Instead of creating all of its heat directly with electric resistance elements, a heat pump water heater moves heat from surrounding air into the tank. ENERGY STAR certified heat pump water heaters use about 70% less energy than standard electric water heaters.

Yes, but installation location is important.  Heat pump water heaters need an appropriate location with adequate surrounding air and installation conditions. A qualified contractor can evaluate the space.

The best time to compare options is before your existing water heater fails, when you have time to review equipment and rebate requirements.