A picture of an old regular hot water heater on the left, and a new hybrid heat pump hot water heater on the right. There is a red X by the old one, and a green check next to the new one, indicating the new one is better for energy efficiency.

Photo by Jess Zoerb on Unsplash

Making the switch to a hybrid water heater can be a tough decision. It requires a significant upfront investment. It can seem difficult to justify. However, hybrid water heaters have a great return on investment.

Hybrid water heaters (also called heat pump water heaters) are a larger upfront investment than their electric counterparts. But they have a longer lifespan and can save a standard household up to $3,500 in electric bills over time. Additionally, there are a wide variety of rebates and tax credits that can reduce the initial cost of the hybrid water heater.

This article will detail the cost savings, from rebates and tax credits to utility bill savings. We’ll also tell you why it is beneficial for you to switch now.

Cost Savings For Hybrid Water Heaters

There is a plethora of different ways to save money on hybrid water heaters. From rebates and tax credits to long-term energy savings, you can save a lot of money off the upfront cost of a hybrid water heater. Better yet, in the long run, you can also earn back all of the money you spent on it.

What Are Hybrid Water Heaters?

The hybrid hot water heater is a more energy-efficient water heater that has come onto the market. They increase sustainability while decreasing energy costs by utilizing heat from the environment to help heat the water instead of solely relying on electricity. They work best in warmer climates where they can be effective all year round.

By using the heat of the natural environment instead of electricity, hybrid water heaters can decrease the amount of electricity you use to heat water by up to 63%. Not only does this decrease your energy costs, but it also reduces the impact your water heater has on the environment.

Many of the savings revolve around the Uniform Energy Factor (UEF) of the unit. The UEF is a standardized rating that is given to appliances to determine how energy efficient they are. The higher the UEF, the more energy efficient the unit is. Because of this standard, many rebates and tax incentives base their rates on the UEF.

Due to this being a relatively new technology, and the more complex mechanics needed for the water heater, they are generally more expensive. Despite being a larger investment upfront, heat pump water heaters have a great return on investment, a longer lifespan than standard electric hot water heaters, and a lot of different rebates and tax credits.

Return On Investment

One of the best cost savings for a hybrid water heater is simply the return on investment. Due to the significant decrease in electricity used and subsequent energy savings, it is possible for the hybrid water to pay for itself well before the end of its lifespan.

The average hybrid water heater costs between $1200 and $3500 whereas the average 30-gallon electric water heater costs between $200 and $900. Even though the hybrid water heaters cost more, they do have a longer lifespan, about 13 – 15 years (compared to a standard electric water heater’s 9 – 12 years). Additionally, as mentioned above, over the lifetime of a hybrid heat pump, the estimated energy savings is about $3,500–equal to or over the initial cost of the water heater.

A picture of two Energy Guide labels.
These are Energy Guide labels from 50 gallon hot water heaters, ones that you’ll find in Home Depot or Lowes in stock. The one on the left is your regular traditional one, and the one on the right is a hybrid heat pump. While the one on the right will be more expensive, you save literally over $300 per year. And the hybrid usually comes with a 10 year warranty.


Rebates are another huge way to save money on hybrid water heaters. They can vary in worth depending on where you live and the company you purchase the water heater from. Most are worth several hundred dollars, which is a fairly significant portion of the cost of the water heater.

Rebates are typically applied after purchase, so you will have to front the initial cost of the water heater before receiving the applicable rebate. These rebates are a huge incentive to switch, since they can cover up to half of the cost of the unit in some cases.

A lot of rebates are time-sensitive, which is a huge reason to purchase a hybrid water heater sooner rather than later.

Below is a table of the major manufacturers and the rebates they offer. The links in the table lead you directly to their rebate center websites so you can easily search the best options for your home.

Manufacturer NameAverage RebateRebate RangeAdditional Information
AO Smith$300$50 – $550Depends on location and unit purchased
Applies to residential and commercial properties
Rheem$350Up to $600Dependent on unit and location
Both residential and commercial owners qualify
Bradford White$300 Location specific
For residential and commercial properties
EnergyStar$300$300Not a manufacturer
Based on the UEF of the unit
Dependent on location
For residential properties only

Tax Credit

There is also a nice federal tax credit that can be applied to your hybrid hot water heater purchase. The tax credit is $300 which covers a meaningful portion of the cost of the hybrid hot water heater.

In order to get the tax credit, there are several criteria that must be met:

  • Must be in the primary residence
  • Residence must be existing
  • Unit must have a UEF of 2.2 or higher
  • Must be installed between December 31, 2017 and January 1, 2022
Picture of sand running through an hourglass on a white tabletop in front of a white brick background.
Time’s running out to get the federal tax credit for a new heat pump water heater. Photo by NeONBRAND on Unsplash

This tax credit is a major reason to act fast in purchasing a hybrid hot water heater. The tax credit only applies until the end of this year. If your water heater is near the end of its life and you are considering replacing it with a hybrid water heater, you might want to look into purchasing and installing a hybrid water heater in the next few months.

In the past, the government has extended the tax credit. For instance, it was originally supposed to end on January 1, 2021, but it was extended for one year. While it may happen again, there is no guarantee. The safest option if you want the tax credit would be to install the water heater before January 1, 2022.

Here’s the form to apply for the tax credit.

Total Savings

The best part about these savings is you can layer them on top of each other. If you have a residential property and purchase a mid-range hybrid water heater for $2,000, you can earn quite a bit of money back if it has a good UEF. You can get the $300 tax credit if it is purchased and installed by January 1, 2022. Additionally, you could qualify for both a manufacturer’s rebate (average of $300) and the $300 EnergyStar rebate. Combined, these almost cut the initial cost of the unit in half.

While you should see a decrease in cost on your electric bill immediately, it will take a couple of years to earn back the total amount of money spent. However, with an average savings of $3,500 over the course of a unit’s lifetime, this will eventually cover the initial cost of the hybrid water heater.


The key to all of the rebates and credits you can get by purchasing a hybrid water heater is to do it in a timely manner. Rebates and tax credits typically have deadlines that the unit must be purchased and/or installed by. It is important to be aware of the potential deadlines so you can get the maximum amount of money back when purchasing a unit.

One important number to look for when purchasing a hybrid water heater is the UEF. This number is used for the tax credit and is the basis for many of the rebates as well. The higher the number, the more efficient the unit, and the more likely you will receive more money back. At the very least, it needs to hit 2.2 to qualify for the tax credit.

Not only is it great to purchase the hybrid water heater now because of the rebate and tax incentives, but now that it’s summer here in the U.S., the heater can really utilize the weather to save energy and money.

The long-term cost benefits of hybrid water heaters really outweigh the initial cost. Despite being a fairly large upfront investment, the rebates, tax credits, and utility bill savings more than make up for the initial price. It’s worth acting now to take advantage of the incentives!

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