A heat pump water heater is a device that uses electricity to transfer heat from one place to another, rather than generating it directly. This method of operation makes heat pump water heaters two to three times more energy efficient than traditional electric resistance water heaters. A heat pump water heater works similarly to a refrigerator that operates in reverse: whereas a refrigerator extracts heat from an enclosed space and releases it into the surrounding air, a heat pump water heater extracts heat from the surrounding air and transfers it to a closed tank to heat the water.