When we think of heat pump water heaters (HPWHs), our minds might not immediately leap to The Transformers—those sentient robotic beings who shift from one form to another, often merging their unique abilities to form an unstoppable force. In the world of Transformers, unity is the key. If you haven’t interacted with the expansive collection of films, comics, and memorabilia, the story is this—individual alien robots that transform into automobiles have come together to save Earth from an impending doom. This rag-tag group of protagonists brings their own strengths together (i.e., strategy, field experience, support, and the occasional silly-goose energy) to become a more formidable force to overcome challenges and transform the mindset of their kind.
Much like The Transformers, the future of HPWHs relies on the collaboration of distinct sectors that must align for market adoption to succeed. Key sectors leading the way in HPWH adoption— policy, payments, programming, promotion, and product innovation—must unite to unlock the full potential of HPWHs, transforming themselves and, therefore, the market.
The Dark Side of the Moon: A Low, But Steadily Rising, HPWH Adoption Rate
Water heating accounts for 16%-30% of all energy use in U.S. households, and in larger multi-family buildings, water heating is the largest energy end-use, surpassing space heating and cooling. Diving a little deeper into residential water heating, there are more than 123 million existing residential water heaters in the United States, and more than half (53.6%) use natural gas or other fossil fuels to heat water. These gas or fossil fuel water heaters produce local pollution from the on-site combustion of fossil fuels. Such pollutants include particulate matter, nitrous oxide (NOx), sulfur oxides (SOx), formaldehyde, and other criteria and unregulated air pollutants. These pollutants impact outdoor air quality and may present indoor hazards when equipment is not properly vented to the outdoors.
HPWHs offer a compelling alternative to traditional water heaters. Usually, the pollution from gas water heaters is vented to the outside and creates significant outdoor pollution. HPWHs avoid those emissions since they run on electricity, not natural gas. Furthermore, by transferring heat from the air into water rather than generating heat directly, HPWHs are significantly more energy efficient. Lastly, compared to HPWHs, fossil fuel heaters are highly inefficient, costing homes and businesses up to 3X more. According to the U.S. Department of Energy, households can save hundreds of dollars annually on energy bills by using a HPWH. Significantly moved by these benefits, municipalities, like the Bay Area, are set to end the sale of gas water heaters and furnaces starting in 2027.
Still, despite their environmental benefits and energy efficiency, HPWH adoption remains low at 3% adoption nationally. The barriers to widespread adoption are significant: high upfront costs, lack of consumer awareness, and fragmentation within the industry. Compounding this, approximately 85% of water heaters are replaced during an emergency, such as when the existing unit breaks down unexpectedly. This emergency-replacement scenario often leads consumers to opt for quick, familiar, and seemingly cheaper solutions, sidelining more energy-efficient alternatives like HPWHs.
The market also suffers from industry fragmentation. Various stakeholders—policymakers, manufacturers, utilities, and installers—often work in silos, making it harder to scale HPWH adoption nationwide. These barriers highlight the need for collaboration across sectors. Just as The Transformers combine to form a stronger force, the HPWH industry must bring policy, programming, financing, promotion, and product innovation together to drive market transformation.
With all this said, it would seem like the climb from 3% to 100% is steep, but I must tell you, fellow transformer, that within the past five years, HPWH adoption has started to soar thanks to efforts from organizations like ENERGY STAR, Advanced Water Heating Initiative (AWHI), and hundreds of partners. With concerted efforts across multiple sectors, driven by recent policy developments, HPWHs are set to steadily grow in market share and become as ubiquitous as electric resistance and gas water heaters.
Five Key Industry Sectors—Like Transformers, They Must Combine
Five key sectors must align to achieve widespread HPWH adoption: policy, payments, programming, promotion, and product innovation. Each sector plays a vital role, but true success can only be achieved when all sectors work together—like the Transformers merging into a single powerful entity.
Policy: The Strategic Leader


Policy serves as the strategic leader in transforming the HPWH market. Effective policy sets the long-term vision and creates a framework of regulations and incentives that make HPWH adoption feasible and attractive. The Inflation Reduction Act is a pivotal instrument in this transformation, providing tax credits and financial support to households adopting energy-efficient technologies like HPWHs. Beyond financial incentives, policy can address several quality-of-life issues and create strategies for electrification that consider the national grid.
Efforts to integrate HPWHs into state and local policies in this way are essential to achieving widespread adoption. Key actions needed include mandating or incentivizing HPWHs in building codes and standards, as seen in California’s decarbonization roadmap. However, these initiatives must be coordinated nationally to realize the scale necessary to drive meaningful adoption nationwide. Financial support for building owners, homeowners, and installers is vital to enable this shift.
