Heat Pump Savings, Explained

A heat pump cuts heating costs most when it replaces electric resistance heat or oil heat. The savings against natural gas are real in many households but smaller, and in areas with very cheap gas and high electricity rates, the bill savings may be modest or negligible. What stays constant across fuel types is the underlying efficiency advantage: a heat pump moves heat rather than generating it, which means it delivers two to four times more heat energy than the electricity it consumes, according to the US Department of Energy.

How a heat pump beats your current system

A gas furnace or electric resistance heater converts its energy source directly into heat. That conversion is inherently limited: the best gas furnaces reach roughly 98% efficiency, meaning nearly every unit of fuel input becomes a unit of heat output. An electric resistance baseboard heater converts electricity to heat at 100% efficiency by definition. Both seem hard to beat.

A heat pump works differently. Instead of generating heat, it moves heat that already exists outdoors into your home, using a refrigerant cycle similar to what a refrigerator uses in reverse. Because it is transporting heat rather than creating it, the ratio of heat delivered to electricity consumed can be well above 1:1, even in cold weather. At mild outdoor temperatures, a modern heat pump may deliver three or four units of heat per unit of electricity. In colder conditions the ratio drops, but it typically stays above 1:1 down to the unit’s rated low-temperature limit.

That multiplier is the core reason heat pumps are cheaper to run than electric resistance heating, and why they can compete with gas despite electricity costing more per raw unit of energy than natural gas in most US markets.

What COP and HSPF mean

Two efficiency numbers appear regularly in heat pump discussions: COP and HSPF. They measure the same underlying thing—heat delivered per unit of electricity consumed—at different scales.

COP (Coefficient of Performance) is a snapshot ratio at a specific outdoor temperature and operating condition. A COP of 3.0 means the unit delivers 3 units of heat energy for every 1 unit of electricity it uses at that moment. COP is useful for comparing units at a standardized test condition, but it does not tell you how the system performs across an entire heating season with varying temperatures.

HSPF (Heating Season Performance Factor) is the standard US seasonal efficiency rating, defined by the Department of Energy as “the total heat provided over a heating season divided by the total electrical energy consumed.” A unit rated at 10.3 HSPF delivers 10,300 Btu of heat for every kilowatt-hour of electricity it uses over the course of a representative heating season. Higher is more efficient. Since January 2023, new federal standards use an updated test procedure called HSPF2, which produces lower numerical ratings than the old HSPF test for the same equipment—the unit is no less efficient, the math is just different. Compare units using the same version of the rating.

For context on how that compares to a resistance heater: the DOE notes that a conventional electric resistance element produces roughly 3,400 Btu of heat per kilowatt-hour, since it converts electricity to heat at a 1:1 ratio (3,412 Btu per kWh is the thermodynamic equivalence). A 10.3 HSPF heat pump delivers more than three times as much useful heat from the same kilowatt-hour.

How the savings compare by fuel

The size of the savings depends almost entirely on what you are replacing.

Replacing electric resistance heat is where heat pumps deliver the clearest financial case. Because resistance heaters have a fixed 1:1 conversion ratio, any heat pump with a seasonal COP above 1 uses less electricity to produce the same amount of heat. In practice, modern units operate well above that threshold. The DOE states that a heat pump can reduce electricity use for heating by up to 75% compared to electric resistance baseboard heaters or furnaces. The exact reduction depends on your climate and the specific unit, but the direction is consistent: if you currently heat with electric resistance heat, a heat pump is likely to cut your heating electricity bill substantially.

Replacing oil heat also tends to produce meaningful savings, particularly in the Northeast and Mid-Atlantic where oil heat is common. A study by the Northeast Energy Efficiency Partnerships (NEEP), cited by the DOE, found annual savings of around 3,000 kWh (approximately $459 at typical utility rates) for homes in that region that switched from oil to properly installed cold-climate heat pump models. Oil prices fluctuate and vary by region, so actual savings in your area could be higher or lower.

Replacing natural gas is more nuanced. Natural gas delivers a lot of energy per dollar in most US markets, and electricity is more expensive per raw unit of energy than gas. A heat pump’s efficiency multiplier can overcome that gap, but the math is closer. Whether you save money on the heating bill depends on your local electricity rate, your local gas rate, and how cold your winters are. According to a DOE analysis, more than 90% of US households assessed could save money by switching from worn-out heating equipment to an appropriate heat pump, including some households currently on natural gas. But households in areas with cheap gas and high electricity rates may see little or no heating-bill savings, even with an efficient heat pump. The savings on cooling (since heat pumps replace central air conditioning too) can shift the overall economics, and that is worth including in any honest comparison.

Cold-climate performance

Older heat pump technology lost efficiency sharply as outdoor temperatures dropped and often needed a backup resistance element to maintain comfortable temperatures below about 30 to 35 degrees Fahrenheit. That limitation shaped a decades-old perception that heat pumps do not work well in cold climates.

Current variable-speed compressor technology has changed that. The DOE notes that recent advances have made heat pumps “a viable heating alternative even in regions with extended periods of subfreezing temperatures.” The same NEEP study cited by DOE found real-world annual savings in the Northeast, a region that regularly sees temperatures well below freezing. Units designed specifically for cold climates are rated to maintain meaningful heating output at 5 degrees Fahrenheit or below.

If you live in a cold region, look for a unit with an ENERGY STAR Cold Climate designation. These models are tested to a more demanding performance standard than standard heat pumps. The DOE also notes that investing in insulation and air sealing before installation can reduce the size (and cost) of the heat pump system you need, since a tighter building envelope requires less heating capacity.

Incentives

The federal tax credit that previously helped offset heat pump purchase costs is no longer available for new installations.

The Energy Efficient Home Improvement Credit (Section 25C) provided a credit of 30% of qualifying heat pump costs, up to $2,000 per year. It was originally established by the Inflation Reduction Act and was scheduled to run through 2032. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, terminated the credit early. According to the IRS, the credit is not allowed for any qualifying property placed in service after December 31, 2025. Homeowners who completed installation by that date can still claim the credit on their 2025 federal tax return. For heat pumps installed in 2026 or later, the federal credit is not available.

State and utility incentives remain in place in many areas and vary widely. Several states offer their own rebates, income tax credits, or low-interest financing programs for efficient heat pumps. Some utilities offer rebates directly. These programs are independent of the federal credit and were not affected by the 2025 federal legislation. Check your state energy office and your utility’s website for current offerings before purchasing, as availability and amounts change regularly.

Even without the federal credit, the operating cost savings can justify a heat pump installation on their own, particularly for households replacing electric resistance heat or oil. Use the Heat Pump Savings Calculator to enter your current fuel type, local energy prices, and home size to see a savings estimate for your specific situation.