What is a heat pump, and how does it work?

Key points

• Heat pumps work like central air conditioning units but with a reversible cycle, so you can use them to heat and cool your home.
• Heat pumps can be more efficient than furnaces in mild climates.
• Geothermal and water-source heat pumps are expensive but offer high-efficiency heating and cooling in all weather conditions.

You know that an HVAC system will heat and cool your home, but what about a heat pump? And can it save you money on your energy bills? The answer is yes.

Heat pumps are like central air conditioner units that double as heating systems in winter. Thanks to their reversible refrigeration cycle, they can heat and cool your home. They’re extremely efficient because they transfer heat rather than create it, making them a solid option to knock down monthly utility bills, especially if you have an outdated HVAC system.

Understanding how these systems work and how they compare to other options is the first step in deciding if a heat pump is right for your home. Ultimately, you should speak with an experienced HVAC provider to outfit your home with the best equipment for your climate and house size.

How does a heat pump heat and cool your home?

A heat pump works similarly to an air conditioner, but the process is reversible, so it can provide you with heat in the winter and cool air in the summer.

The core operating principle of a heat pump is the refrigeration cycle, which, despite its name, is responsible for transferring both warm and cool air into your living space.

“Heat pumps extract heat from an outdoor source [either the air or underground] and use it to amplify and transfer heat to a home,” said Donovan Gordon, director of Clean Heating & Cooling at the New York State Energy Research & Development Authority (NYSERDA). “They flow in reverse and use a refrigerant to also provide cooling by drawing heat out of the home.” 

Let’s discuss the refrigeration cycle as it applies to a heat pump in heating mode:

1. Evaporation: The liquid refrigerant absorbs heat from the outside air and evaporates it, creating gas.
2. Compression: The refrigerant passes through a compressor, where it is squeezed to increase its temperature.
3. Condensation: The hot refrigerant is then passed through the coils in a heat exchanger, transferring the heat to the indoor air.
4. Expansion: This step is the opposite of the compression step. The refrigerant is allowed to expand. It cools off and turns back into a liquid. After this step, the refrigerant is ready to reenter the evaporation step and start the cycle again.

In cooling mode, the evaporation step extracts heat from the indoor air instead of the outdoor air. Then, in the condensation step, the heat exchanger transfers heat to the outdoor air, removing it from your home.

Heat pump vs. AC

Heat pumps are similar to central air conditioners in that both types of HVAC systems use the refrigeration cycle. The main difference is that heat pumps can swap the roles of the evaporator and condenser to change between heating mode and cooling mode.

Heat pumps are more versatile and efficient than central ACs. “Heat pumps require electricity to run, but they deliver more energy than they use by concentrating and moving heat rather than generating it directly,” Gordon said.

The only downsides to heat pumps are that they’re more expensive than air conditioners and wear faster because they operate in all seasons.

Heat pump vs. furnace

Furnaces burn fuel to generate heat instead of using the refrigeration cycle. Creating heat takes more energy than transferring it. Heat pumps can operate at 400% efficiency compared to a heating unit that uses fossil fuel combustion or electric resistance. 

The most common types of fuel used in furnaces are natural gas, oil and propane. The type of fuel your furnace uses depends on its design and the fuel suited for your home. Furnaces are less efficient than heat pumps by about 25%, but they work better in cold climates since heat pumps struggle to extract heat from cold air. 

Heat pumps are one-and-a-half to two times more expensive than furnaces. However, you also need to purchase a separate cooling system if you heat your home with a furnace, which helps close the price gap.

The operating costs of heat pumps and furnaces can be similar, but the option that’s better for you depends on how the price of electricity compares to the price of the furnace fuel source you use.

What are the different types of heat pumps?

There are three main types of heat pumps: air-source, ground-source and water-source. Air-source heat pumps are the most common type of heat pump used for residential properties. They’re more accessible and tend to be more affordable than ground-source and water-source heat pumps.

Air source

Air-source heat pumps work using the refrigeration cycle mentioned above. They extract heat from the air outside your home — rather than the ground or a water source, as geothermal and water-source heat pumps do — to provide heat in the winter and extract heat from your inside air to cool your home in the summer.

This type of heat pump is the best choice for most homeowners because they don’t require large-scale excavation or proximity to a natural water source, and they are less expensive overall. If you live in a colder climate, however, it might not be the ideal option as air-source heat pumps lose some efficiency in cold weather, especially if the temperature regularly drops below freezing in the winter.

That said, Gordon noted that “newer, advanced technology has made it possible for today’s highly efficient heat pumps to keep homes in all climates comfortable year-round.” Heat pumps are becoming more popular in colder climates, with their most recent data showing that heat pump adoption in New York alone jumped by 37% between 2021 and 2022.

Air-source heat pumps aren’t as efficient as geothermal or dual-source heat pumps, according to the U.S. Department of Energy (DOE), but advances in heat pump technology make them a suitable option in many cases.