Payments—Incentives, Rebates and Financing: The Enabler
The ENERGY STAR platform, for instance, connects consumers to rebate programs, including point-of-purchase rebates, and helps consumers identify the most efficient models, retailers, and installers. Furthermore, on-bill financing, where consumers pay for HPWHs through utility bill savings, is one promising financing model that can accelerate the HPWH market transformation. Expanding 0% on-bill financing options nationwide could indeed be a game-changer for increasing HPWH adoption. Several utilities offer these programs, allowing homeowners to finance energy-efficient upgrades, including HPWHs, without the burden of upfront costs. Instead, consumers pay off the balance over time through their utility bills, making the switch to HPWHs more accessible and affordable.
For example, EnergizeCT offers a 0% interest microloan for customers to finance energy-efficient home improvements, including HPWHs, with loan amounts up to $3,000. Similarly, South Jersey Gas provides up to $15,000 in 0% financing for water heating equipment, making it easier for residents to spread the costs over time while upgrading to more efficient systems.
Payment systems reduce the financial barriers to adopting HPWHs and scaling them nationwide could significantly impact adoption rates. If similar financing models were made available by utilities across the country, more consumers could take advantage of HPWHs without the barrier of high upfront costs. Expanding on-bill financing also helps utilities reach energy efficiency goals while allowing customers to manage payments within their existing utility bill structure.
Programming: The Operations Specialist
Such programs include the Made-in-America Grid-Integrated Commercial (MAGIC) Central Heat Pump Water Heater project, a 3-year Department of Energy pilot that started in March 2024. MAGIC aims to accelerate the adoption of American-made central heat pump water heaters (CHPWHs), focusing on affordable multi-family housing in key cities like Sacramento, New York City, Chicago, and throughout the Pacific Northwest. In partnership with AWHI, the MAGIC project is validating plug-and-play CHPWH systems through state-of-the-art lab testing and field demonstrations, intending to make these systems more commercially available and reduce customer costs.
As discussed earlier, for residential homeowners, the high upfront costs of HPWHs, supply chain issues, and the lack of installers frequently causes building and homeowners to revert to conventional water heaters in moments of urgency. In these situations, highly successful water heater leasing programs are ready to support residents in need.
Moving forward, increased capacity for installer training programs must be prioritized. HPWH technology differs from conventional water heaters, and without sufficient training, installers may not recommend HPWHs to homeowners. Ensuring the workforce is adequately trained to install and service these units is essential for sustaining long-term growth. Getting us there means getting the word out. That’s where promotion comes in.
Promotion: The Voice of the Market
National promotional campaigns are needed to raise the profile of HPWHs, similar to the efforts around electric vehicles and solar panels. The importance of business-to-business-to-consumer (B2B2C) relationships cannot be overstated. ENERGY STAR’s resources offer valuable tools for consumer education, but a broader marketing strategy is necessary.
Tools, trainings, and resources proving that HPWH adoption is successful and feasible need to become more publicly available. Industry collaboration events, like the virtual “Heat Pump Water Heater Day,” led by AWHI, are vital in fostering communication among professionals and promoting adoption strategies. Meanwhile, installers—often recommending systems to homeowners—must be incentivized to promote HPWHs over conventional systems. Lastly, ongoing outreach support is vital to help contractors see the value and pitch the customer.
Product Innovation: The Vanguard
In the residential space, innovations like noise reduction, sensor technology for real-time problem detection, and remote monitoring will make HPWHs even more attractive to homeowners over time. A prime example of this innovation is the AWHI 120-Volt(V) Field Study, which explores the potential of 120V HPWHs to replace conventional water heaters in homes that lack access to 240V outlets. These 120V units offer a plug-and-play solution, simplifying installation, reducing costs, and making HPWHs more accessible, particularly in older homes and underserved markets.
These innovations not only enhance the functionality of HPWHs but also address consumer concerns, making the product more accessible and appealing.
Combining Forces—A Transformative Future for HPWHs
While each sector has an important role to play, it’s only through alignment and collaboration that HPWHs can achieve their full potential in the marketplace. Much like The Transformers ability to combine into a more powerful force, our key sectors must unite to drive real change.
Fragmentation within the industry remains a challenge that we, Market Transformers, must overcome. However, overcome we shall! Coordinated efforts across different stakeholders—policymakers, utilities, manufacturers, and installers—will move HPWHs to the scale needed to decarbonize water heating, reduce consumer costs, and build trust.
Lessons from The Transformers are a valuable reminder: combination and transformation require time, sustained effort, and collaboration. Following in the footsteps of the Inflation Reduction Act and other reforms that came before it, many organizations have laid the groundwork for the transformation of the HPWH marketshare. Still, we must continue to unite the entire industry to work together toward our common goals. The HPWH market must unite the strengths of different sectors—policy, programming, payments/financing, promotion, and product innovation—to create a more powerful force capable of driving widespread adoption. Only when these sectors align can the HPWH market truly transform.
Ultimately, by fostering collaboration across sectors and scaling programs, financing models, and promotional efforts, the industry can ensure that HPWHs aren’t just the technology of tomorrow but the standard for water heating today..
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