Advantages  Cost  Factors to Consider  Incentives  Resources  Shopping/Installing   How HPWHs Work

Heat Pump Water Heaters Save Money & Are Better For You


MORE EFFICIENT.   Just as heat pumps warm the air in your house, heat pump water heaters (HPWH) heat your water for showers, dishwashing, laundry and other needs. Because they don’t create heat, only collect it from the surrounding air, they are 2-3 times more efficient than most current hot water systems. HPWHs can save you hundreds of dollars per year. Use this calculator to see how much you can save.

Black and white photo of two young children in the bathtubHEALTHIER. 
  They can also be better for your health compared to methane (natural) gas and propane heaters. The least expensive gas water heaters use atmospheric venting (no fan) and waste energy by venting warm air, combustion gases like CO2, carbon monoxide, nitrogen oxides, and acidic water vapor through a pipe, chimney or flue to the outside. If the venting system is improperly installed, backdrafting may occur, in which exhaust gases are pulled back into the house.

According to one contractor, “this is a common defect identified during home inspections, and it’s almost always a condition that the homeowner or occupant is not aware of.” Another site notes that backdrafting can start after sealing the house for leaks during weatherization; the water heater, unableto get enough air for combustion, pulls it back through the flue. This is not only a health hazard, but the corrosive liquid can eat through metal and cause the heater to leak.


What will a Heat Pump Water Heater (HPWH) Cost?

Two examples illustrate what New Mexicans might pay for this $1,700, 50-gal. HPWH.

At higher income levels, a Federal taxpayer and an Otero Electric Coop customer would receive a 30% Federal tax credit of $360, a State tax credit of $350 and a Coop rebate of $500, for a final cost of $490. (Cost – Coop Rebate is $1,700-500=$1,200. 30% tax credit of $1,200=$360. Total price is $1,700-$360-$500-$350=$490).

At lower income levels, at the end of the year when Federal IRA rebates are rolled out through the State, a resident living in affordable housing would qualify for a Federal $1,750 rebate at purchase (State $700 rebate and the Coop $500 rebate would also be available), bringing the HPWH cost to $0. 

See the incentives section below for more details.

Important factors to consider before you buy

  • Emergency. Water heater purchases are often made when the current heater fails and a new one is needed right away.  Take the time now to learn about how heat pump water heaters can save you money in the long run and protect your health.  
  • Signs that it’s time to replace your current water heater. 
  • How to find the age of your current water heater.
  • Location. HPWHs will slightly cool the room they are in. The cool air they expel can be vented outside if this is a problem. They perform best in locations that remain in the 40–90 °F range and that have access to 750 – 1,000 cubic feet of air (so closets are not ideal if there are not existing vents to the outside-add louvers to doors if no other places are available). They also need a drain or pump for the clean condensate water the HPWH releases. 
  • Size. Be aware that HPWHs can be larger and taller than conventional water heaters. If space is limited, consider an ENERGY STAR certified split system (see photo).  Nyle and Eco2 Systems make split system HPWHs with a separate outside unit or condenser. 
  • If you are replacing a gas water heater with a HPWH, you may have to upgrade your electrical panel and wiring because the HPWHs typically require a hardwired, dedicated 240 Volt circuit. Also, for many homes, adding a 30-Amp appliance means an electrical panel upgrade to accommodate more current.  If you do need to upgrade the electrical panel you can use the 30% (25C) tax credit up to $600 and, if you qualify, a wiring rebate, in conjunction with the HPWH install. 
  • However, Rheem,  A.O. Smith, Nye and GE now have 120 volt models. Because they plug into a standard wall outlet and don’t require any special upgrades, 120V HPWHs will have lower installation costs and further increase household savings, as explained in this slide deck. They would be great for home additions. To learn more about 120V HPWHs watch this Oct. 2023 Electrify Now webinar or read these CleanTechnica articles by Joe Wachunas: 120 Volt Heat Pump Water Heaters Hit The Market & Make Gas Replacements Even Easier and Rheem Releases 120V Plug-In Heat Pump Water Heater That Can Be Plugged Into Typical Outlet.
  • Be aware that the 120 V plug-in models work best in warmer climates. For mid to northern New Mexico, they should be placed inside a home or protected from ambient cold temperatures in winter.
  • Search for “heat pump water heater” and “Hybrid High Efficiency” when shopping for a 240V HPWH. Most heat pump water heaters are called hybrid because they come with an electric heating element as backup when a lot of hot water is needed all of a sudden.
  • In order to qualify for the Federal Tax Credit, a model must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency at the beginning of the year you install the HP Water Heater.  Check for your model in this database or see if it qualifies for an Energy Star Rating (advanced tier).


  • Federal (Rewiring America page on HPWH)
    • In order to qualify for the Federal incentives, a model must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency at the beginning of the year you install the HP Water Heater.  Check for your model in this database or see if it qualifies for an Energy Star Rating (advanced tier).
    • Rebates for low-income households are 100% of the cost up to $1,750; Middle-income households get 50% up to $1,750. Total IRA  HEEHRA rebates across all qualified electrification projects are capped at $14,000 per household. Calculator to determine if you qualify for low- or middle-income rebates. 
    • IRA Rebates will be available at the time of sale only and after the program is set up by New Mexico towards the end if 2023.
    • There is $500 max available for contractors who install the HPWH.
    • Nonrefundable Tax Credits (25C) are 30% of the cost of the heat pump water heater up to $2,000, but that $2,000 cap is for heat pumps and HPWHs combined each year.  Resets each tax year. There is also a 30% tax credit up to $600 for an electrical panel upgrade, but only if it’s upgraded in conjunction with another upgrade covered by 25C (like a heat pump water heater).
    • The credit is on the cost minus any rebates you received from utilities or coops.
    • Nonrefundable means you must owe the amount of the credit in taxes in order to get the credit taken off your taxes.
  • New Mexico State  Tax credit
    • Model must qualify for Energy Star.
    • Purchases from Jan 1, 2021 onward for residential products and large commercial renovations. $700 for low-income and affordable housing; $350 otherwise.
    • The State tax credit is “stackable” or independent of the Federal credit.  You do not have to subtract the state credit from the cost before you take the Federal credit.
    • Programs for new construction and manufactured housing started Jan. 1, 2022
  • Electricity Providers

These incentives make HPWHs free to affordable.  Our April 2023 informal survey of Lowes and Home Depot 50-gallon residential water heaters found the following price ranges for different kinds of water heaters: natural gas ($630-$1560), electric ($510 -$970), propane ($800-$1450) and heat pump ($1650-$1950).


Energy Star Do Heat Pump Water Heaters Work in Cold Climates?

CleanTechnica  A Heat Pump Water Heater is the energy saving equivalent of 7 solar panels and costs ⅙ the price.

Advance Water Heating Initiative has Resources  for single- and multifamily housing.

ENERGY STAR resources.

CleanTechnica Dec 2022 review of the Voltex AL HPWH

Canary Media Finally, a heat-pump water heater that plugs into a standard outlet.

The Uniform Efficiency Factor (UEF) indicates how many units of energy a water heater produces for every energy unit put in. A typical heat pump water heater UEF is 4.02 versus 0.60 for gas, 0.81 for instant gas, and 0.92 for electric.  Energy Star UEF Criteria

Shopping and Installing

Note: Some tax credits require an inspector to sign off on an installation. Make sure your contractor is a certified electrician and a certified plumber.

Search for “heat pump water heater” and “Hybrid High Efficiency” when shopping

How do Heat Pump Water Heaters Work?