Geothermal

Geothermal heat pumps — also called ground-source heat pumps (GSHP) — transfer heat between your home and the ground instead of using air. Instead of exchanging heat with the air outside your home, geothermal pumps use a network of pipes, called a loop, that are buried in the ground to exchange heat with the soil.

These systems pull heat from the ground rather than the air, which means they maintain high efficiency all year long. However, installing a geothermal heat pump is much more involved than an ordinary heat pump due to the excavation for the ground loop.

Water source

Water-source heat pumps are very similar to geothermal pumps. Instead of using the temperature of the ground to heat and cool your home, water-source pumps use a body of water on your property. Of course, that means you need a small lake or pond near your home to make a water-source heat pump a viable option.

These systems are even more expensive than geothermal pumps because the loop needs to withstand the additional wear and tear that comes from water exposure. They also need to be designed and installed carefully to avoid having a detrimental effect on the water source they use, such as causing unexpected temperature changes that can affect the water’s ecosystem. Some municipalities ban or restrict the use of water-source heat pumps for this reason.

Like geothermal systems, water-source heat pumps can work well in all climates.

Ducted vs. ductless

Traditional heat pumps use a series of ducts to move air throughout your home. If you’ve ever had central air conditioning, you are probably familiar with this type of ductwork. Ducted systems work well and give you a lot of flexibility to heat and cool different rooms to different temperatures, but they’re expensive to install if you don’t already have ductwork in your home.

Despite their name, ductless systems use just one small duct to transport air, usually through a single wall, to an indoor unit that serves a portion of your home. The most common type of ductless system — a ductless mini-split — uses an air handler for circulation.

This works well in small rooms but isn’t as effective for heating or cooling large areas. The main benefits of ductless systems are that they’re easier to install and more affordable as they don’t require removing walls and flooring to install ducts.

Will installing a heat pump lower my energy bills?

In most cases, installing a heat pump will lower your monthly heating bills. Heat pumps are very efficient, so they produce more heating or cooling per dollar than other types of systems. How much money you can save depends on the electricity rates in your area and what kind of heating and cooling system you currently have.

These three factors determine how much money you’ll save by installing a heat pump:

• Home size: Larger homes take more energy to heat and cool, so you’ll save more money if you switch to a heat pump from a furnace or boiler system.
• Climate: To get the most out of a heat pump, you need to live where the climate matches your heat pump’s optimal operating temperature range. In practice, an air-source heat pump works best for mild winters, and a gas-fired furnace or boiler system is better for colder climates.
• Your current HVAC system: You’ll see the most savings if you’re upgrading to a heat pump from an old furnace or AC. Modern heat pumps can reduce your electric bills by up to 65% over an equivalent electric furnace, according to the DOE.

How much does it cost to install a heat pump?

How much it costs to install a heat pump depends on the type of system you want and the size of the area you need it to heat and cool. The DOE information center points out that air-source systems are the most affordable, and geothermal and water-source heat pumps are more expensive, sometimes twice as expensive as air-source systems.

Trane is a major HVAC equipment manufacturer that produces air-source heat pumps, with prices ranging from low-efficiency models such as the Trane XR15 to top-of-the-line models such as the Trane 3-Ton 17 SEER2 system. The XR15 will set you back around $7,500 if you purchase it from Jordan Air, and the 3-ton SEER2 system costs $12,250 from Choice Depot Direct.

Carrier, another popular heat pump installer, estimates the total installed cost of air-source heat pumps to be between $3,000 and $15,000.

Geothermal heat pumps cost more upfront than air-source pumps — between $7,500 and $12,500 for a five-ton system installed where ductwork already exists, according to Dandelion Energy, an installer in the Northeast. Carrier geothermal heat pumps range from $12,000 to $45,000, including installation.

A water-source heat pump will usually cost between $10,000 and $20,000, according to Bryant.

Tax credits and rebates

The federal government has incentives for people to install clean energy technologies to encourage them to reduce reliance on fossil fuels and combat climate change.

Federal and state tax credits for renewable energy systems such as heat pumps can help you save money. Energy Star outlines the federal tax credits for energy-efficient home appliance upgrades. You can claim 30% of the cost of home improvements that meet the federal government’s energy-efficiency requirements. For heat pumps, the total maximum credit in one year is capped at $2,000.

What is the major disadvantage of a heat pump system?

Heat pumps are more expensive than central air conditioning units, but that’s because they provide both heating and cooling. Still, the high upfront cost of a heat pump might put most systems out of your price range.

Although heat pumps come with high initial costs and more maintenance — such as tune-ups, repairs, and lubrication of moving components due to year-round use — they provide more long-term savings, so they’re usually worth it.

What’s next?

If you’re interested in upgrading to a heat pump, your next step is to research HVAC installers near you. The easiest way to do this is to search for HVAC companies on local review sites such as Google Reviews. Most local contractors will be happy to set you up with a free consultation, where they will inspect your home and provide a free quote.
Once you find an installer that offers a price you’re happy with, don’t forget to apply for federal tax credits. You can find information about the available credits on the IRS website. You should also check to see if your state offers any additional rebates.

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