What Texans needs to know about heat pumps

Heat Pumps 101: How they work, incentives, and more!

Clean energy

Heat Pump Intallation Sicamous BC

With the passage of the Inflation Reduction Act (IRA), more savings are available than ever before for homeowners wanting to purchase heat pumps. Not only can they make your home a cleaner space with less carbon emissions, but can also reduce your electricity usage and spending on annual utility bills. However, any homeowner looking to make the switch should know the ins and outs of this technology and available rebates. Let’s see if it’s right for you. 

What are heat pumps?

Heat pumps are efficient heating and cooling systems placed outside your home that can replace both your furnace and air conditioner. Instead of generating heat, this technology transfers it from one area to another using a liquid refrigerant and copper coils. In the cooler months, it transfers heat from the outside air into the inside of your home and is up to four times more efficient than fossil-fuel furnaces. In the hotter months, the flow of air is simply reversed, cooling your home by pulling the heat out. Heat pumps also do not require a fuel input, meaning there are no subsequent emissions from your homes and you are not subject to volatile gas prices. 

This is not a new technology. In fact, Texas has more heat pumps installed in homes than any other state (1.95 million).

Heat pump water heaters rely on the same process, pulling heat from the outside air and transferring it at higher temperatures to heat water in a storage tank. Heat pump water heaters can be purchased with a built-in water storage tank or be retro-fitted with an existing conventional storage water heater. 

Do heat pumps and Texas weather mix?

With Texas weather becoming more unpredictable, Texans are having to adapt to fluctuating periods of extreme heat and freezing, but is our technology adapting? While heat pumps become less efficient in colder climates, many newer models still effectively operate down to -10 °F. These models have largely improved upon older versions of heat pumps, with newer coil design, updated compressors, efficient fans, and better motors.

How can I save money on heat pumps?

It is important to keep in mind the price comparisons of heat pumps, air conditioners, and furnaces when making a new purchase. Depending on the size of your heat pump, prices can range between $2,500 and $5,000 for a two-ton system and $6,000 to $10,000 for a five-ton heat pump with average installation costs around $5,500. On average, a new furnace can cost between $1,500 and  $6,500 with a $2,500 installation cost while air conditioners cost $2,000 with $5,000 to $9,000 for installation. While the average upfront cost of a heat pump can be pretty steep, don’t forget that this purchase would ideally replace both your air conditioner and furnace with its dual heating and cooling functions. In addition to only needing to purchase one system, heat pumps can also reduce your annual heating and cooling bill between 20-70% and have substantially lower maintenance costs. There are also various incentives in the IRA that can help cover the cost of your heat pump and installation.

If you install a heat pump that meets the Consortium for Energy Efficiency’s highest tier of efficiency, you are eligible for a federal tax credit, covering 30% up to $2,000 of the heat pump cost and installation. Keep in mind that installing heat pumps, heat pump water heaters and biomass stoves/boilers has an annual tax credit limit of $2,000 per year. Those considering installing multiple energy upgrades at home could receive the most incentives by spacing out their projects. 

In addition, a state-administered rebate of up to $8,000 for heating and cooling heat pumps and $1,750 for heat pump water heaters will be available later this year for people who meet income requirements. Unlike the federal tax credit, there are no energy efficiency standards, but the amount of rebates you qualify for depends on your household income:

  • If your household income is less than 80 percent of your state’s median household income (currently $67,000 for Texas), you are eligible for 100 percent of the rebates available. If you purchase both a heat pump and a heat pump water heater, you can receive up to $9,750 back.
  • If your household income is between 80 and 150 percent of your state’s median household income, you can receive 50 percent of the rebates for a total of $4,875.
  • If your household income is over 150% of your state’s median household income, you do not qualify for these rebates.

Things to consider before purchasing heat pumps:

  • Does my furnace or water heater need to be replaced?

The average furnace can last between 15 and 20 years while water heaters usually last 8-12 years. To keep your house and water heated and avoid complete system failure, start shopping when your furnace and water heaters are 15 and 10 years old, respectively. No one wants to be stuck without heating or hot water, rushing to replace the system without fully thinking through their purchase. One should also consider that heat pumps can be in short supply with time-consuming installation. Best to plan ahead. 

  • How well insulated is my home?

Before installing a heat pump, it is helpful to hire an energy auditor to assess the energy efficiency of your home through on-site inspections. They will assess air leaks and your home’s insulation rating, which is a common source of energy loss. Pinpointing areas of energy loss in your home can maximize the effectiveness of your heat pumps to prevent heat from escaping. There is an available tax credit for having a home energy audit, as well as performing other home energy improvements. Here are a few of the examples, but keep in mind that only up to $1,200 of this specific tax credit can be claimed each year. 

