November/December 2008 Editorial: Heat Pump Water Heaters—Another Prius in the Basement?

It was good news to learn that Energy Star has finally announced specifications for water heaters. The specification for heat pump water heaters is particularly welcome, since these products have an unusually large savings potential. A heat pump water heater can reduce water-heating energy by half, which translates into over 1,500 kWh per year in many homes. Nearly 40% of American homes use electric water heaters, so the market is huge. This market is unlikely to be tapped soon, however, because there are no significant American manufacturers of heat pump water heaters. This situation is likely to change, since major refrigeration manufacturers—GE, for example—have announced plans to begin production.

Rapid progress? Not really. Japanese manufacturers are already producing half a million heat pump water heaters a year (see “A Cute Water Heater,” p. 12). You can be sure they are looking for export opportunities. Have American manufacturers missed an opportunity and allowed another “Prius” to dominate the market?  To be sure, the Japanese ECO-CUTE heat pump water heater has some attractive features. First, it has a remarkably high reported efficiency, with a seasonal coefficient of performance (COP) approaching 3. The few existing U.S. models have achieved only a modest COP 2, so the ECO-CUTE squeezes 50% more hot water out of each kWh consumed.  Second, the ECO-CUTE uses CFC-free CO₂ as the refrigerant. Thus the ECO-CUTE is doubly green, by combining efficiency and zero CFCs. Is there a downside?  You bet; these suckers are expensive, at over $6,000 in Japan.

How do Japanese consumers justify buying a million of these expensive products? The answer is a useful lesson in economics and culture. First, Japanese homes use lots of hot water—more, in fact, than most American homes. Nearly all of it goes to the famous Japanese baths. Second, the ECO-CUTE can also provide hot water to an in-floor heating system, which fits in particularly well with the Japanese lifestyle. Third, the ECO-CUTE is designed to operate only at night and during periods when electricity is cheap. ECO-CUTE owners get a special tariff, which is far below the normally very high residential electricity rate (about 24¢/kWh). Thus the cost savings are substantial. Combine that with a $420 government subsidy to purchasers of ECO-CUTEs, and the payback time drops from centuries to under a decade.

The environment in the United States would appear to be less favorable to sales of the ECO-CUTE. But this could change quickly. For example, modest redesigns might lower the cost without sacrificing all of the efficiency advantage. And one of the new energy bills being contemplated in Congress could easily add a tax credit for heat pump water heaters. Suddenly, there’s another Prius in the basement.