Water Heating

Definition

Commercially available integrated and split electric heat pump water heaters (HPWHs) meet the demands of residential households and small businesses, delivering hot water two to five times more efficiently than conventional electric resistance, standard gas water heaters, or fossil-fuel-fired water heaters. Innovations — including plug-in 120V and field convertible 120/240V models, low-GWP refrigerants, load-shifting capabilities, and alternative form factors — offer increased utility and environmental benefits while supporting diverse retrofit applications. The 2025 CA Potential and Goals Study found annual Total System Benefit potential of $30 billion in 2026 and rising through 2030, for all Residential Water Heating.

Research Initiatives

Research Initiatives	Performance Validation Needs	Market Analysis Needs	Measure Development Needs	Program Development Needs
Plug-in 120V Residential
Small Commercial
Split Systems & Small Form Factor
Connectivity & Load Shifting in HPWHs

Opportunities

• Storage HPWHs are a critical residential and small commercial building decarbonization strategy, providing a cost-effective, electric water heating solution for load reduction and shifting usage out of carbon-intensive utility periods.
  • There is enormous potential for load shifting and shaping, load management, and the resulting greenhouse gas (GHG) reduction from shifting the heating schedule to times when the electricity grid has a lower marginal emissions rate and cost to operate. General load shape definitions and rules take priority and should be addressed first. Meanwhile, subsequent HPWH performance validation, measure, and program development will be important to accurately assess impacts and adoption pathways of split systems, 120V and convertible 120V/240V convertible unitary, and solar-assisted models.
  • It will also be necessary to evaluate the interaction of HPWHs with recirculation systems and optimize designs, including HPWH selection, upsizing storage capacity, and use of integrated or master mixing valves. Additionally, it will be important to standardize first-hour and recovery ratings for HPWHs—as well as appropriate design and installation best practices for installer training—to account for recovery rates of different HPWHs and ensure satisfactory performance for all residential users.
  • Significant gains have been made in developing best-practices guides for the sizing and installation of HPWHs; however, additional research is required to assess design solutions and applications in common recirculation pump designs found in many California homes and small businesses.
• Shifting to low-GWP refrigerants like CO₂, offers both increased performance and higher storage temperature capabilities, and eliminates the GHG emission impacts of refrigerant leakage.
  • To support the market shift, future research should identify and evaluate the performance of the best use cases of ultra-low GWP refrigerants in residential and small commercial HPWHs.
• Planned zero-emission regulations on residential water heaters statewide are based on reducing indoor exposure to combustion gases to households.
  • The assessment and attribution of non-energy benefits—such as health impacts from air quality and innovative solutions that increase equitable access to HPWHs—are important for supporting an accelerated transition away from gas water heaters.
• To achieve equitable, scalable HPWH market development, it is necessary to identify opportunities for equipment cost compression and lowering installation costs. Additionally, to establish a sustainable and sufficiently capitalized incentive program that enables accelerated HPWH adoption, it is critical to assess existing and new, innovative, and equitable financing mechanisms and market interventions.
• The quickest opportunities for market adoption and TSB come from “easy access” (e.g., located in a garage) gas electric resistance water heaters—which make up 7 percent of the California market—as well as new construction. To support these market sectors, implementers should design programs that support incentives for switching from an electric resistance water heater to an HPWH, along with enhanced builder engagement strategies.
• Plug-in 120V HPWH models offer disadvantaged community (DAC) and hard-to-reach (HTR) renters and homeowners a lower-cost and efficient alternative to 240V HPWH fuel-switching retrofits, overcoming common financial barriers and avoiding costly electrical infrastructure and panel upgrades. 120V split systems may provide a solution for manufactured housing stock with a solution to fit limited electrical capacity and space.
• Market transformation efforts from TECH Clean California and plans for a Market Transformation Initiative from CalMTA provide additional stakeholders and potential targets for technology transfer.

Barriers

HPWHs face many barriers, but most of them are due to market and installation practices, not shortcomings in the technology itself. HPWHs have installation challenges and operational features not found in common gas storage alternatives that can make fuel-switching more difficult.

