Heat pump cost of ownership: Who saves money with clean heating and cooling?

There’s no doubt that a heat pump can save loads of energy compared to any other heating system. But can it actually save you any cash?

Like any other big purchase, it depends. Installing a heat pump often costs less than simply swapping in a new AC and furnace or boiler—but sometimes it costs more.

Your total energy use (and carbon footprint) will drop with a heat pump, but your energy bills might be a different story. 

Recent studies estimate that a heat pump will beat the total cost of ownership of other types of HVAC in somewhere between one-third and one-half of all households in the US. 

The math all depends on individual circumstances: Your home, your climate, your local energy prices and policies, what kind of heating fuel you’d be replacing, and the HVAC contractor. 

So we don’t have a simple answer, but we do have some rules of thumb, and some tips on how to calculate the total cost of ownership for yourself.

Heat pumps could save you some cash, either on the cost of installation, or the long-term cost of energy, or both. Here’s where and when they tend to win. 

In warm climates

If it rarely drops below freezing where you live, a heat pump is almost a no-brainer. The tech can easily handle all your heating and cooling needs. You can keep a backup heater if you’d like, but you might never use it.

Heat pumps have two key advantages in these climates:

• Since you won’t need a pricey system that can handle harsh weather, the cost of the heat pump equipment and installation can be relatively inexpensive—barely more than a central AC alone. There are still good reasons to pay a little extra for a high-performance heat pump, and those upgraded models don’t always cost that much extra. But it’s not strictly necessary.

• All heat pumps are super-efficient in mild weather, and much less expensive to run than any other type of heating when it’s above 40 degrees Fahrenheit (sometimes even colder than that, depending on local energy prices). High-performance heat pumps can save big bucks on your cooling bills, too.

States where heat pumps are a no-brainer

Source: EIA electric and gas prices for Nov. 2023. Assumes heat pump winter sCOP 2.5, furnace 80% AFUE.

It just so happens that a lot of states with mild winters also have relatively cheap electricity. So all told, it’s no surprise that the states with the most heat pumps are mostly in the South.

Heat pumps vs. propane, “regular” electric heat, and oil

An all-climate heat pump almost always costs much less to operate over a heating season than propane or “regular” electric resistance. It’ll usually beat or at least break even with heating oil, too. There are tons of testimonials across homeowner forums and major media from regular people who have saved big bucks by making this switch. 

The expected savings depend on two factors:

• System efficiency. Studies routinely find that all-climate heat pumps run at about 250% seasonal efficiency (sCOP 2.5), though anything between 200% and 300% is common. The higher that number, the more likely it is to beat propane or oil.

• Local energy prices. This doesn’t change the math compared to “regular” electric heat, because it’s the same power source. But a heat pump’s advantage over propane or oil varies depending on the price, which varies from week to week and place to place. A kWh of electricity needs to be less than 8% of the cost of a gallon of oil, and less than 12% of a gallon of propane. (A gallon of oil, believe it or not, can produce more heat than a gallon of propane.)

Source: EIA data, Jan. 2024 oil and propane prices, Nov. 2023 electricity prices. Heat pump sCOP 2.5, oil and propane 80% AFUE.

So even if the heat pump doesn’t quite win on upfront installation costs, it could win in the long run through savings on utility bills. 

If you want built-in cooling, but don’t have ductwork 

Forget about the heat: If your home has no central ductwork, a ductless mini-split heat pump tends to be the least-expensive and least-invasive way to install permanent AC. 

That’s not to say a whole-house ductless setup is cheap. The typical price is nearly $17,000, based on quotes uploaded to the EnergySage Marketplace. It’s still probably less than retrofitting all-new ductwork ($4,000 - $10,000) and a central air conditioner (likely $12,000 - $15,000). We cover the specifics in another article.

Hybrid heat pump systems

You can call it backup heat, dual fuel, or hybrid heating—it’s all the same basic idea. A heat pump handles all your cooling and some of your heating. A second heating system (furnace, boiler, electric strips, etc.) handles the rest, typically when the outdoor temps drop below a certain threshold. 

