Installation costs for a heat pump water heater are usually about $6-7,000, and you can pay for most of that with rebates and tax credits. Because the new water heater will be more efficient, you’ll save about $212 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 people living in Uganda!
Recent data from real householders in San Mateo in a Peninsula Clean Energy spreadsheet showed a median cost of about $6,500, including electrical wiring. The great news is that (as of Dec 2024) rebates will pay for most of this. Peninsula Clean Energy (PCE) will give you $2,500, TECH Clean CA will kick in $1,800 ($1,100 for tanks <55 gal), and Golden State Rebates will give you another $900 ($700 for a tank <45 gal). Plus, you can also get a 30% tax credit for any remaining cost from the Inflation Reduction Act, bringing a $7,000 initial cost down to just $1,260 [2], substantially cheaper than the typical cost of installing a gas water heater (about $2,000-3,000) [3].
| Initial Cost | $7,000 | |
|---|---|---|
| PCE rebate | $2,500 | |
| TECH rebate | $1,800 | |
| Golden State rebate | $900 | |
| Cost after rebates | $1,800 | |
| 30% IRA tax credit | $540 | |
| Net Cost | $1,260 |
You'll also save about $3,180 [4] in utility bills over a 15-year lifespan, and you'll avoid the $2-4,000 gas water heater replacement cost when your old water heater fails, and additional costs if it 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.
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 5 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 $1100 and not pay a penny extra on your bill!
If you rent in an apartment complex (of >4 homes), then tell your landlord about the rebates from the Inflation Reduction Act, called HEERA. which has a budget of $35m to subsidize all kinds of electrification activities.
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 significantly with a heat pump, since your after-rebate costs will typically be less than 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. Plus, heat pumps last quite a bit 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!
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 $1,000 and you can get that 30% tax credit from the IRA, up to $600. 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.
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[1] $212/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] Several other rebates are listed at The Switch is On but the ones above are the best option if you live anywhere in San Mateo county. BayREN rebates are omitted because they are less than the Golden State rebate and you can't combine them.
[3] At the Dec 4 BAAQMD meeting, an average of $3,575 (slide 18) was presented for the full cost to replace a gas water heater with a gas water heater, and $7,071 for the average cost to install a heat pump water heater.
[4] 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. See the Calculations page for more details. If you have your own solar panels, electricity will be dramatically cheaper than these estimates.
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Back to the San Mateo County Guide to Climate-Friendly Water Heating.