Planet Earth

Climate-Friendly Water Heating

A Santa Clara County Guide

How much will it cost?

Installation of a heat pump water heater usually costs $6-7,000. You can get rebates and tax credits that will pay for most of that and probably make it actually cheaper than getting a new gas heater. You’ll also save about $130 per year in utility bills [1]. Better still, you'll eliminate the equivalent of 4,835 pounds of CO2 per year, equivalent to the total emissions of 18 Ugandans!

Data from real householders in San Mateo in a Peninsula Clean Energy spreadsheet showed a median cost of about $6,500 to install, including any needed electrical work. SVCE has a similar median in their published data. Recent prices may have risen to about $7,000

The remarkable news is that (as of Feb 2024) rebates will pay for most of this. Silicon Valley Clean Energy (SVCE) will give you $2,000, and Golden State Rebates will give you another $900 ($700 for a tank <45 gal) (if you live in San JosePalo Alto, or Santa Clara city, you are not covered by SVCE, but follow those links to find local rebates). You can also get a 30% tax credit for any remaining cost, from the Inflation Reduction Act, bringing a $7,000 initial cost down to just $2,897 [2], a little cheaper than the typical cost of installing a gas water heater:

Initial Cost $7,000
SVCE rebate $2,000
Golden State rebate $900
Cost after rebates $4,100
30% IRA tax credit $1,203
Net Cost $2,897

You'll also save about $1,950 [3] in utility bills over a 15-year lifespan, and you'll avoid the $2-4,000 gas water heater replacement cost when your old water heater wears out or floods. So, not only will you slash your emissions, you'll almost certainly save money while doing it and gain peace of mind.

Low-Income? TECH may pay your full cost

Extremely generous TECH rebates are still available for low-income residents. If you live alone and make less than $104,000 per year, or are a family of 4 making less than $149,100, TECH will give you $4,885 for a new water heater ($4,185 for <55 gal), and will throw in an additional $4,000 for electrical upgrades, making a new water heater essentially free for most qualifying residents:

Initial Cost $7,000
SVCE rebate $2,000
TECH rebate $4,885
Golden State rebate $900
Cost after rebates $-745
30% IRA tax credit $0
Net Cost $0

Gas water heaters are meant to last about 10-12 years, less if you don't do regular maintenace. They cost about $2,000-$4,000 to replace in Santa Clara county (Home Blue). Let's say an average of $3,000, for a 60-gallon tank. So if you have an old water heater, then you'll save with a heat pump, since your after-rebate costs will usually be less than the cost of replacing with a gas heater. You'll also avoid the potential of your old water heater failing, flooding your house and needing an emergency replacement. Plus, heat pumps last a few years longer - I can't find any concrete data, but heat pump warranties are usually 10 years, vs. about 6 years for most gas heaters (and hundreds of dollars to buy a longer warranty), so draw your own conclusions from that!

Extra costs for some houses

One issue that can drive up costs is electricity supply. Most heat pumps use 220V electricity, so you may need to run a new circuit to supply it (this cost is included in the estimates above). If that maxes out your electrical supply at the breaker panel, it can cost up to a few thousand to upgrade the panel. You can also get rebates for that - SVCE will give you $1,000 and you can get that 30% tax credit from the IRA, up to $600. Together these would bring a $2,500 panel upgrade down to $1,050. You may also be able to avoid upgrading your panel with smart circuit management, an approach known as a watt diet.

A panel upgrade is an investment, not a cost: California will phase out gas water heaters and furnaces starting in 2030, so you will need more electricity to power their replacements, and probably an electric car too, so upgrading while incentives are available makes smart sense. 

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[1] $130/year savings is estimated based on Santa Clara county numbers and a 4-person 'average' household. You can find our assumptions and calculations here.  You'll save less if you're living on your own and more if you have teenagers that spend forever in the shower...

[2] Many other rebates are listed at The Switch is On but the ones above are the best option if you live Santa Clara county/SVCE territory. BayREN rebates are less than the Golden State rebate and you can't combine them, so they are not listed here.

[3] Your savings will probably increase with time as gas is predicted to become much more expensive (due to less people using it and higher infrastructure costs, plus climate regulations), and electricity will be relatively cheaper. If you have your own solar panels, electricity will be dramatically cheaper than these estimates.

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Back to the Santa Clara County Guide to Climate-Friendly Water Heating.