• The cost effectiveness of HPWH fuel substitution can be negatively impacted due to high HPWH equipment and installation costs, current electrical and gas tariff structure, customer concerns about electric cost trends, and/or grid integration incentives.
• Plumbing contractors generally lack awareness of HPWHs and do not have expertise in their design and installation, including the disposal of condensate and ensuring adequate airflow and venting for proper performance.
• Electrical service or panel upgrades can be a significant cost barrier; market expertise and guidelines are needed to describe when load management strategies or 120V products may be deployed to mitigate the expense of an upgrade.
• Emergency replacements are the most common scenario for a new water heater installation in existing homes, which creates immediate cost, time, and complexity barriers to conversion from conventional gas water heaters, including hiring a separate electrical contractor. Regional initiatives are exploring how to streamline permitting processes to mitigate this issue.
• Split-incentive issues between property owners and rental ratepayers complicate the costs and benefits of HPWHs.
• Space, comfort, and noise issues can undermine the suitability of unitary HPWHs, requiring a smaller form factor, split designs, or relocation.
• The introduction of new low-GWP natural refrigerants will require reevaluating their performance, as well as addressing permitting barriers and perceptions of safety risks with local inspectors.
• There is an absence of a savings claims infrastructure, including Electronic Technical Reference Manual (eTRM) load shapes, rules for quantifying load shape benefits, rules for viable electric alternative measures to replace gas appliances, and the coordination on refrigerant leak reduction efforts.
• Mobile and manufactured homes, which are common in DAC and HTR communities, have unique challenges for the installation of HPWHs due to limited electric panel capacity (30A–100A), wiring concerns, and state agency rules on exterior installation.
• Typical water heater closets found in mobile homes have insufficient space (volume measured in cubic feet) and venting for the normal operation — let alone optimal performance — of HPWHs, which makes this technology unfeasible for fuel-switching scenarios without additional structural remediation.
• High water temperatures required by health and building codes for small commercial buildings may limit opportunities for HPWH applications and reduce performance. High setpoints promoted for demand flexibility may also reduce efficiency.

CalNEXT Related Projects

• Small Medium Business HPWH Emergency Deployments
• Emergency Replacement Heat Pump Water Heater Market Study
• Residential HPWH Market Study and Measure Gap Analysis
• HPWH Conversion Readiness Program Focused Pilot
• Plug-in 120V HPWH Measure Package Updates to eTRM
• Increasing Heat Pump Water Heater Deployment
• Residential Water Heater Sizing Measure Package Support
• DAC HTR Statewide Single Family Housing Characteristics Study
• Mobile and Manufactured Housing Market Characterization Study
• Residential Heat Pump Financing Solutions Analysis
• DIY HPWH Installation & Market Study
• California Multifamily Split HPWH Market Study
• Light-Duty Commercial Heat Pump Water Heater Focused Pilot

Definition

Domestic hot water (DHW) systems are among the largest end uses poised for decarbonization. HPWH options offer higher efficiency than electric resistance and gas alternatives and can achieve significant energy and GHG savings. This technology research area covers efficient, demand-flexible DHW systems for multifamily and nonresidential applications, such as offices, hotels, healthcare, and foodservice. Hot water systems under this group may include a primary heat source (e.g., heat pump), storage, distribution, recirculation, pumping, valves, controls, temperature maintenance systems, heat recovery, and alternative heat sources (e.g., solar or geothermal).

Research Initiatives

Research Initiatives	Performance Validation Needs	Market Analysis Needs	Measure Development Needs	Program Development Needs
Split HPWH
Unitary HPWH
Load Flexibility Controls
Dual-fuel Systems
Distribution System Optimization & Recirculation
Heat Recovery

Opportunities

This research area offers many important targets of research, development, and market transformation across different technologies, designs, and market segments, each with their own needs. These projects could be executed as field demonstrations, technology development, lab studies, market studies, modeling, market transformation tools, or novel program delivery mechanisms. The state of understanding and research needs may differ, based on design configuration (e.g., integrated, split, central, or clustered), segment (e.g., education, hospitality, healthcare, office, foodservice, or multifamily), or building vintage (i.e., new construction or retrofit).

