How to Save Money and Energy by Switching to a Heat Pump

How to Save Money and Energy by Switching to a Heat Pump

Heat Pumps: The Holy Grail of Energy Efficiency

For most American homeowners the best way to save energy is to switch to a heat pump to heat and cool their home. 

According to the Department of Energy, many homeowners can save $1,000 per year, and cut their electricity bills by up to 50%.

In addition to saving money, heat pumps can cut the average homeowner’s carbon footprint by 4 tons of carbon emissions per year, the equivalent of an international flight from New York to Seoul, Korea. That’s more than 10x more carbon savings than you’ll see installing LED lighting in your home. And it’s 4x more carbon savings than you’ll see with one of our other favorite climate solutions: the trusty heat pump water heater.

And while heat pumps cost more upfront than less efficient alternatives, most homeowners can get more than $1,000 in rebates and incentives from federal, state, and utility programs to get a new heat pump.

In this article we’ll cover the basics of heat pump technology, and considerations for homeowners that want to switch.

How much can you save per year with a heat pump?

As with other energy upgrades like improving your home insulation, your annual savings will vary based on the following factors:

  • The size of your home — More square footage means a bigger energy bill. And the more you currently spend the more you will save by switching to a heat pump.
  • Your local climate — Heat pumps work everywhere from Maine to Florida. But people living on the East Coast (and especially the Southeast) will save the most due to the large number of homes that use inefficient electric, fuel oil, and propane heating systems.
  • How you currently heat your home — As you’ll see in the table below people switching from baseboards, electric furnaces, fuel oil, and propane will save the most.
  • How energy efficient your home is — If your home is poorly insulated then you probably spend a lot of money to heat and/or cool your home. And that means more opportunity for the heat pump to work its magic.

In August 2021 we ran a comprehensive analysis using data from the National Renewable Energy Laboratory (NREL) to help homeowners better understand how much they can save by switching to a heat pump.

Here’s what we found:

Current heating equipmentAverage annual savings
Natural gas furnace$105
Electric furnace$815
Propane furnace$855
Baseboard heaters$1,287
Fuel oil boiler$929
Fuel oil furnace$947
Natural gas boiler$199

As you can see the best savings will come if you switch from fuel oil, propane, or electricity as your main source of heat. Switching from baseboard heaters to a heat pump saves an average of $1,287 per year. Switching from an electric furnace to a heat pump will save you $815 per year. That’s because a heat pump uses so much less electricity than electric furnaces and baseboards.

Switching from fuel oil to a heat pump will save you about $950 per year. And switching from propane will save you about $855 per year. That’s because both fuel oil and propane are expensive ways to heat a home (and subject to huge price swings).

Unfortunately switching to a heat pump from natural gas doesn’t save much (~$100-200 per year). But natural gas is both unhealthy and bad for the environment so homeowners who are able to make the switch should still consider it.

How much does a heat pump cost?

Installing a heat pump can cost anywhere from $2,500-15,000. But the average homeowner can expect to pay about $10,000. Given that many homeowners can save $1,000+ per year, that makes heat pumps an even better investment than solar.

In this section we’ll break down what impacts the cost most and how you can get a more precise estimate for your home.

The cost of your heat pump will depend on the following factors:

Your current heating and cooling equipment

The system you currently use to heat and cool your home has a big impact on the cost. Why? Because a contractor is going to install a system that makes the most sense based on your home’s architecture, access to electricity, and other unique characteristics.

For example if you currently use a furnace to heat your home then you already have ducts. That makes an air source heat pump easier to install. If you currently use baseboard heaters you probably don’t have ducts, so a ductless heat pump is a better option. And those two systems cost very different amounts.

As mentioned above, in August 2021, we did an analysis of data from the National Renewable Energy Laboratory (NREL) data in order to understand the average upfront cost based on a homeowner’s current heating equipment. Here’s what we found:

Current heating equipmentAverage upfront cost
Natural gas furnace$12,000
Electric furnace$10,618
Propane furnace$12,487
Baseboard heaters$8,393
Fuel oil boiler$9,541
Fuel oil furnace$14,525
Natural gas boiler$10,493

Your home’s square footage

The bigger your home, the more you’ll pay for a heat pump. That’s because heat pumps are sized based on how many British Thermal Units (BTUs) they produce. And the more rooms and space you need to heat and cool the more BTUs and tons of heating and cooling capacity you’ll need. You can learn more about sizing a heat pump for your home in this guide: Heat Pump Sizing — What Size Heat Pump Do I Need?

