Heat pump water heaters use a heat exchanger on top of the tank or outside of your home to remove heat from the air and put it into the water. These energy-efficient water heaters are much taller and wider than electric resistance tanks. Since they generally pull warm air in and shoot cold air out the top of the unit, they are usually ducted to the exterior of the home. Heat pump water heaters use less energy-efficient electric heating elements as a backup if you can’t generate enough heat with the heat pump.

Installing a heat pump water heater in an existing home can be tricky. Since the units are wider and taller than standard water heater tanks, they may not fit in the existing space. Also, they should be vented to the exterior or installed in an area with a large volume of air like a well-ventilated garage.