Opportunities to address include:

• Reducing DHW system energy use and improving efficiency, designing without backup or temperature maintenance electric resistance (such as return-to-primary configurations), and reducing the complexity of all-electric centralized HPWHs.
• Quantifying defrost derate for output capacity of split heat pumps to ensure designers are aware of specific needs, depending on refrigerant type and split HPWHs models. Sufficient backup electric resistance or additional heat pumps may be necessary to ensure capacity is maintained on defrost design day.
• Exploring innovative program designs that can bring the benefits of HPWHs to DACs. Programs could quantify and enhance the benefits of commercial HPWHs for DACs by passing benefits to tenants, improving air quality, innovating financing mechanisms, or adopting other innovations in program delivery.
• Developing incentive programs for medium and large low-GWP commercial HPWHs in nonresidential and multifamily buildings. Innovative program designs can ensure the multiple value streams of efficiency, decarbonization, and grid-integration are all actualized.
• Demonstrating overseas HPWH technologies that use new low-GWP refrigerants and other form factors—such as low-GWP integrated HPWH or 20- to 30-gallon integrated HPWHs—for distributed point-of-use applications.
• Reducing cost and space requirements through new designs, configurations, and equipment selection of HPWHs, temperature maintenance, and storage tanks. This could be achieved in multiple ways, including technology development, field demonstrations, or design guideline development.
• Developing a guideline that defines existing designs, hot water temperatures, and loads for service hot water systems in non-residential building subsegments. This guideline should illustrate optimized designs and connect the complexity of service hot water systems to decision frameworks for owners, designers, contractors and programs. Additionally, it should demonstrate that hot water needs vary significantly in non-residential buildings—and that there is opportunity to simplify and electrify service hot water systems for some applications and move away from standard designs where appropriate.
• Design and field assessment of dual-fuel DHW systems to address the needs of high-load, rapid-recovery applications—such as existing commercial kitchens, hotels, and multifamily buildings with gas water heaters—with gas back-up, trim, or boost, as secondary to a primary HPWH. Dual-fuel hot water systems may present an opportunity to reduce first cost, deliver both gas and electric savings, and temper performance uncertainties by leveraging existing gas infrastructure during market transition, especially in the gas retrofit market.
• Demand flexibility controls demonstration and implementation guidance, which could include optimizing load flexibility controls to minimize energy costs and GHG emissions. Additionally, this guidance could provide technical and program-required recommendations for streamlined, onboard load-shift programming for HPWH systems.
• Evaluating automated, algorithmic load shift controls based on input parameters, such as monitored system operation, system capacity, hot water loads, total building coincident electrical demand, and utility rates (real-time or scheduled time-of-use).
• Assessing new unitary commercial HPWH designs at and above 12 kilowatts (kW) that offer more versatility for application in existing buildings, with features such as direct ducting options, inlet filters rated for the minimum efficiency reporting value that capture grease and lint, additional operating modes that fully lock out the electric resistance operating mode, and integrated controls to optimize usage, cost, and GHG, based on time-of-use factors such as peak rate periods and utility flex alerts.
• Bringing clarity to designers for cost-effective drain water heat recovery scenarios and using recovered heat as a heat pump source thermal reservoir.
• Incorporating integrated exhaust air or refrigerant heat recovery systems at the water heater or point-of-use equipment location and exploring capture and recovery of cooling effects of HPWHs to offset cooling loads, such as in a commercial kitchen.
• Optimizing distribution systems through novel recirculation and load-matching control strategies, such as automatic balancing valves, combined optimization of temperature modulation, variable speed pumps with integrated constant return temperature control or occupancy-based inputs, distributed isolating valves, and pipe insulation.
• Incorporating high-performance master mixing valves to increase thermal storage capacity and usage, increase the tank temperature stratification with continuous recirculation, and reduce recirculation loop heat losses through precise control.
• Exploring innovative program pathways and strategies for supporting the remediation and upgrades of existing, recirculating DHW distributions systems—e.g., pipe insulation, pipe hangers, shower crossover repair, balancing, pump controls, and more.
• Improving system efficiency through clustered centralized systems.
• Enhancing the energy density and load matching of solar thermal and photovoltaic-assisted water heater designs.
• Increasing commercial HPWH thermal energy storage density and enhancing their performance by using phase-change materials while assuring reliability and durability.
• Assessing innovative utility rate structures or dedicated metering to facilitate decarbonization by mitigating operating cost burdens on building owners. New rates for decarbonized buildings or water heating can help avoid the financial burden that retrofits may realize when switching to electric heat pump water heating.

