'No brainer': Installing a heat pump could bag you thousands in free government cash — everything you need to know before pumping it up this winter

Serah Louis
·6 min read
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'No brainer': Installing a heat pump could bag you thousands in free government cash — everything you need to know before pumping it up this winter
'No brainer': Installing a heat pump could bag you thousands in free government cash — everything you need to know before pumping it up this winter

While the European energy crisis intensifies with Russia’s gas cutoffs, the cost of natural gas and home heating in the U.S. is expected to turn up this winter as well.

The estimated cost of heating a home with natural gas this winter is projected to jump more than 34% from last winter, to $952, reports the National Energy Assistance Directors Association.

In an effort to combat these costs, President Biden’s Inflation Reduction Act introduced several financial incentives to get homeowners to make more energy-efficient upgrades to their homes — in particular offering rebates on heat pumps.

Heat pumps can be anywhere from two and a half times to four times more efficient than electric baseboard heaters, so switching from the baseboard to the heat pump is a “no-brainer,” says Vijay Modi, a professor of mechanical engineering at Columbia University.

But they might not always be the most efficient solution for your wallet. Here’s what you need to know before you pull the trigger on one of these HVAC systems.

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Can heat pumps save you money?

The best cost-comparison for a heat pump is the electric baseboard heater, Modi says. This system also relies on electricity rather than fuel, and can supply and control the heat in individual rooms.

Heat pumps don’t burn fuel either, but use electricity to move warm air in or out of the house. They both heat and cool your home and can significantly cut down on your carbon dioxide emissions.

In comparison, baseboard heaters are much cheaper to install, but tend to cost more in energy use over the long term.

If you’re comparing an electric heat pump to a gas furnace, they’re better for the environment — they can reduce your household carbon dioxide emissions by 38% to 53% — but whether they actually save you money can depend on a few variables.

However, Modi says you need to compare the price of both electricity and gas in your area.

“Right now in New York City I'm paying about, retail price, of $20 per million Btu for gas. The rate I'm paying for electricity is such that it’s the equivalent of $85 per million Btu now.”

Btu, or British thermal units, is the most common unit for comparing energy sources or fuels in the U.S. One Btu roughly amounts to the energy released by burning a match, according to the U.S. Energy Information Administration.

So, if the heat pump is three to four times more efficient compared to the furnace, but electricity ends up being five times more expensive than the cost of gas in your area, then you won’t be saving money with a heat pump.

According to a Consumer Reports survey, members paid an average of $7,791 for a heat pump system compared with $6,870 for a gas furnace — however the price of installing a heat pump can be higher in areas with colder climates.

How does the Inflation Reduction Act help you cut down on costs?

Starting in 2023 through the end of 2032, all homeowners will be eligible for a 30% federal tax credit on the total cost of buying and installing their new heat pump, with a maximum credit of $2,000.

The High-Efficiency Electric Home Rebate Act can help you offset the cost of purchasing a heat pump as well — depending on your income.

In addition to the federal tax credit, you could be eligible for up to $1,750 for a heat pump water heater and $8,000 for a heat pump for space heating if your household income is less than 150% of your state’s median income.

Here’s what that looks like:

  • If your household income is less than 80% of your state’s median household income, then you qualify for the full rebate — meaning if you purchase both the heat pump and heat pump water heater, you could get $9,750 back.

  • If you make between 80% to 150% of your state’s median income, you’re eligible for half of the rebate — so you could get up to $4,875 back.

You might be able to claim some other state-administered rebates associated with making efficiency upgrades to your home when installing your heat pump.

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What homeowners need to know before getting a heat pump

It’s important to speak to more than one provider, get a few quotes and do some research on which brands are most reliable, says Modi.

Switching from gas to electric could also mean more work prepping your home, like upgrading to a higher voltage service to handle the extra strain from using more electrical appliances.

“You can consider upgrading your electricity service to 220V/240V inside your home at one shot, even though you may go electric for space heating, domestic hot water, dryer or cooking progressively.”

Modi especially recommends upgrading your service if your furnaces or boilers have outlasted their lifespan and need replacing anyway.

You should also think about whether your neighborhood is at a higher risk of power outages and plan for what you can do if the power goes out.

“It's one thing to be without electricity for light, it's another thing to not have heat,” he adds.

A 2021 study shows nearly a third of U.S. houses would “benefit economically” from installing a heat pump — the benefits depend on your electric grid, climate, prior heating fuel and housing characteristics.

For example, it would be more cost-effective for most homes to switch from propane or the baseboard as a heating source to the heat pump.

The study finds that switching from natural gas to the heat pump “rarely produces a benefit” — especially in colder climates where they operate at lower efficiency.

However, other sources say that cold-climate and ground-source heat pumps are reliable and effective in cooler regions — despite being more expensive to buy and install compared to other heat pump models.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.