How Heat Pumps Work!
A Heat Pump Water Heater System heats water by transferring the heat from the surrounding air to the water using a refrigerant. The refrigerant is heated by a heat exchanger that absorbs heat from the surrounding air (Figure 1). This example shows a Heat pump with a seperate unit from the tank. Your Heat pump may have the unit on top of the tank, but the principle is the same. Heat pump water heaters are 4 to 8 times more efficient than an electric element storage water heater.
Figure 1: Heat Pump Water Heater System
Figure 2: Typical installation layout