Barriers

Commercial HPWH systems are still in a nascent technological stage that continues to evolve. Physical space, electrical infrastructure, and installed costs are major upfront barriers that have slowed HPWH adoption in retrofit nonresidential and multifamily applications. Of particular concern are escalating operating costs and affordability, as the electricity-to-gas cost ratio per unit of energy is approximately six-to-one—significantly higher than in recent years. Other limitations include product availability of low-GWP, four-season heat pumps, as well as weight and noise.

Researchers and design firms have developed better sizing tools to right-size heat pumps, which mitigates cost and space requirements in multifamily buildings, but similar tools are needed for many other commercial HPWH applications. Current health department sizing requirements do not address the use of HPWH systems in commercial kitchens and do not account for storage volume as a factor in sizing water heater capacities. Recirculation systems—although important to improve hot water delivery time and minimize water waste—can heavily impact water heater performance in central multifamily and commercial buildings.

Barriers to address include:

• Lack of diverse, commercial-duty integrated heat pump products, such as 120- to 200-gallon HPWHs, as well as lack of outside installation, ducting, and high-performance air inlet filter options.
• Lack of field performance data for various designs, configurations, and applications—including system reliability and cost effectiveness—to enhance industry knowledge and confidence in various HPWH technologies, products, and use cases.
• Lack of easy-to-access case studies that span the diversity of buildings with commercial HPWHs (120V-integrated HPWHs, 240V-hybrid-integrated HPWHs, indirect central HPWHs, and HPWHs combined with complementing distribution strategies, including point-of-use heaters, heat recovery, master mixing valves, balancing, and others).
• Regulatory barriers to R290 HPWH development and adoption.
• Lack of design tools to select, appropriately size, and model HPWHs outside of multifamily applications.
• Minimal documentation and empirically determined hot water load profiles for various nonresidential building types.
• Ways to streamline electrical panel upgrades to support HPWHs or alternative technologies to minimize or eliminate the need for upgrades.
• Lack of HPWH familiarity for building permitting authorities and health departments.
• Lack of coordination between trades, such as engineering design, electrical, and plumbing.
• Changes in the tariff structure and grid integration incentives to mitigate cost-effectiveness concerns.
• Lack of code readiness activities to support electric ready code requirements for all nonresidential building types that use commercial water heaters.
• Lack of demonstration, guidance, and simplified implementation procedures of dependable demand flexibility and load-shifting controls.
• Lack of trusted distribution system software tools and design guides.
• Lack of trusted software tools and design guides to simplify solar hot water system designs.
• Lack of consistency among code requirements related to hot water setpoint temperatures.
• Lack of experience deploying drain water heat recovery, particularly with the variety of potential heat sources.
• Lack of experienced practitioners who can bring quality commercial-HPWH systems to building owners.
• Potential efficiency and reliability degradation with improperly designed or maintained recirculation systems served by large HPWHs.
• Legionella risk should be addressed through technological means to expand HPWH system use cases and confidence.
• Limited business case and value proposition for contractors to promote and install HPWHs due to higher installation complexity and costs.

CalNEXT Related Projects

• Commercial and Multifamily CO₂ Heat Pump Water Heater Market Study and Field Demonstration
• Market Potential for Heat Pump Assisted Hot Water Systems in Foodservice Facilities
• Commercial Kitchen Hot Water System Design Guide
• Packaged Central CO₂ Heat Pump Water Heater Multifamily Demonstration
• Restaurant Field Monitoring
• Master Mixing Valve Field Study
• Small Medium Business HPWH Emergency Deployments
• Overcoming Key Barriers to Electrification of Foodservice Hot Water in California
• CHPWH Unpressurized Storage Design Optimization
• Characterization of Central Heat Pump Water Heating Deployment in the Multifamily Market
• Multifamily Central Heat Pump Water Heater Field Study
• Central Heat Pump Water Heating Control Optimization
• Tech Evaluation of Air-to-Water Heat Pumps with Thermal Storage
• Return-to-primary Central HPWH System Field Demonstration
• California Multifamily Split HPWH Market Study

Definition

Residential multifunction heat pumps (MFHPs) use an efficient compressor system to serve both the space conditioning and water heating requirements of a household—typically configured as a primarily hydronic system—and can come in multiple formats. Two-function (or combination) heat pump systems serve space heating and water heating demands, while three-function MFHPs also provide space cooling. This technology family is prioritized primarily as a heating, ventilation, and air conditioning (HVAC) water heating integration pathway.

