Heating water is the second largest single user of energy in the home. While we all enjoy a soothing hot shower, rising energy costs—along with their adverse environmental impact—make it a good time to take a closer look at the various options now available.

Types of Water Heaters

The most common hot water system used in homes. Water is kept constantly heated in the storage tank by electricity, natural gas, oil, or propane. Hot water is drawn out of the top of the tank when a faucet is turned on and cold water flows in the bottom to replace it.

Also known as on demand water heaters. Water is heated by electricity or gas when the water flows through it without the need for a tank.

Water is circulated from the tank through a solar collector where it is heated by the sun. If the water in the tank is not hot enough, a conventional water heater is used to bring it up to the desired temperature.

Heat pumps use electricity to move heat from one place to another. Heat pumps can be used for water heating alone or in combination with your heating and air conditioning system.

Factors in Choosing a Water Heater

So which type of water heater is right for your home? There are several factors to consider including the price of the system and installation, the cost and availability of energy sources, the energy factor (EF) rating of the water heater, and whether the system meets new water heater regulations.

EF ratings were established by the U.S. Department of Energy to compare the energy efficiency of various products. The EF scale for water heaters runs from a low of 0.5 for gas storage tank heaters to 2.0 for electric heat pump models. The higher the EF, the more efficient the water heater. The EF number takes into account:

  • Recovery Efficiency: How efficiently the heat is applied to the water.
  • Standby Loss: The percentage of heat loss per hour of the stored water.
  • Cycling Loss: The loss of heat as the water circulates through the unit.

On April 16, 2015, new water heater efficiency regulations went into effect under the National Appliance Energy Conservation Act (NAECA). All new water heaters must meet new, higher efficiency requirements. The benefit is that any new water heater will be more energy-efficient, saving you money.

Water Heater Energy Cost Calculator

Most water heaters run on either electricity, natural gas, or propane. Since energy prices and EF ratings can vary widely, fill in the values in the calculator below to compare energy costs in your area.

While the actual amount spent will depend on how much hot water you use, the calculator will give a comparison between the various energy sources available. Preset values in the calculator represent average EF rating for tank type water heaters and energy prices in the U.S. for 2015.

Learn more about the pricing of water heater installation in our in-depth article.

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Pros and Cons of Different Types of Hot Water Heaters

Here are some of the advantages and disadvantages of the most common types of water heaters:

  • Inexpensive and widely available in a variety of sizes.
  • Waste 10%-15% of energy through radiant heat loss.
  • Can run out of hot water during extended use.
  • Life expectancy 10-15 years.
  • Tank size is increasing to meet new NAECA standards, so may not fit all homes.
  • Average EF rating 0.67.
  • Cost $200-$400 plus installation.
  • Take up little space and can be mounted inside or on an outside wall.
  • Meets NAECA standards without increase in size or installation costs.
  • Little or no standby energy loss.
  • Use 20% to 30% less energy than comparable storage tank models.
  • Hot water flow rate is limited by the size of the unit.
  • Can be expensive and costly to install.
  • Life expectancy 20 or more years
  • Average EF rating 0.75.
  • Whole house tankless systems cost from $600-$1000 or more plus installation.

Available in electric, natural gas, and propane models, tankless water heaters are considered more energy efficient than storage tanks but cost substantially more to buy and install.

Gas tankless water heaters often require a larger gas line and modifications to the vent pipe while large tankless electric models may draw more current than the house is designed to handle.

Small single use electric units are less expensive and can be mounted under a sink. They come in handy if you have a half bath or kitchen sink located away from the main hot water heater.

Be sure and check the recommended flow rate on tankless water heaters to see if it is enough to meet your needs.

While they won’t run out of hot water like traditional storage tanks, multiple users can exceed the flow rate and cause the water temperature to drop.

  • Low to no energy cost.
  • Savings can pay for the unit in 8-12 years.
  • Requires the collector to be in full sun throughout the year.
  • Expensive and costly to install.
  • Usually use a conventional water heater for backup.
  • Life expectancy 20 or more years.
  • Do-it-yourself kits are available for $2,000. Professionally installed systems run $5,000-$7,000.

The collector on a solar water heater needs to be located where it will receive full sunlight throughout the day. For maximum efficiency it should face south and be tilted at an angle equal to the latitude.

Solar water heaters will work at a lower slant or when facing southeast or southwest, though not as effectively.

Solar hot water heaters use either natural circulation or a pump to move water between the collector and storage tank.

Some systems circulate the water from the storage tank through the collector while others use a heat exchanger in the tank to keep the fluid in the collector separate from the water in the tank.

Though expensive to buy and install, solar water heaters are eligible for up to a $2,000 federal tax credit through 2008.

  • Low operating costs.
  • Can only be installed in locations that stay between 40°-90° F (4°-32° C).
  • Do not operate efficiently in a cold space.
  • Can install an air-source heat pump that combines heating, cooling, and water heating; or a stand alone heat pump just for heating water.
  • Can be two to three times more energy efficient than electric water heaters.
  • Higher initial cost than storage water heaters.
  • Colder climates using a heat pump water heater may add to heating and cooling loads.
  • Systems cost between $1,400 to $2,000 including installation.

Heat pump water heaters use electricity to move heat from one place to another, which is why they are so efficient. A stand alone, air-source heat pump water heater pulls heat from the surrounding air and uses it to heat the water.

Systems are available as a stand-alone unit, with a tank and back-up heating elements, or you can retrofit an existing electric storage tank heater.

Heat pumps do not work well in cold climates and are best in moderate temperature zones that range between 40° and 90° F (4° to 32° C).

They also require at least 1,000 cubic feet of space around the heater to work properly.

Heat pump systems are two to three times more energy efficient than standard storage tank models and offer a low operating cost. However, they still produce CO2 emissions and can be costly to install.

It’s recommended that homeowners considering a heat pump water heater know the considerations and requirements before purchasing.

Hot Water Heater Energy Efficiency Payback

To find out how long it would take an energy efficient system to earn back its added expense, divide the additional cost of the energy efficient system by the yearly savings in energy. The answer is the number of years it would take the energy efficient system to pay for itself.

$ added cost ÷ $ saved in energy a year = years to payback

Editorial Contributors
avatar for Danny Lipford

Danny Lipford


Danny Lipford is a home improvement expert and television personality who started his remodeling business, Lipford Construction, at the age of 21 in Mobile, Alabama. He gained national recognition as the host of the nationally syndicated television show, Today's Homeowner with Danny Lipford, which started as a small cable show in Mobile. Danny's expertise in home improvement has also led him to be a contributor to popular magazines and websites and the go-to source for advice on everything related to the home. He has made over 200 national television appearances and served as the home improvement expert for CBS's The Early Show and The Weather Channel for over a decade. Danny is also the founder of 3 Echoes Content Studio, TodaysHomeowner.com, and Checking In With Chelsea, a décor and lifestyle blog.

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