The heat pump water heater draws in ambient air from the surrounding environment. This works best in warm environments but air can be at a relatively low temperature, even in colder climates. The refrigerant in the evaporator coil absorbs heat from the air, causing it to evaporate and turn into a low-pressure gas.

The low-pressure gas is then compressed by a compressor located inside the water heater. This compression increases the temperature and pressure of the gas, making it hotter than the surrounding air.

The hot, pressurized gas is passed through a condenser coil, typically located at the bottom of the heat pump water heater. The condenser coil is in contact with the water that needs to be heated. As the hot gas flows through the coil, it releases its heat into the water, causing the refrigerant to condense back into a liquid.

As the refrigerant condenses and transfers its heat to the water, the water temperature increases. The hot water is then stored in a tank for later use.

After releasing its heat, the refrigerant becomes a low-pressure liquid again. It passes through an expansion valve, which reduces its pressure and temperature, preparing it to repeat the cycle. The now-cooled refrigerant returns to the evaporator coil, where it absorbs heat from the surrounding air once more, and the cycle continues.