a heat pump water heater installed in a Denver basement with the title "Heat Pump Water Heater Rebates in Colorado"

You may have heard the buzz lately about the increased rebates from Xcel Energy in Colorado for new heat pump installs. If so, you’d be right!

Back on January 1, Xcel actually tripled their heat pump rebates for heat pump related installations. This includes new heat pump water heaters, and heat pump HVAC systems as well.

In this article, I’ll go through everything you need to know about this exciting new incentive, along with other information to hopefully help make sure your installation goes smoothly. Let’s get going!

What is a Heat Pump Water Heater Anyway?

All the rave about heat pump waters is down to their energy efficiency. They use new heat pump technology to take heat from the ambient/surrounding air where it’s installed, move it into the water heater tank, and then it serves your home just like any traditional natural gas or electric water heater does.

They usually even install or go in the exact location of your existing tank. The heat pump unit is installed on top of the tank itself. It makes a low humming noise when it’s on, and it emits cool air (because it took heat from it to heat up the water), much like a very small A/C system.

The result is using incredibly efficient technology that’ll lower your Xcel Energy bill over time.

an A.O. Smith 50 gallon heat pump water heater with the words heat pump on top and water heater tank and two arrows pointing to the different components

How Much Do You Save With A Heat Pump Water Heater?

The short answer is that it depends on your household and family’s usage, but we see patterns around the Denver Metro that I can speak to in terms of savings:

If you have a natural gas water heater: You’ll save about half on your energy spent for water heater, or perhaps a little more.

If you have a electric resistance water heater: You’ll save about 70-75% on your energy spent for water heater, or perhaps a little more. This is huge!

And let’s not forget – unfortunately we all have to replace our existing water heater anyway. Many natural gas water heaters will easily last 11-15 years or more, but the time inevitably comes when we have to spend the money for a new one.

That being the case, this is a great time to look into HPWH’s (Heat Pump Water Heaters) anyway.

How To Maximize Xcel Energy’s HPWH Rebate

Xcel Energy has hundreds of millions of dollars allocated over the next year or so towards their Clean Heat Plan, which is a goal to reduce greenhouse gases (GHG’s) throughout Colorado by 30% by 2030.

To get there, they need to move fast to electrify the grid. This is where the rebates are coming in for you.

For a limited time, Xcel is offering $2,250 towards a new heat pump water heater installation. The normal HPWH rebate is $750, and it will likely go back to that once the new funds run out.

To take advantage of the rebate you must be a residential electric, gas, or combo (electric/gas both) customer of Xcel Energy in Colorado.

That’s it! And there is no limit to the number of units installed, if you’re replacing a one-for-one tank and in case you have more than one.

Qualifying Equipment & Installation Requirements

To make sure you get the rebate, there are some requirements that Xcel needs to ensure it’s good equipment and installed by a licensed professional.

  1. The equipment must be listed on the AHRI Directory of Certified Product Performance. Be sure to filter for:
    • Heater Type: Storage
    • Energy Source: Heat Pump With Tank
    • ENERGY STAR CERTIFIED? – Yes
    • Potential Eligibility for IRA Tax Credit – Yes
    • Must be 80 gallons or less
a list of AHRI approved heat pump water heaters, showing A.O. Smith in the list at the bottom when filtered

There are a couple other points regarding Energy Star and the current IRA tax credit that you can also get, but I’ll cover those below and in additional articles.

Find an Installer

You may use any licensed contractor or plumber to install your water heater. Xcel has a vendor list that you can search as well.

Once permitted, installed, tested, and finished, you file the prescriptive rebate with Xcel Energy after everything is finished.

*I will caveat that this rebate process can be cumbersome and lengthy. Oftentimes Xcel takes 6-8 weeks or longer to process and send us (or you as the customer if you take it directly) the rebate funds.

Here’s an even bigger thing to note – If you don’t fill out the rebate form exactly right, they ask you for a correction and you are sent to the back of the queue. This means another 6-8 weeks of processing time in addition to the first 6-8 weeks.

Unfortunately, we have seen homeowners wait for rebates due to submittal errors for months. Some errors are just honest mistakes because the process in indeed lengthy and cumbersome for every single rebate application. But also sometimes contractors and homeowners who haven’t done it before just don’t know the process, and this gets you in trouble.

The solution: Let the contractor submit the rebate application for you, and ideally they do many of these rebate applications ongoing so that they are comfortable with the process. This will also be less work for yourself as the homeowner, because you’ve got enough to do!

an A.O. Smith heat pump water heater installed in one of our customer's homes in Denver. Shows the installation in the corner with copper piping connecting all the water up top.
Here’s a heat pump water heater installed in a basement in Denver. Notice the heat pump unit on top, the great copper piping work, the expansion tank installed and strapped to the wall, and the drain line feeling into the drain in the basement. This is what a good install looks like in our opinion!

Once the rebate application is submitted, we all eagerly await for the rebate check.

Xcel Energy’s Whole Home Efficiency Bonus Rebates

If you’re on the path to full energy efficiency electrification, you may be looking at multiple projects to help get you there. This can often include:

  • Air sealing
  • Insulation
  • Cold Climate Heat Pump HVAC Upgrades
  • The Heat Pump Water Heater
  • Solar & Solar Batteries
  • Electrical Panel Upgrades
  • & More

To describe how the WHE bonus rebate program works, Xcel Energy explains it best on their latest Whole Home Efficiency program form:

f a customer installs three or more qualifying measures, the customer will receive an additional bonus rebate of 25% of the standard rebate amount for each measure completed within the two year time period. The bonus rebate is a one-time offer for each measure completed.

