Heat pumps can be extremely cost-efficient due to the fact that they do not generate heat, but transfer it from one place to another. Compared to electric heating, a heat pump can cut energy costs by as much as 30 to 40 percent, depending on the climate.
A heat pump works like an air conditioner in reverse. A refrigerant liquid absorbs heat from the outdoors, expanding into a gas. It is then pressurized and pumped indoors where it condenses and releases its heat. Most heat pumps use air as a heat source, but this can lead to problems when temperatures approach freezing. In extremely cold climates, a heat pump has difficulty keeping up and may need to be supplemented with a traditional furnace or space heaters.
One way to improve the performance of a heat pump is to use geothermal energy. Instead of absorbing heat from the air, these units run the refrigerant liquid underground, absorbing heat from the earth. Since the earth a few feet below the surface can remain much warmer than the air above even in winter, this provides more heat for the system to use. Specialized compressors and heat exchangers can further improve the ability of a heat pump to work in cold climates.