Residential water heating consumes a lot of energy—almost 3 Quads per year or 13% of residential energy use—making it the second-largest home energy user. But the energy efficiency of the conventional storage water heaters that dominate the market is nearing its technical potential. Efficiencies in space heating, cooling, and appliances have advanced much more rapidly, outpacing the mainstream water heater market. The bottom line is that energy efficiency for this major user is in, well, hot water.

There are huge opportunities for improved performance in storage water heaters, but also many barriers to advanced technologies. Ignoring standby losses, the current storage water heaters run at about 85% efficiency. Raising that combustion efficiency by much reduces flue gas temperatures to the point that condensation can corrode the water heater, the flue, and even the chimney. One could try to push combustion efficiency and cut standby losses, as federal standards have done; one could also move toward true condensing technology. The condensing option, while it can be cost-effective on a lifecycle basis, can also be expensive.

To remedy this persistent lag in water heater efficiency, the Public Interest Energy Research (PIER) program of the California Energy Commission funded a large-scale effort to explore opportunities and barriers. The "SEGWHAI" (Super Efficient Gas Water Heating Appliance Initiative) project has looked comprehensively at first cost, installation cost, and technology options. SEGWHAI is developing a program for manufacturers to bid for incentives for the best possible non-condensing units, and the most cost-effective condensing units. As a SEGWHAI participant, ACEEE expects these new models to have Energy Factors (EF) of about 0.70 and 0.82, respectively. The current federal standard is around .60 EF, depending on tank size, so this would increase efficiencies by 17% - 37%. Shifting the U.S. residential water heater market to these high-performance technologies could save up to 1 Quad of national energy use.

SEGWHAI is working closely with the Consortium for Energy Efficiency (CEE) so that CEE and its members, which operate the majority of large energy efficiency programs in the United States, can launch a new hot water program as quickly as possible. The hope is that rebates will be "on the street" as early as 2008.