Note: This technology family is cross listed with the HVAC TPM, and also cross-cuts with research initiatives 1 and 2 in the Integrated Systems technology family of the Whole Buildings TPM.

Research Initiatives

Research Initiatives	Performance Validation Needs	Market Analysis Needs	Measure Development Needs	Program Development Needs
Two-function: Water Heating & Space Heating
Three-function: Hot Water, Space Heating & Space Cooling
Selection Guidelines

Opportunities

Residential MFHPs offer a novel pathway to decarbonization, providing an efficient alternative to existing gas-fired equipment or the current approach of multiple heat pumps, which consists of an HPWH and a packaged central heat pump. MFHPs can potentially replace space heating, space cooling, and water heating with a single system, depending on the configuration and design. They also have the potential to provide much higher TSB by extending the benefits of thermal storage to space heating—and potentially space cooling. Additionally, the single heat pump may free up a home’s electrical panel capacity for other electrification uses, offer peak kW demand reduction, and could be deployed with less overall refrigerant charge than current heat pump practices.

MFHPs are relatively new to the US market, and, as a result, there are many opportunities to improve the understanding of their performance and impact on the residential sector. Opportunities for research include:

• Laboratory testing of MFHPs to evaluate system performance in various applications.
• Field demonstration or performance validation of MFHP in new construction and existing building applications across different climate zones.
• Market assessment of MFHP for California homes, including cost and requirements associated with MFHP installation in new construction and existing buildings.
• Assessment of the potential TSB value of MFHPs (energy performance, demand flexibility, fuel substitution, and refrigerant emissions) compared with the efficiency of single-function separate heat pump, HVAC, and water heating equipment.
• Assessment of the bill impacts and customer economics of MFHPs (total costs of operation, operating costs under current rate structures, increased value of load shed, etc.) compared with the efficiency of single-function separate heat pump, HVAC, and water heating equipment.
• Development of modeling tools to compare various MFHP types, guide program development, and/or support early adopting market actors.
• Understanding workforce needs related to upselling practices to customers, comfort level of installation, and maintenance needs.
• Validation of customer amenability and confirmation that proper hot water temperature and space temperatures can be met.
• Field demonstration and cost-saving or bill performance validation for DACs and HTR residences in a fuel-switch scenario where electrical panel capacity is commonly limited.
• Market assessment and field performance of “all-in-one” heat pumps and energy recovery ventilator products.

Barriers

As an emerging technology in the US market, there are many barriers to MFHP adoption to address. It is necessary to understand the performance of MFHPs in the context of US homes, the development of testing and installation standards, and the development of equipment selection guidelines to learn how effective MFHPs could be in meeting California’s decarbonization goals—as well as in encouraging MFHP use in California. Specific barriers include:

• Absence of standardized testing procedures for MFHP evaluation, including heat recovery and simultaneous modes of operation.
• Lack of MFHP product offerings compared to international markets, particularly those where hydronic heating is common.
• Limited products on the marketplace that have been field tested and demonstrate good performance (combined water heating, space heating, and cooling coefficient of performance) and reliability.
• Limited understanding of how well MFHP systems manage occupant thermal comfort.
• Absence of a standardized installation procedure and contractor or installer knowledge.
• Lack of understanding of the efficiency and decarbonization opportunities of MFHPs compared to independent systems.
• Need for market assessment of MFHPs for California homes, including cost and requirements associated with new construction and retrofits.
• Absence of MFHP modeling and design tools.
• Lack of performance standards.
• Lack of awareness, knowledge of benefits, and understanding of sentiment within DACs and HTR communities.
• Retrofits may be constrained by the fact that water and space conditioning systems would rarely have to be replaced simultaneously for existing buildings.
• Current MFHP marketing has positioned these units as an option for luxury condos versus low-income or market rate properties due to their significantly higher installed cost and complexity, but with compactness and luxury (radiant or wall-based space heating) benefits. When compared to separate heat pump units, MFHPs are anticipated to not provide payback due to a range of barriers listed. Currently, MFHPs are not viable for most new construction and retrofit residential applications.

