Planet Earth

Climate-Friendly Water Heating

A San Mateo County Guide

How much will it cost?

Installation costs for a heat pump water heater are usually about $6-7,000, and you can pay for most of that with rebates of up to $4,000 and a 30% tax credit. Because the new water heater will be more efficient, you’ll save about $170 per year in utility bills [1]. Better still, you'll eliminate the equivalent of 6,600 pounds of CO2, the total annual emissions of 23 Ugandans!

Most heat pump water heaters cost from $1,900-$3,000, and you’ll probably need a contractor to install it. Recent data from real householders in San Mateo in a Peninsula Clean Energy spreadsheet showed a median cost of about $6,500, including any electrical costs.

The amazing news is that (as of Jan 2023) rebates will pay for almost all of this. Peninsula Clean Energy (PCE) will give you $3,000 and  BayREN will give you another $1,000 if you use one of their approved contractors. You can also get a 30% tax credit under the Inflation Reduction Act, which will take 30% off any remaining cost.

So, a $6,500 install drops to $2,500 after rebates, and to $1,750 after the tax credit. You'll save about $2,250 [2] in utility bills over a 15-year lifespan, and you'll also avoid the $2-4,000 replacement cost when your old water heater wears out or floods. So, not only will you slash your emissions, you'll almost certainly save money while doing it and gain peace of mind.

If you live in Redwood City, the city will give you an additional $500 rebate and if you live in Menlo Park or Burlingame, the city will waive the permit cost, which will save a bit more.

Low-Income? IRA may pay your full cost

The Inflation Reduction Act will pay the full cost of energy-efficient upgrades, including heat pump water heaters, if your household income is less than $119,680 and will pay half the cost if your income is below $224,400 (for a 4-person household in San Mateo). See the Rewiring America calculator for more information. They have a limit of $1,750 for water heaters, but $2,500 for rewiring and  $4,000 to upgrade your breaker box.

Interest-Free Loan

If you still don't have enough ready cash to pay for the upgrade, you can now get an interest-free loan from Peninsula Clean Energy, for up to 10 years. The beauty of this is that you pay it back by a surcharge on your utility bill. If you are saving $220 a year on power, then you can borrow $2200 and not pay a penny extra on your bill!

Gas water heaters are meant to last about 10-12 years, less if you don't do regular maintenace. They cost about $2,000-$4,000 to replace in San Mateo county (Home Blue). Let's say an average of $3,000. So if you have an old water heater, then you'll save big time with a heat pump, since your after-rebate costs will almost never be as much as the cost of replacing with a gas heater. You'll also avoid the potential of your old water heater failing, flooding your house and needing an emergency replacement. If your water heater is 6 years old, you'll still effectively save $1,500 extra by upgrading to a heat pump. Plus, heat pumps last a few years longer - I can't find any concrete data, but heat pump warranties are usually 10 years, vs. about 6 years for most gas heaters (and hundreds of dollars to buy a longer warranty), so draw your own conclusions from that!

Extra costs for some houses

One issue that can drive up costs is electricity supply. Most heat pumps run on 220V electricity, so you may need to run a new circuit to supply it (this cost is included in the estimates above). If that maxes out your electrical supply at the breaker panel, it can cost up to a few thousand to upgrade the panel. You can also get rebates for that - PCE will give you $1500 and you can get that 30% tax credit from the IRA, up to $600. Together these would bring a $2500 panel upgrade down to $700. You may also be able to avoid upgrading your panel with smart circuit management, an approach known as a watt diet.

If you need a panel upgrade, consider it an investment, not a cost: California will phase out gas water heaters and furnaces starting in 2030, so you will need more electricity to power their replacements anyhow, and you'll likely want to have electric car charging by that time too, so upgrading while incentives are available makes smart sense. 


[1] $170/year savings is estimated based on San Mateo county numbers and a 4-person 'average' household. You can find our assumptions and calculations here.  You'll save less if you're living on your own and more if you have teenagers that spend forever in the shower...

[2] Your savings will probably increase with time as gas is predicted to become much more expensive (due to less people using it and higher infrastructure costs, plus climate regulations), and electricity will be relatively cheaper. If you have your own solar panels, electricity will be dramatically cheaper than these estimates.


Back to the San Mateo County Guide to Climate-Friendly Water Heating.