July 18, 2022 | Neil Kolwey

Although there may be supply chain constraints on some heat pump products, new rebates and tax incentives make this year — or next — an excellent time for homeowners to consider adding a new heat pump.

Heat pumps are very similar to central air conditioning (AC) systems, but they have a reversible valve that allows them to provide both heating and cooling. Because Colorado’s electricity is becoming more and more renewable-based, heat pumps significantly reduce the home’s carbon emissions from heating.

Currently, the cost difference (or incremental cost) of installing a heat pump instead of a centrally ducted AC system is about $1,800 for an average Colorado home. With new rebates and tax exemptions for heat pumps, that incremental cost will disappear in the next two years.

For the rest of 2022, Xcel Energy is offering bonus rebates of an additional $700-1,000 on most types of heat pumps. These rebates should help increase heat pump sales during this calendar year.

In 2023, Xcel is also proposing higher rebates, through its new “2023 Demand-Side Management & Beneficial Electrification Plan,” submitted to the Colorado Public Utilities Commission on July 1. Although this plan has not been approved yet, the proposed heat pump rebates for 2023 would be similar to the combined rebates for 2022 shown in the table below.

Xcel Energy 2022 heat pump rebates

Air source heat pump	15+ Seasonal Energy Efficiency Ratio (SEER), 11.5+ Energy Efficiency Ratio (EER), 9+ Heating Seasonal Performance Factor (HSPF) with quality installation	$800 + $700 bonus = $1,500
Cold climate air source heat pump	18+SEER, 11.5+ EER, 9.5+ HSPF with quality installation	$1,000 + $1,000 bonus = $2,000
Mini-split heat pump	15+ SEER, 11+ EER, 9+ HSPF	$500 + $1,000 bonus = $1,500
Cold climate mini-split heat pump	18+ SEER, 11+ EER, 9.5+ HSPF	$600 + $1,400 bonus = $2,000
Ground source heat pump with quality installation	14.1+ EER, closed loop, has gas heat as the primary heat source previous to the GSHP installation, or for new homes	$400 per heating ton + $500 bonus
	14.1+ EER, closed loop, with electric resistance heat as previous heat source	$300 per heating ton + $500 bonus

The bonus rebates apply to all qualifying heat pumps installed and invoiced between July 11 and December 31, 2022.

Many other Colorado utilities have rebates similar to Xcel’s. Most Tri-State member co-ops offer heat pump rebates of $300 per ton for SEER 15-17, (e.g., $1,200 for a 4-ton unit), and $450 per ton for SEER 17+ ($1,800 for a 4-ton unit). There are several utilities with rebates higher than Xcel’s. For example, San Isabel Electric offers a $2,100 rebate for a 3-ton heat pump unit, SEER 15+. (All heat pump rebates offered by Colorado utilities and local governments can be found at LoveElectric.org/rebates).

In addition, in 2023 the new Colorado State tax credit and sales tax exemption for heat pumps and heat pump water heaters will go into effect. The tax credit (10%) and sales tax exemption (2.9%) add up to an additional 12.9% discount on the price of the equipment, not including installation charges. For example, if the price of a new ducted heat pump is $8,000 (not including installation), then the tax credit and sales tax savings would amount to $1,032. (Note that the tax credit applies as long as the homeowner pays enough state taxes.)

The state tax savings on a new heat pump installation, plus utility and local government rebates, should be more than enough to offset the incremental cost of a heat pump versus an AC system. For homeowners who need to replace an AC system or are considering adding cooling, the Southwest Energy Efficiency Project suggests asking a qualified heat pump installer for a bid on a heat pump instead of AC. (A list of all qualified heat pump installers can be found at LoveElectric.org/installer-listing.)