Heat pump water heaters operate by transferring heat from the surrounding air or ground to heat the water in a storage tank. To achieve this, they rely on a cycle of evaporation, compression, condensation, and expansion of refrigerant fluid.
First, the refrigerant fluid evaporates, absorbing heat from an external source. Then, the compressor increases the temperature of the refrigerant fluid before the heat is transferred to the water via a heat exchanger. This raises the water's temperature.
Finally, the refrigerant expands and returns to the heat exchanger to begin the process again. This heat transfer method is highly efficient.