CalNEXT Related Projects

• Residential Multi-Function Heat Pumps: Product Search
• Residential Multi-Function Heat Pumps: Heat Exchanger Improvement
• Residential Multi-Function Heat Pump Laboratory Testing
• Lab Test of a Variable Speed Air-to-Air Multi-Function Heat Pump
• Demonstration of “Combi” Air-To-Water Heat Pump
• Tech Evaluation of Air-to-Water Heat Pumps with Thermal Storage
• Residential Multi-function Heat Pump Market Study
• Multi-Function Heat Pump Research Home Test – Variable Speed

Definition

Commercial multifunction air-to-water heat pumps (AWHPs) can serve water heating and space conditioning needs for multifamily or non-residential buildings. This multifunction category includes combination AWHPs that provide DHW and space heating; it also includes systems that additionally provide space cooling, using refrigerant to move thermal energy in air-to-hydronic and air-to-forced air conditioning distribution systems. They typically can provide two or three functions simultaneously.

Research Initiatives

Research Initiatives	Performance Validation Needs	Market Analysis Needs	Measure Development Needs	Program Development Needs
Combination: DHW & Space Heating
Two-function: DHW & Space Cooling
Multifunction: DHW, Space Heating & Cooling
Sizing Methodology
Modeling & Software Tool Development
Test Method Development

Opportunities

Multifunction AWHPs that can provide multiple hydronic services to a building can address efficiency and decarbonization market needs across multifamily and nonresidential sectors.

Opportunities to address include:

• Testing laboratory applications and field demonstrating various multifunction AWHP systems in new construction and existing buildings.
• Developing sizing tools based on building load inputs and development of multifunction AWHP performance maps.
• Developing modeling and software tools to be validated with laboratory and field demonstration data.
• Assessing electrical infrastructure impacts, especially in retrofit applications. Will multifunction hydronic heat pumps reduce the need for electrical service or panel upgrades when decarbonizing existing buildings? Can a multifunction hydronic heat pump use existing chiller electrical service?
• Conducting studies on retrofitting existing buildings with variable refrigerant flow systems with multifunction hydronic heat pumps. In applications where variable refrigerant flow systems are failing, multifunction hydronic heat pumps may be a cost-effective decarbonization solution with lower refrigerant charges.
• Assessing the benefits in space, cost, energy, peak power, and GHG emissions relative to decarbonization solutions that rely on separate heat pumps for DHW, cooling, and heating.
• Integrating thermal energy storage and quantifying the amount of energy available for load flexibility.

Barriers

Barriers to address include:

• Manufacturers, researchers, programs, and regulators need standardized test methods for combination and multifunction AWHPs with native controls that mimic real world conditions and operation for all products and all configurations.
• Multifunction AWHP efficiency may not be as high as separate heat pumps for DHW, cooling, and heating. This requires improved understanding of the definition of multifunction system efficiency and how controls, heat recovery, and system design can increase efficiency in multifunction AWHPs.
• Impacts on occupant comfort are not known. This requires improved understanding of controls, capacity, and system design that can maintain occupant thermal comfort, e.g., determining whether simultaneous water heating and space heating loads are being met.
• Multifunction AWHP technologies are more popular in international markets, particularly those in which hydronic heating prevails. More research is needed to understand and address the barriers to entry and possibilities in the US market.
• Research has not yet explored the load flexibility of multifunction AWHPs. Controls that incorporate function switching, thermal energy storage, and load up and shed require modeling, development, and testing.
• Early adopter approaches are often custom-engineered, site-built systems. Packaged designs are needed for design, equipment, installation, and commissioning cost compression.

CalNEXT Related Projects

• Multipurpose Hydronic CO₂ Heat Pump for Commercial Buildings
• Commercial Air-to-Water HP Market Study