Heat pump water heaters use electricity to move heat from one place to another instead of generating heat directly. To heat water for homes, heat pump water heaters work like refrigerators in reverse.

Heat pump water heaters can be purchased as integral units with built-in water storage tanks or as add-ons that can be retrofitted to an existing waterheater tank.

These systems have a high initial cost. They also require installation in locations that remain in the 40° to 90°F (4.4° to 32.2°C) range year-round and contain at least 1000 cubic feet (28.3 cubic meters) of air space around the water heaters.

To operate most efficiently, they should be placed in areas having excess heat, such as furnace rooms.

They will not work well in a cold space.