  • $150 for a home energy audit
  • $600 for air-sealing materials or systems
  • $600 for electrical panel, if upgraded in conjunction with another upgrade like a heat pump
  • $500 for exterior doors in the aggregate, and $250 per exterior door 

Assessing your home’s insulation can also help determine your desired heat pump size. If a large percentage of heat is escaping through poorly sealed windows or doors, it will appear that you need a larger heat pump than you actually do to heat your home. 

In addition to hiring an energy auditor, there are many home evaluations and improvements you can make yourself. Environment America provides tips in Weatherizing your home, which outlines how to seal cracks, weatherstrip around windows and doors, as well as other skills to save you money on your utility bills while staying comfortable in your home during the winter. 

  • What is the best type of heat pump for my home?

While heat pumps all use the same process of transferring heat from one area to another, the source of that heat and method of dispersal varies depending on which type you purchase. Heat pumps can collect heat from an air, ground, or water source. The most common option for homeowners is the air-source option. Ground- and water-source heat pumps, known as geothermal heat pumps, are more expensive but also the most efficient options. These also have low operating costs, can be used in more extreme climates compared to air-source heat pumps and have high customer satisfaction. 

For air-source heat pumps, these can either be ducted or ductless. Ducted air-source heat pumps are straightforward and can be retrofitted to existing ducts in your home. The ductless option, known as a mini-split heat pump, involves an outdoor compressor and indoor heating/cooling units placed in various zones of your home. While ducted heat pumps can use existing ducts in your home, mini-split heat pumps are beneficial to homes that do not already have ducts in place nor have the space for it. Ductless heat pumps offer more flexibility since they can be placed anywhere in the home with most companies offering as many as four indoor components per outdoor unit – each with their own thermostat. Ductless indoor units connect to the outdoor compressor through insulated tubes that pass through a small hole in the wall and can even be connected to an outdoor compressor up to 50 feet away from the indoor unit. This offers variability in the placement of heat pumps around your home if a more inconspicuous placement is important to you. The same goes with the indoor units which can be hung on a wall, mounted flush into a drop ceiling, or suspended from the ceiling. 

  • Do I need to upgrade my home’s electricity panel?

While heat pumps are a cleaner alternative for heating and cooling your home, they can strain your home’s electrical panel, sometimes requiring a complete panel upgrade if it is too outdated. Your home’s electric panel is the central conduit for power flowing from a utility grid to your own circuits. While most modern homes have a panel with 200 amps, many older homes, including those built over 50 years ago, have much less capacity. 

The two most significant loads on your panel are usually water and space heating, and while heat pumps offer more efficient options compared to their gas counterparts, installing heat pumps could still require a panel with increased amps or physical space for more circuits. Replacing the service panel is expensive and even more expensive to replace supply wires. While up to $4,000 is available in the IRA to upgrade your electrical panel, depending on your household income, there are other options to consider before going through with this pricey decision. Improving the energy efficiency through home improvements like ventilation and air sealing upgrades can lower your demand, allowing your electric panel the bandwidth to support heat pumps without overloading the system. 

Another smart way to optimize your energy usage is to install a “smart” panel. If you are like me and don’t know what a heat pump is, it basically acts as the brain of your electrical appliances, which can be controlled through a smart phone or computer app. It allows you to monitor and manage your energy load without overloading the system, avoiding the need for a panel upgrade all together. Some features of this system include staying informed which circuit breakers are off, without having to physically inspect them, as well as being able to prioritize which appliances stay on in moments of heightened load, such as heaters in the colder months. 

  • Do contractors in my area specialize in heat pumps?

Your electric utility company can likely provide a list of local heat pump installers. We are also planning to do a more thorough investigation into local contractors that install heat pumps, but in the meantime a quick google search provided us with these companies around the Austin area:

Austin Air Conditioning Inc

McCullough Heating & Air Conditioning

Intelligent Air Services

TemperaturePro Austin

If you have already had heat pumps installed in your home or know a reputable installer that you’d recommend, please reach out to me!


Luke Metzger

Executive Director, Environment Texas Research & Policy Center

As the executive director of Environment Texas, Luke is a leading voice in the state for clean air and water, parks and wildlife, and a livable climate. Luke recently led the successful campaign to get the Texas Legislature and voters to invest $1 billion to buy land for new state parks. He also helped win permanent protection for the Christmas Mountains of Big Bend; helped compel Exxon, Shell and Chevron Phillips to cut air pollution at four Texas refineries and chemical plants; and got the Austin and Houston school districts to install filters on water fountains to protect children from lead in drinking water. The San Antonio Current has called Luke "long one of the most energetic and dedicated defenders of environmental issues in the state." He has been named one of the "Top Lobbyists for Causes" by Capitol Inside and received the President's Award from the Texas Recreation and Parks Society for his work to protect Texas parks. He is a board member of the Clean Air Force of Central Texas and an advisory board member of the Texas Tech University Masters of Public Administration program. Luke, his wife, son and daughters are working to visit every state park in Texas.