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 existing 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. To get a better sense of the manufacturers that make the most efficient equipment, see STEP 2 for links to regularly updated product listings.

Fuel Options

The most efficient systems available are generally gas-fired. If you currently have an oil-fired boiler, your best options are to purchase in 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. Electric water heaters are not recommended.

If you currently have an electric water heater and natural gas is available in your area, a switch might save you a lot of money. Even though electric models have a higher energy factor than fuel-burning models, electric resistance is a very expensive way to generate heat. It does not have great environmental benefits either, since electricity is only as clean and efficient as the fuel (often coal) that generates it. Before you rule out electricity, though, check with your utility company. It may offer special off-peak rates or options for purchasing renewable power that may make electricity a more attractive option for you.

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. To determine your family’s first hour rating, use the Peak Water Demand Worksheet

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

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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 water heater that is efficient and 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.

Demand Water Heaters

Tankless water heaters do not contain a storage tank like conventional 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) may be limited. By eliminating standby losses from the tank, energy consumption can be reduced by 10-15%. 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:

• Do you use hot water efficiently? Have you installed modern, low-flow faucets and showerheads? Tankless water heaters perform much better when coupled with efficient uses.
• 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 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 tankless system may not meet your needs.
• If you have installed high efficiency fixtures and 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. At most, an electric unit may be appropriate for small applications, such as a remote bathroom without a bath tub.

If you choose a tankless unit, look for a gas-fired model eligible for 2006-2007 federal tax credits, at least an Energy Factor (EF) of 0.80. To learn more about tankless water heaters, visit these manufacturers' sites.

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. 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, but there are few sources for these products. Several manufacturers have discontinued their lines of heat pump water heaters due to lack of consumer and contractor awareness. Below is a current list of manufacturers.

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 it 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. The manufacturers listed below sell indirect or fully integrated boiler/storage tank combinations.

Product Name	Manufacturer	Website	Phone
Dunkirk or Utica HL	ECR International	www.ecrinternational.com	315-797-1310
System 2000	Energy Kinetics	www.energykinetics.com	800-323-2066
Or simply ask your plumber or heating system contractor about installing an indirect tank.

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

Using the sun to heat hot water is a simple technology that has 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, incentives in the sun-belt are making a comeback. 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.

• Contact the Solar Energy Industries Association to see whether incentives for solar technologies are offered in your state.
• Contact the Solar Rating and Certification Corporation for a list of manufacturers in your area.
  
• Contact the Florida Solar Energy Center for a list of rated high-quality solar water heaters.

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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.

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