Last winter we replaced our gas furnace and air conditioner with a heat pump, and our on-demand (gas) water heater with a heat pump water heater. As a result, our house is now fully electric – no gas usage at all (we’ve even had the utility shut off gas to the house). Heat pumps and heat pump water heaters are more efficient than their fossil fuel equivalents which means their operating cost over time should be lower (and much, much cleaner). But they are also (currently) more expensive up front, so it’s not necessarily the optimal financial decision. It can be, it just depends on your specific situation, including your climate, your usage, your local electricity and gas (or heating oil) rates, and rebates or tax incentives that are available to you.
As a side note, for us it wasn’t strictly a financial decision; we wanted to make this change to do our part to address the impacts of burning fossil fuels on both climate change and pollution.
To help offset those initial higher costs, there are often tax credits and/or rebates available. At the federal level, there are tax credits for installing heat pumps and heat pump water heaters. With the new Administration, these tax credits are going away, but they are still good through the end of 2025. The tax credit is up to 30% of the cost of the heat pump or heat pump water heater, but is capped at $2,000. You can also only claim one credit per tax year. For us, our heat pump was installed in December 2024 and our heat pump water heater was installed in January 2025, so we will be able to claim the credit twice (only $1,950 for the heat pump water heater as that is 30% of the cost).
Many states also have deductions or tax credits for installing heat pumps. In Colorado, there is a $1,500 point-of-sale heat pump discount and a $500 point-of-sale heat pump water heater discount. (Technically some of the discount goes to the installer and some to the customer, but those are the total amounts.)
Many utilities also offer discounts or rebates. In our case, Xcel Energy offered a $10,130 rebate for the heat pump and a $2,250 rebate for the heat pump water heater.
The following is what we ended up paying for our heat pump and heat pump water heater.
As you can see, after the various rebates and tax credits the heat pump ended up costing about the same as a new gas furnace and air conditioner would, and the heat pump water heater actually ended up less expensive than a standard gas water heater (or on-demand water heater). Given the lower operating costs going forward, it turns out this was a good financial decision for us as well as a good result for the rest of humanity.
It’s always tricky to compare utility usage and costs across different years, as the weather is not exactly the same each year, our usage varies, and “natural” gas prices are very volatile so there can be significant differences across years even for the same usage. But here is a comparison for the six billing cycles we’ve had since both the heat pump and the heat pump water heater have been installed.
Note that where you see negative numbers that’s because our solar generation exceeded our electricity usage, so we have a banked credit that will go toward future bills. Also, the dates of our billing usage vary slightly each month, but are roughly the 15th through the 14th (± a few days). So our “February” bill is for usage from roughly January 15th through February 14th (± a few days). We will continue to get small yearly credits from Xcel for allowing them to use our batteries when necessary to help meet demand. And keep in mind that our electricity usage includes charging two EVs in addition to powering the house.
In general this seems to be tracking what I would expect (again, see the caveat above about the difficulty comparing one year to the next, especially with the volatility in natural gas prices). My expectation is that the cost of cooling in the summer will be less with the heat pump than the air conditioner, and that the cost of heating in the winter will sometimes be less and sometimes be more depending on the volatility in natural gas prices and the exact temperatures we experience in any given year.
For the rest of this year I would anticipate seeing credits (due to our solar production exceeding our electricity usage) through roughly mid-October. As the weather turns colder (so using the heat pump for heating), and as solar production decreases in the winter months, I would expect the costs to increase (but they will be at least partially offset by the banked solar credits). The other “advantage” is that electricity prices aren’t volatile like natural gas prices, so our costs will be much more steady and predictable.
For us, this was a really good move. If you are close to needing to replace your furnace, air conditioner, and/or water heater, I would highly encourage you to investigate heat pumps. The benefits for humanity are huge and you just might end up saving money as well.
Fisch Financial 