It's a good idea to know the different types of water heaters available before you purchase one:
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When selecting a replacement water heater for your home, consider the following:
Also be sure to examine ways to reduce your hot water use, such as washing clothes in cold water. You may also want to explore other options such as drain-water heat recovery to save money on your water heating bill.
When selecting a new water heater, it's important to consider what fuel type or energy source you will use, including its availability and cost. The fuel used by a water heating system will not only affect annual operation costs but also the water heater's size and energy efficiency.
Fuel type and its availability in your area may narrow your water heater choices. The following is a list of water heater options by fuel or energy source:
If you have more than one fuel type available in your area, it's a good idea to compare fuel costs, especially if you're building a new home. Even if you're replacing a water heater, you may find that you'll save more money in the long run if you use a different fuel or energy source.
However, if you are converting from one fuel type to another, there are other cost considerations, such as adding a breaker or running a gas line to the water heater and venting it outside. Contact your utility for current fuel costs or rates.
The type of water heater you choose will also affect your water heating costs. One type of water heater may use a fuel type more efficiently than another type of water heater. For example, an electric heat pump water heater typically is more energy efficient than an electric conventional storage water heater.
Also, an electric heat pump water heater might have lower energy costs than a gas-fired conventional storage water heater, even though local natural gas costs might be lower than the electricity rates.
In , 19% of the energy used by the average American home went to heating water. That means it a great opportunity to save with efficiency. When it comes time to replace your water heater, the unit you choose could cut a few dollars from your bill.
Here’s what you need to know about your water heater options and what it costs to operate.
There are a surprising number of water heater types available today.
Here are the initial costs to expect by type of water heater.
More than 80 percent of water heaters in US homes are gas or electric conventional tank systems. That number, though, was about 94% in .
Conventional water heaters cost between $600 to $7,200 to purchase and install, according to our survey of online estimates. Tank water heaters can run on electric, gas, geothermal power, or propane. The installation cost is typically most of the expense. Electric tank water heaters tend to be less expensive up front.
There are more variables to the purchase and installation cost. Larger tank size, switching fuels, the removal of your old water heater, and any additional equipment needed could all increase the cost.
Putting an Energy Star-certified storage water heater in your home could qualify you for a tax credit of 30% of the purchase and installation costs up to $600 of credit, as part of the federal Energy Efficient Home Improvement Tax Credit. The tax credit expires at the end of .
Credit: US EIA
Tankless water heaters can run on gas or electricity. They heat water on demand and do not keep water in a tank 24-7.
The Department of Energy estimates tankless water heaters save about 8%-34% on a home’s energy for water heating. The average home spends $400-$600 a year on water heating, so the savings can be up to about $200 a year.
Purchase and installation prices range from $600 to $5,400, according to our review of online estimates. A tankless water heater has an expected lifespan of 20 years or longer, which can mean decades of energy savings.
Putting an Energy Star-certified tankless water heater in your home could qualify you for a tax credit of 30% of the purchase and installation costs up to $600 of credit, as part of the federal Energy Efficient Home Improvement Tax Credit.
Heat pump water heaters, also known as hybrid electric or hybrid heat pump water heaters, are the most energy efficient water heaters. Purchasing and installing a heat pump water heater costs about $1,200-$5,000, according to Energy Star. Heat pump water heaters have an expected lifespan of 13-15 years.
A heat pump water heater uses electricity to move heat from the air or ground to your water. They also have settings and scheduling functions you can use to heat water when you need it and save energy when you don’t, increasing efficiency and savings.
Like conventional and tankless water heaters, there are Energy Star-certified models and potential federal tax credits. The credit is 30% of your cost up to $2,000 of credit and expires at the end of .
If you’re switching from a natural gas water heater to an electric one, you will pay for a new unit, the installation, and a bit extra for converting from gas to electric. Conversion from gas to electric adds about $250-$600 to the installation according to online estimates, similar to switching from a gas furnace or range to an electric model.
Heat pump water heaters are typically more expensive up front, but installation may be easier and less expensive in some cases. Energy savings, the unit’s expected lifespan, and incentives such as tax credits are other typical benefits.
In addition to federal tax credits Energy Star tank, tankless, and heat pump water heaters, could qualify for home energy rebates.
This rebate program is a federal program, but paid out by states. The best place to see your eligibility is your state's homepage for the program.
Once you have a new water heater, what are the estimated operating costs?
Your exact expense here will depend on your local gas or electric utility rates, the BTUs or watts your system uses, and your hot water usage. In most cases, gas water heaters will have lower operating costs thanks to current low gas prices.
Gas water heaters have an energy cost of $120-$360 a year, with averages generally coming in at $200-$250 a year, according to a range of sources. The wide range varies due to tank capacity, water usage, and natural gas rates.