Before cold-climate heat pumps, this kind of setup it was a must-have: Single-stage models didn’t (and still don’t) work all that well below 30 Fahrenheit. 

With today’s heat pumps, you don’t need a hybrid setup to stay warm in the winter. But it gives some people peace of mind—and it could even save you some money, at least in some situations.

It’s hard to beat a heat pump’s efficiency in mild weather, but the advantage disappears as the temperature drops. There’s a crossover point where gas or even oil heat becomes more cost effective, and a hybrid system can automatically switch your heating source once that threshold is reached.

A hybrid could also help you save on the cost of installation, if you only need to replace your AC (but the heater still works), or if it lets you avoid pricey upgrades to your ductwork, electrical, and / or insulation. Some homes need one or more of those updates for a heat pump to work well.

Going solar

With solar power, it could actually be free to run a heat pump, as long as you have the space and budget to install the extra solar panels you'd need to power one. We’ve found that on average, you’ll probably need between 9 to 13 additional panels to power a heat pump, but it really depends.

The math works best if you live somewhere where grid electricity is expensive, with pro-solar billing policies. Even if you can only offset some of the heat pump’s energy use, it could still be a money-saver compared to traditional HVAC.

In cold climates, if your home already has a natural gas connection, and you’re paying regular rates for electricity from the grid, a heat pump will usually cost more to run, and often more to install, than a new gas furnace or boiler. This tends to be true even after incentives.

The wholesale equipment cost of a cold-climate heat pump is about triple the cost of a basic furnace and double the cost of a boiler. Installing a heat pump also takes more time and a different set of skills than traditional heating equipment, so cost of labor is likely to be higher, too.

And while heat pumps are phenomenally energy-efficient from an engineering standpoint, they’re not efficient enough to overcome the super-low price of natural gas in some parts of the country. For a heat pump to win on operating costs, the price per kWh of electricity needs to be 10% or less of the price per therm of gas. (More on heat pump efficiency estimates here.)

That said, there are some nuances here:

• It makes sense to get some kind of heat pump instead of a cooling-only central AC. In cooling mode, a heat pump works exactly the same way as a central AC. Most central ACs actually come in a heat pump variant, and they only tend to cost a few hundred dollars more than their cooling-only cousins—and that difference can be offset by the heat pump tax credit and other incentives. Most of those kinds of heat pumps are simple, single-speed models that won’t work in the winter, but you can install one as part of a hybrid setup. And there are plenty of cold-climate heat pumps that beat big-name ACs, on price, too. 

• A cold-climate heat pump could still cost less than a new central AC and furnace combined. Check out some of the wholesale costs below. This isn’t always reflected in real-world installation costs even after incentives (and whole-house ductless systems are a different animal), but if you shop around aggressively, you should be able to find someone who can do it for a reasonable price.

Wholesale equipment prices for whole-house heating and cooling systems

• You will save on your cooling bills. The SEER ratings for inverter heat pumps (the kinds that qualify for incentives) are much higher than the kinds of central ACs most people have. A heat pump with a 16 SEER2 rating uses about 70% less energy than an old 10 SEER model. In some situations, it could be enough savings to offset the extra heating bills.

• You might save vs. gas heating, if your old system was very inefficient. Some researchers have pointed out to us that if you’re replacing an old, barely maintained HVAC system, and the cost of electricity isn’t sky-high compared to gas, then it’s possible that a heat pump could actually cost less to operate than your old system. It’s even more likely if duct maintenance or weatherization upgrades are part of your heat pump install. This isn’t to say that you’d save on utilities compared to a brand-new high-efficiency furnace, but there’s at least a chance that a heat pump won’t make your heating bill spike.

