Why a Heat Pump Water Heater May Not Pay Off for Solar Homeowners Under NEM 2.0 in California
- Roy Greengrass
- Jul 19
- 2 min read
Updated: Jul 19
Why a Heat Pump Water Heater May Not Pay Off for Solar Homeowners Under NEM 2.0
California’s push for building electrification and decarbonization has spotlighted heat pump water heaters (HPWHs). Promoted as energy-efficient alternatives to gas water heaters, HPWHs often come with attractive rebates and tax credits. But what if you already have rooftop solar under NEM 2.0? Switching from gas to a heat pump water heater might not be the financial home run you expect.
The Numbers Behind the Hype
Consider a household of two in the Bay Area with a typical 50-gallon gas water heater using around 13 therms per month (a modest amount). At an all-in gas cost of $2.61 per therm, that’s about $33.93 per month in gas costs.
Replacing that with a 240V heat pump water heater (HPWH) using roughly 127 kWh per month, the monthly energy cost isn’t based on retail electricity rates—it’s based on the solar electricity you’re no longer exporting to the grid under NEM 2.0. In this real case, each kWh exported earns about $0.193. That means running the HPWH costs around $24.51/month in lost export credit.
Net monthly savings: $9.42.
At a net installed cost of $3,000 (after a 30% federal tax credit and $1,200 local rebate), the simple payback period is approximately 26.5 years. When full replacement costs and equipment life cycles are included in a net present value (NPV) model over 26 years, the HPWH costs over a significantly lower margin than keeping the gas unit.
Why Isn’t This Widely Known?
Policy-driven messaging: Agencies prioritize carbon reduction over individual ROI.
Optimistic assumptions: Common calculators assume higher gas usage or full retail electric rates.
Bundled marketing: Savings advertised often come from whole-home electrification packages, not the water heater alone.
Lack of personalized tools: Few modeling tools accurately reflect real-world conditions such as NEM structures and actual solar exports.
When Does a Heat Pump Water Heater Make Sense?
HPWHs are excellent choices in several scenarios:
Homes without gas connections
Solar customers under NEM 3.0 with lower export credits
When included in broader electrification upgrades (HVAC, battery, or electrical panel)
Households experiencing high or rising gas rates
But for solar-equipped homes under NEM 2.0 with moderate gas use and high solar export credits, the math rarely favors the switch.
Final Takeaway
Electrification should be strategic, not automatic. Solar homeowners enrolled in NEM 2.0 should base upgrade decisions on personalized, detailed financial analyses—not just marketing hype. Your gas water heater might be more economically efficient than you realize.
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