Heat pumps are essential for industrial decarbonization, but their high installation costs and the challenge of selecting the most effective design from over seventy options hinder widespread adoption. Steam-generating heat pumps (SGHPs) offer a cost-effective solution by integrating with existing infrastructure. However, predicting their performance is complex due to the varying irreversibilities of components with temperature lift and condenser temperature. This study highlights the superiority of exergy-based methods over energy-based methods in identifying favorable design improvements for SGHPs. Exergy analysis provides a clearer understanding of component-level inefficiencies and potential enhancements. For instance, the introduction of a sequential compressor with an intermediate cooler, based on energy analysis, reduced the heat pump’s techno-economic performance. In contrast, exergy-based methods led to the addition of either an internal heat exchanger or a flash vessel, both of which improved performance. The internal heat exchanger, in particular, increased the coefficient of performance from 2.3 to 2.8 and reduced operational costs by 0.8 M€ after 5 years, while also decreasing the initial investment by 135 k€ and total operational costs from 10.3 M€ to 8.7 M€. Advanced exergo-economic analysis further investigates the factors influencing SGHP performance, focusing on the required steam temperature and heat pump cycle configuration. The results indicate that direct steam production via a mechanical vapor recompression (MVR) system is the most economically viable option. When direct production is infeasible, a single-stage subcritical (SS) cycle feeding steam at 80 °C into an MVR is optimal for steam temperatures above 130 °C. At intermediate temperatures between 80 °C and 130 °C, a closed cycle heat pump performs comparably or better, with the preferred configuration varying based on sink temperature and temperature lift. These insights enhance the understanding of SGHP design and highlight pathways for industrial implementation, demonstrating that exergy-based methods are effective in selecting the right configuration for steam-generating heat pumps.