• Changes in heat pump tech and energy prices could change the math. If cheap renewable energy brings the cost of electricity down compared to natural gas, heat pumps will be a better deal for more people. Utility companies could introduce new rate plans that lower costs for heat pump owners. Typical heat pump efficiency could increase through better tech or better installation practices. Installation prices could drop with more competition—or at least rise more slowly than other categories of HVAC. All of those can add up to tilt more people toward heat pumps.

If heat pump paybacks were easy to calculate, every decarbonization advocate and HVAC marketing department in the US would be shouting it from the rooftops. It turns out that it’s actually really difficult—and that’s why this article includes a bunch of guidelines and examples, instead of a calculator. There are just too many unknowns with installation costs, infrastructure upgrades, and constantly shifting energy prices.

All that said, here’s how you kind of, sort of try to estimate the potential return on investment.

1. Estimate the cost of installation

You can use our guides to heat pump costs and mini-split costs to get a sense of what it could be for a home like yours. Bonus points if you can estimate what heat pump size you’ll need, because that affects the cost a bit as well. 

So how does the cost of a heat pump installation compare to other kinds of HVAC? There’s a dearth of reliable, trustworthy data out there. Wholesale prices tell you part of the story, but labor costs are a different matter.

We’ve heard plenty of anecdotes, and they tend to be in a similar ballpark across all kinds of HVAC—roughly between $10,000 and $17,000. An average heat pump is closer to the higher end of that estimate. And there are tons of nuances and exceptions. Whole-house mini splits are probably going to cost more than a simple boiler swap, for example, but less than a boiler swap plus a new central AC build-out. If you need to upgrade your ducts, electrical, or insulation to support a full heat pump conversion, that’ll drive up the cost relative to staying on a fossil fuel system, too.  

So, you’ll either have to get competing quotes to see how they compare to heat pumps—or just rely on some rules of thumb. 

Estimate the cost of operation

There are a bunch of ways to try to do this, and none are perfectly precise, but we’ll share a couple that we think are pretty good.

A quick reference on EnergySage: Check our guide to heat pump energy use, based on our analysis of data from the Department of Energy. It lets you look at how much energy a house like yours in a climate like yours tends to use for heating and cooling. You can look at general estimates, or per-square-foot estimates.

A more detailed calculator: There are quite a few out there, but for heating our favorite is from  Efficiency Maine, and for cooling it’s this simple SEER Energy Savings page. You’ll need a decent estimate for how much you spent on heating and cooling over the past year or three, the efficiency ratings for your current HVAC equipment, and how much you’re currently paying for electricity, and whatever other fuel you use for heating.

The cooling calculator is simple: You punch in the new SEER2 rating (probably around 16, for an inverter-driven model) and the SEER rating for your old system (10 or 13 are both common, depending on how old they are). It’ll tell you a savings percentage, and you can just divide that into whatever you typically spend on cooling.

One catch here: Some high-efficiency heat pumps aren’t so great at dehumidification, so it’s possible during the fall and spring that you’ll want to run the heat pump on Dry mode (if it has one), or use a supplemental dehumidifier. Those will both eat away at the predicted savings, but you’ll still pay a lot less overall. And this mostly matters in the South, where the humidity is brutal for long stretches of the year. It doesn’t matter at all out West.

The heating calculator is basically the same idea, though it lets you tinker with the equipment efficiencies, ductwork leakage, and more. The trickiest part is separating out your actual heating costs from the background costs for hot water, cooking, and clothes drying, if they all use the same fuel as your heater.

If the math looks right for heat pumps and you're ready to jump in, the EnergySage Marketplace makes it easy to get quotes from experienced, vetted heat pump contractors (in select areas).

When you sign-up (free of charge!) for the marketplace, we'll connect you with an EnergySage Energy Advisor—one of our in-house heat pump experts who can help guide you through the installation process.

If the economics don't make a ton of sense for a heat pump right now, the EnergySage Marketplace can help you find another home electrification project to check off your list. If the high cost of electricity put you off of heat pumps, you might find that rooftop solar makes a ton of sense. We can help you find a top-quality solar installer in your area.