California Multifamily Split HPWH Market Study

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.