This technology has many applications, including water heating for boilers or indoor swimming pools, or cooling indoor spaces.

Heat pumps draw heat from one space and transfer it to another. The use of heat energy found in the environment can make them more efficient than heaters that merely generate heat from electricity. The Coefficient of Performance can be three or four times that of heaters, resulting in substantial electricity savings.

Typical heat pumps use a volatile refrigerant that vaporises at one end, absorbing heat, is then compressed and, reaching the other end, condensed, releasing heat energy. The fluid is then allowed to expand as it recirculates. Heat pumps may be reversible, that is, able to transfer heat in both directions. Such units use a valve to switch the roles of the two coils, one of which acts as the evaporator and the other as the condenser. Using a reversible heat pump is slightly less energy-efficient than using two separate non-reversible units.

Small installations may use outside air as the heat source or sink, while larger ones may use water. Air-source heat pumps are relatively easy and inexpensive to install. However, they vary greatly in efficiency, with greatly lowered efficiency in extreme weather, particularly when the outside temperature drops below 5 °C. The decline in efficiency may, in some cases, be mitigated by choosing a low-temperature optimized heat pump. Another problem that arises at very low temperatures is frost. Some heat pumps have an automatic defrosting cycle, but this is very costly in terms of electricity use. Ideally, the airflow should face a wall rather than an internal door, and the inside and outside parts should be on either side of the same wall.

Units with larger heat exchange coils tend to be more efficient. Heat exchangers are more effective for heating rather than cooling inside spaces, since extra heat is released by the compressor and released inside by the condenser.

Since air heat pumps use fans to circulate the air in interior spaces for greater efficiency, they may also include filters that remove pollutants as an added benefit. The air mover produces some noise which may be more obtrusive in some units and installation types than others. Heat pumps with an inverter can save even more energy by using a thermostat to merely maintain the required temperature instead of operating at a constant speed.