Heat pumps, air conditioning and refrigeration: Unit economics
Dearer to buy, cheaper to run: when the switch pays
What this tab covers What it costs to move a unit of energy this way: capital and operating costs, tariffs, utilisation and how it compares with the alternatives.Heat pumps cost more to buy than boilers but less to run, because a COP of 3 to 4 more than offsets electricity being dearer than gas per kWh in most markets. The deciding number is the ratio of electricity price to gas price.
Key costs
| Measure | Value | Note |
|---|---|---|
| Installed air-to-air unit | 3,000 to 6,000 USD per unit (2022)1 | Typical installed cost; air-to-water systems with radiator changes cost 2 to 4 times a gas boiler |
| Annual bill saving versus fossil heating | about 300 (United States) to 900 (Europe) USD per year (2022)2 | Depends heavily on local energy prices |
| Industrial heat pump capital cost | about 10 times a gas boiler and 3 times a coal boiler ratio3 | In China, COP below 2 cannot compete with gas at current prices; above 3 favours the heat pump |
| Reversible heat pump instead of central AC (US) | 200 to 500 extra USD3 | Small premium because the hardware is nearly the same |
| Absorption chiller installed cost | 1,800 to 6,000 (single stage); 2,000 to 3,300 (two stage) USD per refrigeration ton5 | 1 refrigeration ton = 3.517 kW of cooling, so about 510 to 1,710 USD per kW single stage (calculated) |
| Ground-source payback | 5 to 10 years4 | Installation can cost several times an air-source system; inside parts last up to 24 years, ground loop 50+ years |
| Regional production cost gap (air-to-water) | about 60% more to make in Europe than in China%3 | Air-to-air units are about 40% cheaper to make in China than in Japan |
Where the money goes
| Item | Share or amount |
|---|---|
| Components and materials (of factory production cost) | 60 to 85%3 |
| Running cost | Electricity is the only fuel; its share of lifetime cost depends on price ratio and COP (see worked example)1 |
Worked example (calculated, prices assumed): a house needs 12 MWh of heat a year. A gas boiler at 90% efficiency burns 13.3 MWh of gas; at an assumed 0.05 USD/kWh that is about 670 USD. A heat pump with a seasonal COP of 3 uses 4 MWh of electricity; at an assumed 0.17 USD/kWh that is about 680 USD. The two break even when electricity costs about 3.3 times gas per kWh (COP divided by boiler efficiency). Where the ratio is lower, as in much of the United States and the Nordics, the heat pump wins on running cost; where electricity is heavily taxed, the higher purchase price takes longer to recover.
Sources
- The Future of Heat Pumps International Energy Agency, 2022
- The global energy crisis is driving a surge in heat pumps, bringing energy security and climate benefits International Energy Agency, 2022
- Heat Pumps Step Up: What the IEA's Heat Pump Monitor 2026 Means for Heating, Industry and Energy Security (summary of IEA Heat Pump Monitor 2026, https://www.iea.org/reports/heat-pump-monitor-2026) IEA Heat Pumping Technologies TCP, 2026
- Heat Pump Systems US Department of Energy, Energy Saver, 2025
- Combined Heat and Power Technology Fact Sheet Series: Absorption Chillers for CHP Systems US Department of Energy, 2017