Heat pump water heating presents a good opportunity for energy savings. Heat pump water heaters are extremely efficient alternatives to electric resistance style water heaters, often saving as much as 55% to 60% of water heating costs. In a resistance style water heater, electricity is used to generate heat. Heat pump water heaters use electricity to move heat from one place to another instead of generating heat directly. The heat source can be the air, the ground, or ground water.

Heat pumps have significant installation costs, but as you can see, the savings can be substantial. To heat water, heat pump water heaters work like refrigerators in reverse. Although they can have a high initial cost, heat pump water heaters have the potential to reduce water heating costs by as much as 50%. Heat pump water heaters can be purchased as integral units with built-in water storage tanks or as add-ons that can be retrofitted to an existing water-heater tank. They also require installation in locations that remain in the 40° to 90° F (4.4° to 32.2° C) range year-round and contain at least 1000 cubic feet (28.3 cubic meters) of air space around the water heaters. To operate most efficiently, they should be placed in areas having excess heat, such as furnace rooms. They will not work well in a cold space.

There are two types of heat pump water heaters -- a retrofit model which attaches to an existing water heater tank and a "self-contained" model that has its own water tank. Prices for the retrofit model range from $600 to $900 installed. Prices for the "self-contained" model range between $1,000 and $1,300 installed. Standard electric resistance water heaters, on the other hand, range from $200 to $400 installed. Compare the warranty terms and service contracts offered with various brands of heat pump water heaters as most should offer an extended warranty for a minimum of five years. Savings with a heat pump water heater will depend on your water usage and the unit's efficiency. The more water used and the higher the unit's efficiency, the greater the savings.

A heat pump water heater should have an energy efficiency rating of at least 2.2 (this rating is called a "COP" for coefficient of performance). High efficiency units (2.2 COP and above) could save up to 50 percent on water heating costs.