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Heat pump water heaters: where they pay off
A heat pump water heater moves heat from the surrounding air into the tank instead of making it with an electric element, and cuts the electricity a standard electric tank uses by roughly two thirds. Whether it pays off depends most on when you buy it.
Short answer: for the example home with an electric tank, a heat pump water heater pays back in 4–8 years when it replaces a tank that has failed, and in 8–16 years when it replaces one that still works, depending on the state.
What decides the savings
What you spend heating water with electricity. The ladder takes 65% of it, from the Illinois manual's method (section 5.4.3), comparing against a federal-minimum electric tank.
How your home is heated. The unit cools the space it sits in. In a home heated by electric resistance, that heat comes back at full electric cost, so the ladder takes 55% instead.
Where the tank sits. Savings are highest inside the heated and cooled part of the house, a little lower in an unconditioned garage and lower again in an unconditioned basement, following a cold-climate field study used by Pennsylvania's manual; in hot states, the garage figure is conservative.
What it costs, and when to buy
The ladder starts from $2,000–$3,900 installed, or $1,190–$1,695 more than a standard electric tank when you're replacing one anyway (Illinois manual), and adjusts both to your area's costs. The Illinois manual notes that about 90% of water heaters are replaced when they fail, so the "replacing a failed tank" column is the realistic one for most people: decide before the old tank goes.
Gas, propane or oil water heaters
Replacing a gas, propane or oil water heater with a heat pump unit is a fuel switch: you stop buying the fuel and buy more electricity, so what it saves depends on both prices. The ladder doesn't price that switch. It counts a flat $120 a year, about what the Massachusetts manual's figures give for replacing a gas water heater at national prices, so treat it as a rough figure.
By state
The table runs one house: the example home from the example ladder, a 1960s single-family home with gas heat and central air that spends $2,600 a year on energy ($1,900 of electricity and $700 of gas), here with an electric tank in place of its gas water heater. Each row moves that same house, with the same bills, to another state. What changes from row to row is how much of a typical home's electricity goes to water heating in that state (EIA's household energy survey) and the state's construction costs. Your own bills will move the figures, up or down.
Replacing an electric tank with a heat pump water heater: yearly savings and simple payback for the example home with an electric tank, in each state
| State | Saves | Pays back, bought new | Pays back, replacing a failed tank |
|---|---|---|---|
| Alabama | $249/yr | 10 years | 5 years |
| Alaska | $313/yr | 11 years | 5 years |
| Arizona | $181/yr | 15 years | 7 years |
| Arkansas | $260/yr | 10 years | 5 years |
| California | $241/yr | 14 years | 7 years |
| Colorado | $216/yr | 13 years | 6 years |
| Connecticut | $244/yr | 13 years | 6 years |
| Delaware | $299/yr | 10 years | 5 years |
| District of Columbia | $304/yr | 9 years | 5 years |
| Florida | $209/yr | 12 years | 6 years |
| Georgia | $258/yr | 10 years | 5 years |
| Hawaii | $276/yr | 13 years | 6 years |
| Idaho | $302/yr | 9 years | 5 years |
| Illinois | $198/yr | 16 years | 8 years |
| Indiana | $240/yr | 11 years | 6 years |
| Iowa | $182/yr | 15 years | 7 years |
| Kansas | $194/yr | 14 years | 7 years |
| Kentucky | $260/yr | 10 years | 5 years |
| Louisiana | $222/yr | 11 years | 6 years |
| Maine | $286/yr | 10 years | 5 years |
| Maryland | $271/yr | 10 years | 5 years |
| Massachusetts | $246/yr | 13 years | 6 years |
| Michigan | $178/yr | 16 years | 8 years |
| Minnesota | $239/yr | 13 years | 6 years |
| Mississippi | $241/yr | 11 years | 5 years |
| Missouri | $228/yr | 12 years | 6 years |
| Montana | $294/yr | 9 years | 5 years |
| Nebraska | $214/yr | 13 years | 6 years |
| Nevada | $199/yr | 15 years | 7 years |
| New Hampshire | $283/yr | 10 years | 5 years |
| New Jersey | $206/yr | 16 years | 8 years |
| New Mexico | $214/yr | 12 years | 6 years |
| New York | $291/yr | 11 years | 5 years |
| North Carolina | $285/yr | 9 years | 4 years |
| North Dakota | $293/yr | 9 years | 5 years |
| Ohio | $240/yr | 11 years | 6 years |
| Oklahoma | $223/yr | 11 years | 6 years |
| Oregon | $363/yr | 8 years | 4 years |
| Pennsylvania | $271/yr | 11 years | 5 years |
| Rhode Island | $251/yr | 12 years | 6 years |
| South Carolina | $259/yr | 10 years | 5 years |
| South Dakota | $258/yr | 10 years | 5 years |
| Tennessee | $269/yr | 10 years | 5 years |
| Texas | $204/yr | 13 years | 6 years |
| Utah | $218/yr | 12 years | 6 years |
| Vermont | $308/yr | 9 years | 4 years |
| Virginia | $274/yr | 10 years | 5 years |
| Washington | $380/yr | 8 years | 4 years |
| West Virginia | $313/yr | 9 years | 4 years |
| Wisconsin | $205/yr | 14 years | 7 years |
| Wyoming | $255/yr | 11 years | 5 years |
Simple payback is the middle of the cost range divided by the yearly savings. Savings are for the upgrade on its own; on a full ladder, each rung counts what's left after the rungs before it (how the ladder counts overlap). The tank's location is "Not sure".
Your own numbers
Your water heater, your bills and where the tank sits decide your figure. The Upgrade Ladder works it out from your own bills; tick "Water heater" under "Planning to replace any of these soon anyway?" to see the replacing-anyway payback.
Build your ladder How the estimates are made
Sources
- Savings and costs: Illinois Statewide TRM v14.0, section 5.4.3; Arkansas TRM 10.1 corroborates the savings.
- Tank location: Pennsylvania TRM 2026 de-rating factors, from a cold-climate field study, as cited in the tool's notes on this upgrade.
- Fuel-fired water heaters: Massachusetts TRM 2025–2027 fuel-switch rows.
- Typical water-heating share of the bills: EIA Residential Energy Consumption Survey (RECS 2020).
- Costs: adjusted to your area with RSMeans city cost indices.
- Every step in detail: how the estimates are made.
More guides: Will a heat pump lower my bill · Does a thermostat setback really save money · How much of your energy goes to heating and cooling · all guides