ET25SWE0026 - California Multifamily Split HPWH Market Study

This project will assess the market opportunity and technology performance of new split heat pump water heater (HPWH) designs for direct replacement of inefficient gas (including natural gas and propane) and electric water heaters located in constrained spaces in California multifamily buildings. Split HPWHs differ from integrated HPWHs, allowing the storage tank and the heat pump unit to be in different locations.  For many multifamily buildings and mobile homes, the existing water heater tends to very small capacity (less than 40 gallon or “low boy”) and often located in interior closets or other space constrained areas within an apartment or home. Currently, there are three ENERGY STAR split HPWH models available in the U.S. market, but only a single model offered in a compact tank size (43 gallons). However, increasing performance and diversity of HPWH models and demand for HPWH solutions to address constrained multifamily and mobile home applications is advancing the development of new split HPWH models in 2025. 

The project will define and quantify the potential opportunity for this technology in California through detailed market data analysis, direct stakeholder interviews and building energy modeling to qualify the pathway and impact of these new, alternative heat pump technology options for existing energy efficiency and demand-side management programs. Although the project research will primarily focus on multifamily building applications, the energy modeling will also include an assessment of potential impacts of split HPWH applications in mobile homes. 

Conventional and high efficiency measure research will include gas and electric plug-in 120V and hard-wired 240V supply equipment, as well as “low boy” and “slim” compact water heater designs. Throughout this project we will review the growing knowledge about these products by coordinating closely with national and other state-wide initiatives and California programs such as the Northwest Energy Efficiency Alliance (NEEA), TECH Clean California (TECH), Self-Generation Incentive Program (SGIP), California Market Transformation Program (CalMTA) and existing low income and market rate multifamily programs. We also will coordinate with implementation teams for the Equitable Building Decarb program on how these products can fit into their program offerings. 

This project will build on existing research including a 2023 field evaluation of plug-in 120V HPWHs that included a split HPWH model, but additional manufacturers and models offered currently outside of the U.S. will be included in the market research. The project team will leverage existing research and findings captured in recent CalNEXT projects including the Low-Income Multifamily Housing Characteristics Study (ET22SWE0033), Multifamily In-Unit Heat Pump Study (ET22SWE0035) and the Emergency Replacement Heat Pump Water Heater Market Study (ET23SWE0020). Based on tenant, building owner and manufacturer interviews, and installation data, the market study will identify the key barriers and decision factors, as well as provide recommendations for increasing the opportunity for lower cost split heat pump water heaters in existing California buildings. 

California’s plan to phase-out the sale and installation of new gas-fired water heaters beginning in 2030 poses a significant challenge for over 1.3 million multifamily apartments with space-constrained in-unit gas water heaters. Unitary heat pump water heaters (HPWH) often face barriers to installation in multifamily apartments due to ventilation, noise and electrical panel limitations, as well as condensate removal. This study evaluated the potential for new split-system HPWH models to overcome these existing barriers in multifamily applications by separating the outdoor installation of the heat pump unit and indoor location of the storage tank. The study explores a diverse set of new split-system HPWH designs; estimates the market opportunity and need within California multifamily buildings; evaluates their performance relative to conventional gas and electric water heaters and unitary HPWHs; identifies the limitations and barriers related to installation requirements, test procedures, and program requirements; and assesses their compatibility with existing California HPWH programs. Findings indicate split-system HPWHs offer improved installation flexibility and energy savings, but adoption faces barriers including potentially higher equipment and installation costs, limited product availability, restrictions with utility program eligibility, and contractor training gaps. Additional challenges include permitting complexity, split incentives between property owners and tenants, and performance testing and energy savings protocols that do not accurately assess the impacts of interior and exterior installations. Recommendations include updating statewide and utility program criteria, funding field demonstrations and contractor training, updating test procedures and energy savings protocols, reducing permitting hurdles, and promoting cost compression and simplified designs to accelerate market development. Progress on supporting the market development strategies for split-system HPWHs will be critical to overcoming barriers and supporting California’s electrification and emissions reduction goals for water heating.