One thing to think about is if you need a heat pump in every room. For example, I live in a moderate climate (Colorado) and we have a mini-split heat pump in our bedroom and office and use it mostly for it’s cooling capability. Installing two units with 12,000 BTUs was a lot cheaper than retrofitting our whole home. And it also uses much less energy.

Your home’s insulation

One factor that is often overlooked is home insulation. If your home leaks a lot of heat in the winter and cool air in the summer then you’ll need a bigger heat pump. And as we covered above, bigger systems cost more money. (See: our BTUs to tons guide for more)

That’s why we recommend improving your insulation before you install heat pumps (or solar for that matter). The tighter your home’s insulation, the less energy it will use. And that means lower upfront costs. It also means saving more money.

How much can you reduce your carbon footprint with a heat pump?

We’re climate and sustainability nerds so naturally we wanted to know how impactful it is to switch to a heat pump. As mentioned above, in August 2021, we crunched the numbers using data from the National Renewable Energy Laboratory (NREL). Here’s what we found:

Current heating equipmentAnnual carbon reduction
Natural gas furnace1.1
Electric furnace5.1
Propane furnace1.8
Baseboard heaters7.6
Fuel oil boiler4.0
Fuel oil furnace3.9
Natural gas boiler1.9

This is an unbelievable amount of carbon reductions — especially for an investment that pays itself off. That’s more than 10x more carbon savings than you’ll see installing LED lighting in your home. And it’s 4x more carbon savings than you’ll see with one of our other favorite climate solutions: the trusty heat pump water heater.

For another reference going vegan will cut your carbon footprint by 1 ton per year. Cutting international trip from the US to Europe will cut your carbon footprint by 1 ton. Most people consider those big sacrifices. Switching to a heat pump by comparison is something that takes a bit of time upfront, but afterward its installed it doesn’t change your life in any way. 

Considering that the average heating system lasts 15-30 years, investing in a heat pump is a way to guarantee anywhere from 15 to 228 tons of emissions reductions.

What to consider before switching to a heat pump

How your local climate affects heat pump savings

Heat pumps work best in warm weather, where the temperature is not too extreme, but there are now models of heat pumps that work everywhere from North Dakota to Maine. The amount of saving, however, will not be the same. This is because the colder it gets, the more energy heat pumps require to keep the temperature warm, thus the less money the system will save.

Thus, a good rule of thumb is, if you live in the southern half of the United States (or realistically, anywhere in which temperature rarely goes below 20 degrees Fahrenheit), you will be saving money switching. (In fact, reports are showing that even if you go below 5 degrees Fahrenheit, the system is still superior in terms of efficiency, with a few models working even at -13 degrees Fahrenheit, but we will stay on the safe side).

Here’s how much you can expect to save and pay upfront based on the state you live in:

How insulation affects heat pump savings

As another rule of thumb, the less insulated your home is, the higher capacity heat pump you’ll need. Higher capacity means higher upfront cost.

How do you know if your home is well insulated? The age of a house is a good indicator: modern houses tend to be more well-insulated, so if you are living in an older home that has not been remodeled, you will likely need a bigger heat pump. Check out our home insulation buyer’s guide to learn more.

If your home has low insulation and you live in a cold climate, your best choice might be a hybrid system or dual-source heat pumps. This means your home will be heated by the heat pump most of the time, with the occasional switch to gas or electric furnace when it gets really cold.

Heat pumps are healthier than gas, propane and fuel oil

Fossil fuel heavy heating systems aren’t just inefficient, they are unhealthy, dangerous, and require more maintenance.

Compared to natural gas, propane and fuel oil systems, heating your home with electricity doesn’t carry a risk of gas or carbon monoxide leaks. 

Recent studies have also found a link between rates of asthma and natural gas use in the home. 

And finally, heat pumps require less maintenance than combustion heating systems, which means less repair and maintenance costs.

How to find rebates and incentives for a heat pump

The only downside of a heat pump is its upfront cost. But in many states homeowners can get thousands of dollars in rebates and incentives from their local government and utility.

To see if your state or utility offers rebates go to the DSIRE website and search for your state and filter for residential energy efficiency. Or search Google for “[state] heat pump rebates and incentives.”

For air source heat pump specifically, you can also use the Federal Equipment Tax Credits for up to $300 tax credit.