The IRA May Be Ending, But the Future of Heat Pump Water Heaters Is Just Getting Started

With the passage of the One Big Beautiful Bill Act (OBBA), the Inflation Reduction Act’s (IRA) rebates and tax credits for heat pump water heaters (HPWHs) are now set to expire at the end of 2025. That’s sparked a fair question: What happens when those federal incentives go away?

The answer is that HPWH sales were growing rapidly before the IRA, and will keep growing after it.

IRA tax incentives and rebates started on January 1st, 2025 - but HPWH sales jumped 26% in 2022 alone, before the first tax credit took effect. That kind of growth points to something deeper than policy alone. It reflects a shift already underway, fueled by rising energy costs, smarter tech, and stronger demand for all-electric homes. And, OBBA will strengthen some of these trends.

Here are five reasons why that momentum will continue:

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1. Heat pump water heaters save money in millions of U.S. homes

At 19%, water heating accounts for the second-largest share of household energy use and what you use to heat your water makes a big difference in how much you pay. Nearly half of U.S. homes—46%—use electricity to heat their water with electric resistance water heaters. Another 47% rely on natural gas, and around 6% use oil or propane. While prices vary, these fuels are all expensive and, for many households, increasingly volatile. For more than half of American households, switching to a heat pump water heater means saving real money year after year.

The math is simple: households currently using electric resistance, propane, or fuel oil to heat water are spending far more than they need to. In fact, in most of the country, a heat pump water heater can cut those costs dramatically.

Real-world Performance

In a recent pre-launch pilot, Cala’s system delivered a 76% reduction in electricity used per gallon of hot water compared to a standard electric resistance heater. These results are in line with national expectations and represent meaningful savings for households.

Savings Example

• Family of four in New England:
  
  • With Cala: ~$380/year
    
  • With electric resistance: $1,147/year
    
  • → Annual savings: $676
    

• Same family, using national average electric rate (17.45 cents/kWh):
  
  • With Cala: ~$207/year
    
  • With electric resistance: $624/year

Not Just electric users benefits

Households heating water with propane or fuel oil—common in rural, suburban, and even some urban areas—can also save hundreds each year by switching. That’s part of why states like Maine, where fuel oil dominates, have emerged as early adopters. 

While savings vary by home and location, the underlying truth is clear: for millions of Americans, their current fuel is expensive and switching to a high-efficiency heat pump is one of the fastest ways to lower monthly bills.

What about natural gas?

The key factor here is the ratio of electricity price to natural gas price, which varies across the country,  from as low as 2.1 to as high as 5.1. About 45% of Americans live in states where the ratio is under 3.0, meaning homeowners there can expect to save on operating costs by switching to a Cala heat pump water heater.

And energy costs are rising. 

Even before OBBA, investments in electric grid infrastructure and rising demand have driven price increases. According to the Bureau of Labor Statistics, for the 12 months ending in June 2025:

• Residential natural gas prices jumped 14%
• Electricity prices rose by 5.8%. 
  

Critically, every analysis of the OBBA indicates it will cause further increases in residential electricity and natural gas prices in the years to come because it will lower the amount of wind and solar power put into service. Notably, this will occur while demand for electricity is rising rapidly due to the addition of data centers, the reshoring of manufacturing, electrification, and other trends.

In summary

In a world of rising, unpredictable rates, reducing your energy use is one of the smartest—and simplest—ways to take control. Consumers might not call it hedging, but that’s exactly what it is.

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2. State and Utility Support Remains Strong

The IRA’s national incentives may be sunsetting, but many state and utility programs will continue and that’s nothing new. State-level policy has been one of the primary drivers of energy efficiency for decades, long before federal incentives took center stage.

California, Massachusetts, and New York all maintain ambitious state-level electrification programs. And it’s not just hyper-green states driving this forward—utilities in places like Georgia, Arizona, and the Carolinas are also offering meaningful rebates and promoting adoption, recognizing the cost savings and grid benefits HPWHs provide. And as electric demand rises, utilities are likely to propose more energy efficiency programs; in southern states with well over 50% electric resistance water heaters, HPWHs are one of the most effective and straightforward remaining energy efficiency measures.

3. Grid Interactivity Is Coming

As a result of rapidly rising electricity demand and falling battery prices, a new era of grid interactivity is coming. Often called Virtual Power Plants (VPPs), Distributed Energy Resources (DERs), or demand response (DR), utilities, solar companies, retail electricity providers and other companies are increasingly seeking to control loads in order to balance supply and demand. By virtue of its design, Cala is uniquely suited to shift electricity demand to benefit the electric grid while ensuring ample, comfortable hot water for homeowners.

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4. Awareness has fundamentally changed

Five years ago, HPWHs were barely on the radar for most homeowners and many installers. Today, that’s no longer the case. Category awareness has risen dramatically: by 2022, 96% of installers said they were aware of heat pump water heaters, and about half considered themselves very familiar with the technology. As more households make the switch, word of mouth, contractor confidence, and product visibility will only continue to grow. This shift in awareness is one of the most durable, long-term growth drivers for the category.

5. Broader electrification trends are accelerating HPWH adoption

American households are shifting to electric technologies, not just because they’re sustainable, but because they’re better. Induction stoves heat faster, EVs are quieter and cheaper to maintain, and battery-powered lawn equipment skips the oil changes and can provide back-up power during outages. Of particular relevance, heat pump sales have exceeded furnace sales since 2021; this matters because once the furnace is removed, a heat pump water heater is often a logical next step. Consumers are also paying closer attention to indoor air quality, smart home integration, and long-term energy costs—and heat pump water heaters check every box. Behind it all is the larger, lasting push to electrify in the face of climate change. That driver isn’t going anywhere.

What This Means for the Market and for Cala

The electrification of home infrastructure is a long arc, and we’re just at the beginning. Heat pump water heaters deliver immediate, tangible benefits: lower operating costs, reduced energy use, and cleaner, smarter technology. The underlying drivers behind this shift, including energy prices, technology trends, consumer preferences and climate change itself, remain strong regardless of short-term trends. Every year, roughly 10 million water heaters are sold in the U.S. HPWHs are now less than 4% of the market yet deliver savings in well over 50%. At 20% of the U.S. market, HPWHs will be a $4.5 billion category in annual retail sales—and still just getting started.

Cala isn’t just riding the growth of HPWHs, we’re shaping what comes next. While today’s heat pump water heaters react when water gets cold, Cala takes a fundamentally different approach. We use a flow sensor, external data stream, predictive controls, and integrated hardware to plan ahead, delivering more hot water, greater efficiency, and lower energy costs.

But the real advantage goes beyond the tank. Cala is built to coordinate with the rest of the home: solar, batteries, dynamic electricity pricing, backup power, and more. We’re turning a basic appliance into a smart, responsive system that works in harmony with the grid and the home.

This is about more than product innovation. It’s about setting a new standard, one that reflects where homes, energy, and infrastructure are headed. Cala delivers on what consumers need today and what homes will require tomorrow.

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Sources

• ACHR News: Heat Pump Proponents Optimistic Despite Loss of Federal Incentive

• U.S. Bureau of Labor Statistics: Consumer Price Index June 2025

• U.S. Energy Information Administration: Electricity Price Trends

• New York Times: Electricity Prices and the OBBA

• Cala Systems internal pilot data

• ENERGY STAR / U.S. EPA, Market Transformation Success Story, ACEEE Hot Water Forum, 2024:  Link