greater than 80 Amps!). So if you need a lot of hot water at once, the heat pump water heater is the way to go.

Lower carbon footprint

While tankless water heaters are more energy efficient than conventional gas and electric water heaters, they still can’t beat hybrid water heaters.

The average heat pump water heater emits about half as much CO2 (200 kg per year) compared to on-demand water heaters (400 kg per year). Why? They move heat whereas on-demand tankless water heaters generate heat.

Heat pump water heater vs. gas water heaters

Heat pump water heaters are without a doubt a better option for most  homeowners than gas water heaters (tankless or conventional).

Safer and healthier

According to the CDC, every year 50,000 people in the U.S. visit the emergency room due to accidental carbon monoxide poisoning. Tragically, 430 people die each year from it.  One of the primary causes of CO poisoning is gas appliances like water heaters and furnaces.  So if you can avoid installing these, you  can avoid much of the risk of CO poisoning.

More energy efficient and environmentally-friendly.

Heat pump water heaters are the most energy efficient option on the  market today. Compared to gas water heaters they use far less energy and  emit less greenhouse gas emissions.

With the recent spikes in natural gas, it’s becoming clear that the fuel is an unsustainable fuel for home energy.  Gas prices are up 50-100% in 2022 vs 2021.

Better rebates and incentives

As we mentioned above, there are also a lot of rebate opportunities when you buy a heat pump water heater. Gas water heaters, on the other  hand, rarely have rebates.

As of writing, the federal government will give you a $300 tax credit if you buy a heat pump water heater.  And many of the biggest utilities  in the country like Xcel offer $600 – $800 rebates.

If you want to see if your city, state or utility offers incentives, visit the Database of State Incentives for Renewables & Efficiency.


One of the biggest factors that may drive your decision is the installation process. Heat pump water heaters can be installed just like a normal electric water heater.  They are basically just more efficient versions of the standard water heaters you’ve probably seen all your life, and should easily fit in the space where your current water heater is located.

The one caveat is the fan and cold air that comes off a hybrid heat pump water heater. The fan does create a little noise (similar to a portable fan). And the cold air is great for summer time and warmer climates but may not be ideal for living spaces in cold winter days. For this reason, we typically recommend that heat pump water heaters not be installed near bedrooms. The best location for them is a garage, basement, or mechanical room. Note that if none of these options is possible, we can duct the cold air out of your home. 

A tankless water heater on the other hand is a bit different. Generally people install them for a specific use case.  For example, they take up less space, so if your home doesn’t have enough space in your closets, mechanical rooms, garage, etc, you may need to go with a tankless solution.  Or, in another house we know, the homeowner installed one near a guest bathroom since it didn’t need much hot water.  It was easy to stick in the bathroom closet and didn’t take up closet space.

Wrapping Up

So, here’s our recommendation, based on optimizing for lowest operating cost and lowest carbon emissions: if you can do it, install a heat pump water heater. You’ll save money, energy, and the investment will more than pay itself back.

If you’d like to get a quote for a Heat Pump Water Heater, get in touch today!

Still have questions about Elephant Energy and what it’s like to work with us? Check out our FAQ or this case study about a customer who installed a Heat Pump Water Heater with Elephant.