Are You Drowning in Hot Water Costs?

Question: It’s time for me to select a new hot water heating system for my home. I expect energy costs to continue to rise over time so I want to select the most economic system to own. How do I know which is the best solution?

There are a number of functions in a home in addition to the heating and cooling system that have the option of which fuel to select. Water heating is the third highest household energy cost representing 14% of your total energy use according to the Department of Energy (DOE). Why, because water is being heated and distributed throughout the home most of the time 24 hours a day and 365 days a year. When selecting a new hot water appliance, considering the cost of operation is important, especially as these units last for at least 10 years.


As with all energy functions water heating can be achieved through a number of different ways. The most common being a central tank fueled by either natural gas or electricity; however, there are a number of other solutions including a heat pump, passive and photovoltaic solar, propane and heating oil. There are also tank-less gas and electric units and heat pump HVAC system desuperheaters. Selection depends on what fuel you have available and what other systems you have in your home.


The two most popular solutions are natural gas and electrical emersion central hot water tanks; however, in most cases electrical emersion heaters are an expensive option and only used if natural gas or other alternatives are unavailable. New heat pump units are a good substitute for an electric only solution.


As an example using the DOE on-line calculator for water heaters the average home using 64 gallons of water a day and using an electric heater would cost $551.00 per year and a natural gas heater would cost $274.00 per year; a 51% saving using natural gas. Propane would cost $616.00.


Of course these calculations can be achieved manually.


The energy required to heat water in BTUs


= (Volume in gallons x Water weight) x Temperature change ΔT


Where the volume in gallons is 64

The weight of water is 8.345 pounds per gallon

The temperature rise from cold to hot is 77°F (50°F to 127°F)


Natural Gas Unit:


Average gas water heater has a 62% efficiency factor (EF)


                                                (64 x 8.345) x 77 = 41124 BTU


                                                Now   O/P BTU x EF = I/P BTU


                                                            41124 x 62% = 66329 BTU


Cost for Gas = #Therms x (cost per Therm)


Therm = 100,000 BTU and costs $1.13


(66329/100000) x $1.13 = $ 0.75 per day


Cost per year = $0.75 x 365 = $274 pa


Electric Unit:


Electric water heater has a 94% efficiency factor (EF)


Cost of Electricity = 41124 x 94% = 43749 BTU


Convert BTU to KWh x (cost of KWh)


KWh = 3412 BTU and costs $0.118


(43749/3412) x $0.118 = $1.51 per day


Cost per year = $1.51 x 365 = $552 pa


Electricity cost $278.00 more per year or $2780.00 over a 10 year life expectancy


Heat Pump:


If we now consider a heat pump water heater system, which of course is only half a heat pump. Heat pumps can generally operate in both directions heat in the winter and cool in summer; air conditioners only operate in the cooling direction. Water heaters only work in the heating direction.


The DOE identifies the energy factor (EF) as > 2.0 for a heat pump water heater, but the correct term is the Coefficient of Performance (COP). The COP shown by heat pump water heater manufactures is higher and depends on the differential ambient temperature and internal tank water temperature. If the ambient temperature is 60°F and the tank water temperature is 120°F then the COP is just over 2. As with all air based heat pumps the higher the ambient temperature the higher the COP because more energy is converted from the air to the water. This fact highlights that a heat pump water heater should be positioned either in conditioned, or semi conditioned space or close to the furnace where the surrounding air would be warmed by conduction and convection heat losses from the furnace.

Source: Bonneville Power Administration


Now if we assume that the average COP is 2 then this represents a 200% efficiency factor gain as opposed to the loss of the gas unit at 62% and the electric unit of 94%.


Cost of electricity = 41124BTU/200% = 20562 BTU


Convert BTU to KWh x (cost per KWh)


(20562/3412) x $0.118 = $0.71 per day


Cost per year = $0.71 x 365 = $259.55 pa



Based on the electric emersion, electricity costs $293.00 more per year than the heat pump or $2930.00 over a 10 year life expectancy. Gas costs $15.00 more per year or $150.00 over a 10 year life expectancy.


It is always necessary to compare savings with capital cost and establish pay back time, it is also important to consider health and safety effects when using different fuels. If using natural gas or any other combustible fuel it is recommended that direct vent units are used. To maximize water efficiency a timer based recirculation system is recommended as it prevents water loss while waiting for hot water to reach the use point from the tank.




Tankless water heaters have become more popular in recent years because they appear to be more efficient than having a 50 gallon tank of hot water being heated 24 hours a day 365 days a year. Demand and central tankless units heat the water as it is required; however, the flow rate can be very restrictive and in most cases multiple units have to be used.


As with any hot water system the peak water demand volume and expected water temperature has to be calculated and then an appropriate sized system selected. As tankless systems have little or no storage capacity they have to generate peak volume in real time and peak volume can be quite high if you have multiple bathrooms and the kitchen or laundry room being used at the same time. Typical demand water heaters can generate between 2 -8 gallons per minute of hot water at a temperature of 120°F. Gas units are more efficient than electric units, and pilotless gas units are even more efficient; however, in many cases it will be necessary to have multiple units to support the peak load.


Tankless units have a higher energy factor (0.82) than tank systems (0.67), and do not suffer from stand by heat loss; many have stabilized water pressure and temperature versus flow control through bypass and mixing valves. Of course, there are disadvantages with these systems they cost more to buy and install, there are start-up delays from initial flow to heated water and as they will be operating at peak times (no storage) they will be using peak fuel charges.


Calculating operating costs are the same as for the other systems:


Where the volume in gallons is 64

The weight of water is 8.345 pounds per gallon

The temperature rise from cold to hot is 77°F (50°F to 127°F)


Natural Gas Tankless Unit:


Average gas tankless water heater has an 82% efficiency factor (EF)


                                                (64 x 8.345) x 77 = 41124 BTU


                                                Now   O/P BTU x EF + I/P BTU


                                                            41124 x 82% = 50151 BTU


Cost for Gas = #Therms x (cost per Therm)


(50151/100000) x $1.13 = $ 0.567 per day


Cost per year = $0.567 x 365 = $207 pa


Electric tankless unit:


Average electric tankless water heater can have a 98% efficiency factor (EF)



41124 x 98% = 41963 BTU


(41963/3412) x $.118 = $1.45 per day


Cost per year = $529 pa


In summary a regular high efficiency natural gas central tank water heater costs $274 per year to run, the electric emersion unit costs $552, the heat pump $259, the natural gas tankless unit $207 and the electric tankless $529. These are the operating costs, now it is necessary to look at the purchase and installation costs and compare the savings to the additional costs to establish a break even and payback period.


Example: Using the high efficiency natural gas tank unit versus two natural gas tankless units. Direct vent tank unit is $1400 installed, tankless unit $1000 installed.


Initial cost tanked unit $1400 installed

Initial cost tankless units $2000 installed

Cost to operated tanked unit $274 per year

Cost to operate tankless units $207 per year


Initial cost differential $2000-$1400 = $600

Savings per year $274-$207 = $67


Break even and payback time $600/$67 = 8.9 years

Typical life for these units is 10 – 15 years


This simple analysis and these simple calculations make clear which solution is best for your set of requirements. From the answers you be the judge as to which system is best for you.


For more information on water heaters see: