Water Heating

This is a consumer page on water heating. For more resources related to water heating, visit the water heating topic page.

After heating and cooling, water heating is typically the largest energy user in the home because it is necessary for so many domestic activities. Whether you’re replacing a worn-out, inadequate, or obsolete water heater or looking for the best model for a new house you’re building, it pays to choose carefully. Follow these steps to learn more; often you can substantially reduce your energy use simply through water conservation.

Step 1: Fuel Choice and Sizing
Step 2: Compare Life-Cycle Costs
Step 3: Select a New System
Step 4: Minimize Operating Costs (new and existing systems)


PLEASE NOTE: ACEEE does not rate or make recommendations regarding specific manufacturers or trade names.


Step 1: Fuel Choice and Sizing


Fuel Options

More U.S. households use natural gas to heat water than any other fuel source, and about 40% use electricity. A small percentage use propane or heating oil. Typical water heaters in the U.S. are electric resistance or atmospheric natural gas tank water heaters.  Electric water heaters typically have Energy Factors (efficiency ratings) of about 0.9, while gas ones will be rated about 0.6.

The energy factor is based on site energy use, which is the amount of energy your water heater uses. However, it takes about three times as much source energy (this includes the energy needed to generate and distribute a fuel) to deliver a unit of electricity to the site as gas, since only about 1/3 of the fuel energy that enters the power plant reaches the house. The rest is lost due to inefficiency at the power plant and the power lines. Therefore, an electric water heater that appears to be 50% “better” than a gas one (0.9 Energy Factor versus 0.6 Energy Factor) actually uses much more source energy than the average gas water heater.

There is a lot of good news, though. Manufacturers are bringing many kinds of advanced water heaters to the U.S. market, with much higher efficiency. The big news for electricity users is the Heat Pump Water Heater, which (like any other heat pump) takes energy from the air to heat water. At the same time, the heat pump water heater dehumidifies the air, saving the cost of buying and operating a separate dehumidifier. This is especially beneficial when the water heater is located in a basement and/or in a humid climate. Heat pump water heaters use one-third to one-half as much electricity as conventional electric water heaters.

For natural gas, many customers are choosing tankless or instantaneous water heaters. These are very compact, and generally wall-hung. Their rated efficiency is higher than that of tank units, and some units are Energy Star rated. However, the delivered efficiency gains may be somewhat more modest in typical home use (see table below). And, they can be very expensive to install in retrofit applications, requiring special ductwork and upsizing the gas lines. Condensing gas water heaters are a very promising new entry to the residential market. A condensing gas water heater works like a normal tank-type water heater, except that before the combustion gases are vented outside, the heat in those gases is captured and used to help heat the water in the tank.

In general, most choices available for natural gas are also sold for propane.

Oil users have fewer choices. If you currently have an oil-fired boiler, your best options are to purchase an indirect tank that connects to your boiler (best if your boiler is relatively new), or an integrated unit that provides space heat and hot water in one.

Conventional electric water heaters (other than heat pump water heaters) are not recommended. If you don't have access to natural gas, you may want to consider a heat pump water heater.


Sizing a Water Heater

The capacity of a water heater is an important consideration. The water heater should provide enough hot water at the busiest time of the day. For a storage water heater, this capacity is indicated by its "first hour rating," which accounts for the effects of tank size and the speed by which cold water is heated. First hour rating is included in product literature and on the EnergyGuide label alongside efficiency rating.

For tankless, solar and indirect water heaters, sizing requires a few other calculations that your installation contractor can help you with.

Top of Page


Step 2: Compare Life-Cycle Costs


Water Heater Type Efficiency (EF) Installed Cost1 Yearly Energy Cost2 Life (years)3 Total Cost (Over 13 Years)4
Conventional gas storage
High-efficiency gas storage
Condensing gas storage
Conventional oil-fired storage
Minimum Efficiency electric storage
High-eff. electric storage
Demand gas (no pilot) 5
Electric heat pump water heater
Solar with electric back-up

1. Purchase costs include our best estimates of installation labor and do not include financial incentives.
2. Operating cost based on hot water needs for typical family of four and energy costs of 9.5¢/kWh for electricity, $1.40/therm for gas, $2.40/gallon for oil.
3. Life expectancy for water heaters is highly variable, largely dependent on water hardness, and on maintenance.

4. Future operating costs are neither discounted nor adjusted for inflation.
5. Currently, there is too little data to accurately estimate life expectancy for tankless water heaters, but preliminary data shows that tankless water heaters could last up to 20 years. For all water heaters, life expectancy will depend on local variables such as water chemistry and homeowner maintenance.

Top of Page


Step 3: Select a New System


Think about replacement now. If you're like most people, you’re unlikely to go out looking for a water heater until your existing one fails, leaving little time to look for a modern, efficient water heater that better meets your needs. There are a lot of technologies available and the most efficient water heaters are also the hardest to find and the most expensive to purchase. So it pays to think about your options now:

| Storage | Demand (Tankless) | Heat Pump | Indirect | Integrated | Solar |

Storage Water Heaters

These are by far the most common type of water heater in the U.S. today. Ranging in size from 20 to 80 gallons (or larger) and fueled by electricity, natural gas, propane, or oil, storage water heaters transfer heat from a burner or coil to water in an insulated tank. Because heat is lost through the flue (except in electric models) and through the walls of the storage tank, energy is consumed even when no hot water is being used.

New energy-efficient gas-fired storage water heaters are a good, cost-effective replacement option for your current water heater if you have a gas line in your house. They have higher levels of insulation around the tank and one-way valves where pipes connect to the tank, substantially reducing standby heat loss. Keep an eye out for the price to come down for newer super-efficient "condensing" and "near-condensing" gas water heaters, which save much more energy compared to traditional models but are currently niche products. For safety as well as energy efficiency, fuel-burning water heaters should be installed with sealed combustion ("direct-vented" or "power-vented). Sealed combustion means that outside air is brought in directly to the water heater and exhaust gases are vented directly outside, keeping combustion totally separate from the house air.

Gas Storage Recommendations
(Typical 40-gallon tank)
Electric Storage Recommendations
(Typical 50-gallon tank)
  1. Look for an Energy Star label with Energy Factor (EF) = 0.67
  2. Ask for a direct-vented (sealed combustion) model.
  1. If you have an existing gas line, look into installing a gas water heater or consider a heat pump water heater.
  2. If you must stick with an electric resistance water heater, the most efficient models start at EF 0.93 and will save about 3% relative to EF 0.90.

How do I know whether a particular model fits the bill?

Search in the AHRI database to find available products by energy factor and tank size.
Be sure to specify your "Energy Source," "Gas Type," and "Heater Type." Specify "Residential Water Heaters" under "Section" and enter your desired minimum Energy Factor and storage volume in the provided fields before running the query.

Demand Water Heaters

Tankless water heaters do not store hot water, unlike conventional North American water heaters. In tankless (also known as "demand" or "instantaneous") water heaters, a gas burner or electric element heats water only when there is a demand for hot water. Hot water never runs out, but the flow rate (gallons of hot water per minute) is limited. Eliminating standby losses from the tank reduces energy waste. Before rushing out to buy a demand water heater, be aware that they are not appropriate for every situation. Here are some of the factors to consider:

  • Consider your water distribution system. If the hot water uses in your home are relatively close together, with short hot water lines between them, a tankless system may work well for you. In many U.S. homes, water uses are widely spaced at opposite ends of the house. If this is the case in your home, a single tankless system with long distances between the system and the point-of-use can increase frustration, because each time you turn off the water, the next time you use the water again it will restart with a "slug" of cold water.
  • If your water lines are not too long, consult an experienced contractor to find out if your gas supply is adequate and proper venting is feasible.
  • Finally, residential wiring generally will not support a tankless electric water heater with large enough capacity to serve multiple uses. If you rely on electricity to heat your water, a tankless system is unlikely to meet your needs. However, an electric unit may be appropriate for small applications, such as a remote vanity or half-bath.

If you choose a tankless unit, look for a gas-fired model with at least an Energy Factor (EF) of 0.8.

Heat Pump Water Heaters

If you currently have a standard electric resistance water heater, models that use a heat pump are more efficient because the electricity is used for moving heat from one place to another rather than for generating the heat directly.  The heat source is outside air or air in the basement or room where the unit is located. Heat pump water heaters are not very common at this time, but their market share is growing. They are available with built-in water tanks called integral units, or as add-ons to existing hot water tanks. A heat pump water heater uses one-third to one-half as much electricity as a conventional electric resistance water heater. In warm climates they may do even better.

Indirect Water Heaters

If you use a boiler, ask your contractor about the feasibility of installing an indirect water heater. These use your boiler as the heat source by circulating hot water from the boiler through a heat exchanger in a well-insulated water heater tank. In the less common furnace-based systems, water in a heat exchanger coil circulates through the furnace to be heated, then through the water storage tank. An indirect water heater is one of the best options because it eliminates the tremendous flue losses associated with gas-fired storage water heaters but without the hassles and extra costs of tankless gas water heaters. When used with a modern, high-efficiency boiler, these energy savings hold true even in the summer when your boiler isn't needed for heat. These systems can be purchased in an integrated form, incorporating the boiler or furnace and water heater with controls, or as separate components. Gas, oil, and propane-fired systems are available.

The efficiency of a combination water and space heating system is indicated by its combined appliance efficiency rating (CAE). The higher the number, the more energy efficient. Combination appliance efficiency ratings vary from 0.59 to 0.90. Look for CAE of 0.85 or higher.

Integrated Water Heaters

These combined units feature a powerful water heater that provides space heating as a supplemental end-use. Heated water from the water heater tank passes through a heat exchanger in a central handler to heat air which is then blown into the home’s duct system. As with indirect water heaters, look for CAE of 0.85 or higher.

Solar Water Heaters

Technologies that use the sun to heat hot water have been around for decades. Solar water heaters can be a great investment because they offer a virtually cost-free and renewable energy source for one of your home’s top energy-users. But because the feasibility and benefits of a solar water heater will vary based on a number of variables, such as where you live, which way your roof is facing, and how many people live in your house, it takes some extra savvy to know what your costs and savings will be.

Solar water heaters are much less common than they were during the 1970s and early 1980s when they were supported by tax credits, but the units available today tend to be considerably less expensive and more reliable. Plus, federal and state tax incentives are available again. The initial cost of a solar water heater is still much higher than other competing technologies, but if you can make the upfront investment (which is easier with tax breaks and rebates), it can save 50–75% of your water heating energy over the long term. Areas that receive sun consistently for 3 or more seasons will not only save more energy, but consumers are likely to have more products to choose from at lower costs. Make sure you find a qualified installer who can properly design and size the back-up water heating system.

Top of Page


Minimize Operating Costs


Even if you aren’t going to buy a new water heater, you can save a lot of energy and money with your existing system by following a few simple suggestions.

  • Conserve Water. Your biggest opportunity for savings is to use less hot water. In addition to saving energy (and money), cutting down on hot water use helps conserve dwindling water supplies, which in some parts of the country is a critical problem. A family of four each showering five minutes a day can use about 700 gallons per week—a three-year drinking water supply for one person! Water-conserving showerheads and faucet aerators can cut hot water use in half. That family of four can save 14,000 gallons of water a year and the energy required to heat it.
  • Insulate Your Existing Water Heater. If your electric water heater was installed before 2004, installing an insulating jacket is one of the most effective do-it-yourself energy-saving projects, especially if your water heater is in an unheated space. The insulating jacket will reduce standby heat loss—heat lost through the walls of the tank—by 25–40%, saving 4–9% on your water heating bills. Water heater insulation jackets are widely available for around $10. Always follow directions carefully when installing an insulation jacket.
  • Insulate Hot Water Pipes. Insulating your hot water pipes will reduce losses as the hot water is flowing to your faucet and, more importantly, it will reduce standby losses when the tap is turned off and then back on within an hour or so. A great deal of energy and water is wasted waiting for the hot water to reach the tap. Even when pipes are insulated, the water in the pipes will eventually cool, but it stays warmer much longer than it would if the pipes weren’t insulated.
  • Lower the Water Heater Temperature. Keep your water heater thermostat set at the lowest temperature that provides you with sufficient hot water. For most households, 120°F water is fine (about midway between the “low” and “medium” setting). Each 10°F reduction in water temperature will generally save 3–5% on your water heating costs. When you are going away on vacation, you can turn the thermostat down to the lowest possible setting, or turn the water heater off altogether for additional savings. With a gas water heater, make sure you know how to relight the pilot if you’re going to turn it off while away.

Page last updated December 2012