The Lowdown on Heat Pumps: How Homeowners Can Save Money with the “Coolest” HVAC Technology 

Air source heat pump on side of house

With nearly 100% energy efficiency and up to 50% annual savings on energy bills, homeowners practically everywhere could benefit from purchasing a heat pump to heat and cool their homes. When you put together decades of electricity savings with incentives like tax credits after purchase, heat pumps are a must-have technology in homes today.  

There’s a lot to consider when deciding if a heat pump is right for your home — everything from the size, type, and functionality to your local climate will impact your decision. Costs will vary based on the home’s square footage, the product, and installation costs. So, here’s the lowdown for savvy homeowners looking to lower their energy bills and carbon footprint.  

How Heat Pumps Work in a Nutshell

Unlike a forced air furnace, heat pumps don’t actually generate heat. Instead, they’re a unit attached to the outside of the house where liquid refrigerant inside copper coils absorbs warmth. The heat from the coils goes through a compressor and is transferred into the house where a fan moves the warmed air through the existing ducts.  

A heat pump will also cool the home using the reverse system: the refrigerant in the copper coils absorbs the warm air inside the house, which goes through the compressor and is blown outside. Heat pumps vary in size and shape depending on the home’s heating and cooling needs, and they use a programmable thermostat. Heat pumps run on electricity and can even be powered with a home’s solar energy system, creating the ultimate energy efficient home that is less vulnerable to power outages and rolling blackouts. 

Different Types of Heat Pumps and Benefits

Two types of heat pumps work with a home’s existing ducts: Air source, which absorbs outside heat from the air, and geothermal, which absorbs heat from underground sources.  

Air source, the most common type of heat pump, can reduce electricity usage for heating by up to 50% — hundreds of dollars a year — compared to other types of electrical heating.  

Geothermal heat pumps can range up to 60% savings because heat sources underground maintain a constant temperature making them less expensive to operate. Geothermal is a good choice in more extreme climates. However, they are typically more expensive to install because they require ground excavation to get to the heat source. When shopping for a heat pump, your HVAC retailer will survey your property and help you decide if geothermal is the best choice.  

No ducts? No problem. Homes that use hot water heat or radiant flooring may benefit from a minisplit heat pump. These operate similarly to an air source heat pump, and are especially good for smaller homes or zones, as well as new additions that could not be ducted.  

In addition to heat pumps for heating and cooling, there are also heat pump water heaters that are two to three times more energy efficient than traditional water heaters. They work similarly by absorbing the warm surrounding air, increasing the heat, and transferring it to the water tank. Heat pump water heaters alone can save homeowners more than one hundred dollars annually on their energy bills and last more than 10 years. 

Latest Innovations: What to Look For

Heat pump technology is continually evolving. Look for new models that offer dual-speed compressors to better control the temperatures in different zones, or dual-speed fans that better control air velocity in the home to minimize cool drafts and noise.  

Other innovations on the market include a desuperheater-equipped heat pump that collects waste heat from the system and transfers it to the water heater, and a scroll compressor that creates air that is 10 to 15 degrees warmer than traditional compressors.  

Homeowners in colder regions of the country may want to look for a dual-fuel system, which combines a heat pump with a gas or electric furnace to keep their homes cozier while maximizing their energy savings.  

A new generation of heat pumps now available can use alternative energy sources, such as natural gas or solar energy. Solar assisted heat pumps (SAHPs) have a thermal collector, such as a solar panel or evacuated tubes that absorb sunlight. The SAHP converts the light to heat using little to no electricity. 

Prices and Incentives

Homeowners can expect a new heat pump to range from the low thousands up to about $10,000 for equipment, depending on the model, local climate, and the size of the home. Installation can be thousands more, and some estimates for the land excavation for geothermal heat pumps can be as much as $20,000. Be sure to get bids from at least three retailer-installers to compare the brands and models they carry and their installation costs.  

After receiving bids, visit DSIRE where you’ll find local, state, utility company, and federal rebates, credits, manufacturer rebates, and more for heat pumps and other Energy Star-rated appliances and upgrades.  

The Inflation Reduction Act, passed in August 2022, provides homeowners with substantial rebates and tax credits for purchasing an electric heat pump. Many households can qualify for a tax credit of up to $2,000 and the High-Efficiency Electric Home Rebate Act (HEEHRA) will help to provide households with low incomes a rebate of up to $8,000 on installation. You should also check out Rewiring America’s guide to the Inflation Reduction Act for additional insight. 

heatpump graphic

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