For heat pump water heaters specifically, this adds another $562.50 to your rebate amount if you meet the above criteria.

You must first complete an Xcel BPI Certified energy audit (we do these for over half of our customers and have BPI Certified auditors on the team. You then sign up for the WHE program as a homeowner, and you must use approved contractors (we are on it) on the WHE list for the respective project types.

Once you complete the three projects, you can submit for these bonus rebates.

If planned out correctly, the bonus rebates can add up to thousands between all of the projects. Please see our extensive article on the Whole Home Efficiency Program here for more.

We very commonly see a need for air sealing and insulation upgrades, which only help heat pumps (both HVAC and water heating) work more efficiently. You can hit the three bonus rebate projects with a combination of air sealing, insulation work, cold climate heat pump hvac systems, heat pump water heaters, and a few others. We can help you through the decision process for this, as we’re working on these projects every day!

What Other Incentives Are Available In The Denver Metro Area?

If you live around Denver, look out for these other incentives! They are typically based on the City and/or County that you reside in:

  • If you’re in the City of Denver: The Denver CAREes program offers $500 for a Smart Heat Pump Hot Water Heater. The rebate must not exceed 60% of the total install cost.
  • If you’re in the City of Boulder: The City offers $750 for a HPWH if you’re replacing a natural gas tank unit, and $250 if you’re replacing an electric resistance water heater.
  • If you’re in the County of Boulder: The County offers $200 if you’re replacing a natural gas tank water heater, and $100 if you’re replacing an electric resistance water heater. If you’re around Boulder, but not in the City of Boulder itself, you’ll get this one. If you’re in both the City and County of Boulder, you’ll get both!
  • If you’re in the City of Louisville: The City offers $500 for a HPWH if you’re replacing a natural gas tank unit, and $250 if you’re replacing an electric resistance water heater.
  • If you’re in the Town of Superior: The Town offers $500 for a HPWH if you’re replacing a natural gas tank unit, and $250 if you’re replacing an electric resistance water heater.

There may be more, and the list and amounts change quickly and all the time. Be sure to check with your local City and County to see if there incentives for your specific address.

Some of these rebates also require preapproval and take some planning up front. If you’re not sure about the process, feel free to ask us.

State of Colorado Heat Pump Water Heater Tax Credit

In addition to the above, the State of Colorado offers a $500 state tax credit for heat pump water installations.

This is getting crazy isn’t it? But the great news is that all these local incentives stack on each other, if you follow the eligibility standards and rebate requirements.

This one is pretty strict, and you must use an approved contractor on their list. The rebate also has a minimum up-front discount split between the contractor and the homeowner. There are some other rules and things to follow, but you can ask us here about specifics if you’re wanting a new HPWH.

Federal 25C IRA Heat Pump Water Heater Tax Credit

This one is still around for the time being, but we know that federally there are many renewable, energy efficiency, and electrification incentives and funds at threat of being terminated.

However, under current federal law, you can claim up to $2,000 for a heat pump water heater installation, not to exceed 30% of the project cost.

You will take this tax credit at tax time when you file your taxes for the current ax year and use IRS Form 5695.

a screenshot of the federal 25C IRA heat pump tax credit details, showing a credit for 30% of the project cost up to $2,000 in the taxable calendar year.

Federal Tax Credit And Combining HPWH and Heat Pump HVAC

One thing we’d like to note on the federal tax credit is that the $2,000 maximum (as far as we know – consult your tax professional for confirmation) combines both the heat pump water heater and the heat pump hvac installations.

So if you install both in the same year, your tax credit is capped at $2,000. Some customers like to do the cold climate heat pump HVAC system first this year, and then do the HPWH in the next year. This is so that you can get $2,000 each year.

This is of course, a bit of a gamble given the political climate, and there are many other variables at play. Feel free again to reach out to us to talk through strategy and latest info on these HPWH incentives.

Other Things to Note About HPWH’s and Xcel’s Rebate

I’ll try to cover some other questions and things to be aware of in a Q&A-based format to try to be concise:

Yes! It applies to any home within the Xcel Energy utility service territory within Colorado.

  • Heat pump water heaters need a decent-sized utility room or space so that it can pull enough heat around the surrounding air.
    • For a 50 gallon unit, it needs about 700 to 800 cubic feet of space in the room. This realistically means about a 10ft long x 10ft wide x 8ft tall room.
    • You can also put louvered doors on, or add vents and connectors to the outlets or inlets on the heat pump itself to breathe correctly and to send the air coming in and out as you like.
  • Ideally you have a drain already existing in your utility room. HPWH’s (unlike existing tank units) condensate because of the heat pump technology and it needs a place to drain the water.
    • If you don’t have a drain, no worries! You can install a condensate pump to pump the water out and uphill from (usually) out of your basement or lower-floor utility room.

Usually just a day or less without any complications and proper planning. Sometimes even half a day!

Wrapping It Up

I hope this was helpful in how the Xcel Energy heat pump water heater rebates work for around the Denver Metro area in Colorado. Let me know if I missed anything.

For those of you who want to move away from gas and fully electrify, the HPWH is a critical piece of that efficiency puzzle and is one of the easier, faster projects compared to others you’ll do.

If you have questions, want to talk strategy as mentioned above, or if you’d like a quote on a new heat pump water heater to capture Xcel’s latest huge rebate, or more, please contact us here.

Thanks so much!

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