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 and can seem difficult to justify.

However, hybrid water heaters have a great return on investment.

Hybrid water heaters (heat pump water heaters) are a larger upfront investment than their electric counterparts. But they have a longer lifespan and can save you money on utility bills. There are also rebates and tax credits available 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 to switch now.

Cost Savings For Hybrid Water Heaters

There are many 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 Is a Hybrid Water Heater?

A picture of a hybrid water heater on the left hand side with the right hand side showing a graph indicating increased efficiency and a woman with her thumbs up and smiling because she has set her hot water heater to the most energy saving water heater temperature.
Hybrid hot water heaters use heat pump technology to transfer heat from the ambient air in your home to the water in your hot water tank. They also have a heating element that can be used during periods of high demand.

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 and 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 savings revolve around the unit’s Uniform Energy Factor (UEF). The UEF is a standardized rating given to appliances to determine their energy efficiency.

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.

Hybrid Hot Water Heater Return On Investment

The return on investment from reduced electricity bills is one of the best cost savings for a hybrid water heater. Due to the significant decrease in electricity used and subsequent energy savings, a hybrid water heater can 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 hybrid water heaters cost more, they 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 over $3,500–equal to or over the initial cost of the water heater.

According to the US Government EnergyGuide labels shown below, a hybrid water heater could save you over $300 per year, every year of its working life.

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

Hybrid Water Heater Rebates

Paper money scattered untidily with the words "tax rebate" lain on top written on torn paper.
Rebates on energy-efficient hybrid hot water heaters can help to mitigate the impact of their higher purchase price on your wallet.

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. However, 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.

Many 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 for the best options for your home.

Manufacturer NameAverage RebateRebate RangeAdditional Information
AO Smith$300$50 – $550Depends on the location and unit purchased.
This applies to residential and commercial properties.
Rheem$350Up to $600Dependent on the 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 Credits Can Reduce Hybrid Water Heater Cost

A nice federal tax credit can also 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.

Several criteria must be met to get the tax credit:

  • Must be in the primary residence.
  • Residence must exist.
  • The 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 purchase a hybrid hot water heater fast. 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 purchase and install it 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.

UPDATE NOVEMBER 2022: According to EnergyStar, Non-Business Energy Property Tax Credits have been extended. They apply retroactively to certain non-solar water heaters, which include electric heat pumps (hybrid) and other units deemed to be energy efficient that are put into service up til December 31, 2022.

Hybrid Water Heater Total Savings

Photo of the heat pump water heater in the corner of the garage of the First Attainable Home
Hybrid water heater savings can be stacked, so they all count toward the cost reduction. Not bad for this unassuming cylinder installed in your garage.

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 before the deadline (now December 2022, according to EnergyStar).

Additionally, you could qualify for 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 decreased 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 saving of $3,500 over the course of a unit’s lifetime, this will eventually cover the initial cost of the hybrid water heater.

Are Hybrid Water Heaters Worth It? – Our Conclusion

The key to all of the rebates and credits you can get by purchasing a hybrid water heater is to do it promptly.

Rebates and tax credits typically have deadlines by which the unit must be purchased and/or installed. Therefore, it is important to know the potential deadlines to 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.

The higher the number, the more efficient the unit, and you will likely receive more money back. At the very least, it must 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 before winter gets really cold here in the US, the heater can utilize the weather to save energy and money.

The long-term cost benefits of hybrid water heaters outweigh the initial cost.

Despite a new hybrid water heater being a fairly large upfront investment, the rebates, tax credits, and utility bill savings more than make up for it.

It’s worth acting now to take advantage of the incentives!

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