Heat pumps explained: cost, savings and cold-climate performance

How a heat pump works

A heat pump is the same basic machine as an air conditioner. A refrigerant absorbs heat as it evaporates and releases it as it condenses. In summer it pumps heat out of your home; in winter a reversing valve flips the flow to pull heat from outdoor air (or the ground) and release it inside.

Even freezing air contains usable heat, and moving it takes far less energy than creating it.

The main types

• Ducted air-source: replaces a central furnace or AC and uses your existing ductwork.
• Ductless mini-split: an outdoor unit feeds one or more wall, ceiling or floor heads. The US Department of Energy notes these need only a small hole through the wall, which makes them popular for additions and homes without ducts.
• Air-to-water: common in the UK and Europe, feeding radiators or underfloor loops.
• Ground-source: uses buried loops. Very efficient, but far more expensive to install.

Understanding efficiency: COP, HSPF and SEER

The coefficient of performance (COP) is heat delivered divided by electricity used. Baseboard heat has a COP of 1. A heat pump might run at 3 to 4 in mild weather and drop toward 1.5 to 2 on a very cold night.

Because COP changes with the weather, ratings use seasonal averages. In North America, HSPF (heating) and SEER (cooling) are the headline numbers; in the UK and Europe you will see SCOP. The Department of Energy advises buyers in colder climates to prioritize the highest HSPF they can, and buyers in hot climates to focus on SEER.

Running costs: a worked example

Take a home that needs 60 million Btu of delivered heat per year, which is plausible for a mid-sized house in a moderately cold climate. One kilowatt-hour equals 3,412 Btu, so that heat equals:

60,000,000 ÷ 3,412 = 17,585 kWh of heat

We will use electricity at $0.17/kWh, close to the 2025 US residential average reported by the US Energy Information Administration. Fuel prices below are illustrative, so swap in the numbers from your own bills.

• Electric baseboard (COP 1): 17,585 kWh × $0.17 = $2,990
• Heat pump, seasonal COP 2.5: 17,585 ÷ 2.5 = 7,034 kWh × $0.17 = $1,196
• Heat pump, seasonal COP 3.0: 17,585 ÷ 3.0 = 5,862 kWh × $0.17 = $997
• Gas furnace, 95% efficient, $1.50/therm: 600 therms ÷ 0.95 = 632 therms × $1.50 = $947
• Oil boiler, 85% efficient, $4.00/gallon: 60,000,000 ÷ 138,500 Btu per gallon = 433 gallons; ÷ 0.85 = 510 gallons × $4.00 = $2,040
• Propane furnace, 90% efficient, $3.00/gallon: 60,000,000 ÷ 91,500 Btu per gallon = 656 gallons; ÷ 0.90 = 729 gallons × $3.00 = $2,186

The pattern is clear. Replacing resistance, oil or propane heat usually pays off strongly. Replacing efficient gas heat is closer to a wash on running cost, and can cost more where electricity is expensive relative to gas. That matches the UK picture: the Energy Saving Trust notes heat pumps generally cost slightly more to run than new gas boilers, though it describes them as more than three times as efficient.

A heat pump also replaces your air conditioner, and time-of-use or heat-pump electricity rates, or rooftop solar, can lower your per-kWh price. Plug your own numbers into our heat pump savings calculator.

Cold-climate performance

Modern variable-speed "cold-climate" units are a different class of equipment from older heat pumps. The Northeast Energy Efficiency Partnerships cold-climate specification, widely used by utility programs, requires a COP above 1.75 at 5°F (−15°C) when running at maximum capacity. Even at that temperature, such a unit delivers nearly twice the heat per kWh of a baseboard heater.

The bigger cold-weather issue is capacity. As it gets colder, the heat a unit can produce drops while your home's heat loss rises. Good installers check capacity at your local design temperature, not just the nameplate rating.

Backup heat and dual-fuel setups

• Electric resistance strips cover the coldest hours but run at COP 1, so heavy reliance on them erodes savings.
• Dual-fuel systems keep an existing furnace for the coldest days.
• Defrost cycles are normal: the unit briefly reverses to clear frost from the outdoor coil.

What heat pumps cost to install

Installed prices vary enormously by home size, ductwork, electrical capacity and region. As a rough guide, a single-zone ductless unit is often a few thousand US dollars installed, while whole-home ducted or multi-zone systems commonly reach five figures. In the UK, the Energy Saving Trust puts a typical air-source installation at around £14,000 before grants.

Costs rise with panel upgrades, new ductwork or larger radiators. A room-by-room heat loss calculation (a Manual J in the US) protects against an oversized system. Reducing heat loss first through insulation and air sealing can let you buy a smaller unit.

Incentives

In the US, the federal 25C home improvement tax credit that covered heat pumps does not apply to equipment placed in service after December 31, 2025, but many states, provinces and utilities still run rebates. In England and Wales, the Boiler Upgrade Scheme has offered £7,500 toward an air-source heat pump. Check our incentives page for current programs before you sign a contract.

Is a heat pump right for you?

A heat pump is usually a strong financial choice if you heat with electric resistance, oil or propane, or need to replace an air conditioner anyway. With a newer high-efficiency gas furnace and expensive electricity, it often makes sense to wait until the furnace or AC needs replacing.

For more detail on how the US Department of Energy describes the technology, see its air-source heat pump guide. UK readers can find grant and running-cost information from the Energy Saving Trust.

This guide is general information, not financial, tax or engineering advice. Prices and incentives change — confirm with qualified local professionals and official program sources. See our methodology and disclosures.