How Much Money Do Heat Pumps Save?

By Michael Thomas

How Much Money Do Heat Pumps Save?

How to estimate your savings

For most American homeowners, one of the the best ways to save money and energy is to switch to an electric heat pump for space heating and cooling.

Because of the genius way heat pumps work, these heating and cooling machines are anywhere between 2-4x more efficient than traditional furnaces and boilers. But like the cost of a heat pump, the actual amount of savings varies significantly between homes.

In this article we’ll help you estimate how much you can save by switching to a heat pump or mini-split system.

How much can you save?

According to the Department of Energy, some homeowners can save $1,000 per year by switching to a heat pump.

As with other energy upgrades like improving your home insulation, your annual savings will vary though. Here are the factors that impact savings the most:

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. Though, as covered in our heat pump sizing article, you’ll also need a larger system, which costs more upfront.

Your local climate

Heat pumps work in both warm and cold climates. 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 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.

How you currently heat your home

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 how much the average homeowner can save depending on their current heating system:

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 heating 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 baseboard heat.

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 carbon can you cut?

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.

Other things to consider

How your local climate affects heat pump savings

As we covered in another article, heat pumps definitely work in cold climates. One common myth you’ll hear is that they waste money when the temperature drops. In the past this was true, but today’s best cold climate heat pumps work efficiently down to very low temperatures.

And many homeowners living in cold climates currently use fuel oil and propane to heat their home, two very inefficient fuels.

That’s why, somewhat surprisingly, people living in cold states like Maine, Ohio, Pennsylvania, New York and Massachusetts can save a lot of money every year by making the switch.

chart showing heat pump savings by state

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

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.”

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