With conventional electric resistance water heaters, the annual energy cost range is $400-$600. Again, these electric numbers are variable based on your local utility rates.
Another factor in long-term operating cost is lifespan. Electric tank water heaters average a longer lifespan, usually lasting 10-15 years. Gas water heaters have an average lifespan of 8-12 years.
Electric tankless water heaters have lower operating costs than gas tankless water heaters primarily because they are more energy efficient. Electric tankless water heaters can be more than 95% efficiency while high efficiency gas models peak just below that.
Electric tankless water heaters are typically, depending on your home’s usage and other factors, less expensive than tank water heaters because they work on demand. There’s no energy usage for storage or stand-by energy being used much of the time when you don’t need hot water.
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Electric tankless water heaters cost $75-$300 a year to operate. Gas tankless water heaters cost $175-$500, according to retail and consumer sites .
Both types of tankless heaters have usual lifespans of 20 years or more, which is a major financial plus.
Installing an Energy Star-certified heat pump water heater can take your annual energy cost to $104-$160. Energy Star estimates an annual electric bill for a family of four can be reduced by about $550 compared to electric resistance water heaters, and the lifetime energy savings from a heat pump water heater may be more than $5,000.
One measure of efficiency shows that heat pump water heaters are some of the most efficient models out there. Uniform Energy Factor (UEF) measures how much of the energy a water heater uses goes to heating the water and how much is lost.
While most tank and tankless water heaters have UEF ratings up to about 0.95 (95% efficiency), heat pump water heaters can have UEF ratings of 3.3 to 4.1 (330-410% efficiency). Because heat pumps move heat rather than create it, you can get the equivalent of 3.3 to 4.1 kWhs of heating for every 1 kWh of electricity you put in.
There are some general differences in gas and electric water heaters’ expenses. Gas rates are typically lower than electricity rates. Electric water heaters are usually more efficient. Upfront costs are typically lower with electric.
This whole calculation can be different depending on your energy source. If you’re using home solar power to generate your own renewable electricity, your water heater’s electricity demand may be covered by your home solar panels.
Whether you’re using solar power or not, there are ways to use less electricity to heat water. An average shower uses 10 gallons of (usually) hot water. A load of laundry uses 25 gallons of (sometimes) hot water. Should you not shower? Or not wash your clothes? Those are bad ideas.
You can install efficient or low-flow showerheads and faucets throughout your home. If you’re buying a new washer or dishwasher, getting Energy Star-certified appliances will save energy. If you’re not up for a new appliance, only washing full loads or using cold water cycles more often can make a difference. Checking faucets, showers, and pipes for leaks can save water and energy. If a leak drips one drop a second for a year, it would leak 1,661 gallons of water.
When you’re shopping for a new water heater, you can get a good idea of the operating cost thanks to the EnergyGuide label, the yellow sheet of paper with energy consumptions and cost estimates attached to many new appliances, water heaters included.
EnergyGuides’ estimates for costs and consumption are based on national averages and might vary from your actual use. The label will list assumptions that go into calculating the cost like the electricity rate and performance of similar water heaters.
This EnergyGuide label for a dishwasher shows the typical facts and figures given. Credit: Federal Trade Comission
You might need to replace your water heater because it’s near the end of its life or you just want an upgrade.
Here are some signs your water heater is on its last leg.
Your water heater might not meet your needs for any number of reasons.
With any water heater, routine and proper maintenance will likely improve its efficiency and extend its lifespan.
For tank water heaters maintenance includes flushing a quart of water through the tank every three months, checking the temperature and pressure valve on the tank every six months, and checking the anode rod every 3-4 years. The US Department of Energy recommends checking the owner’s manual for your appliance’s needs.
Tankless water heaters typically need less maintenance. For some models, it’s recommended to flush it with vinegar, but check the owner’s manual first. Other recommendations include checking the anode rod and the temperature and pressure valve.
Heat pump water heaters should have regular professional maintenance, just like an HVAC heat pump. Maintenance steps, whether DIY or by a professional, also include cleaning or replacing air filters as often as the manufacturer recommends and cleaning the condensate drain about once a year.
Using solar power for hot water can provide many of the same benefits home solar panels overall. The US Department of Energy estimates solar water heaters can reduce a home water heating bill by 50-80%.
Most solar water heaters harness the sun’s energy by having sunlight warm an outdoor water supply or using special solar thermal energy collectors. Although you can run a water heater with electricity generated by solar panels, self-contained thermal solar water heaters can be another great way to go green and save money on monthly energy expenses.
Switching to an electric water heater — be it conventional, tankless, heat pump, or solar — may be a good idea on its own. It’s also a key step in electrifying your whole home. Pairing home electrification with solar lets you power more of your home with clean, renewable energy.
Each of these steps may save you money, make your home more energy independent, and reduce your home's use of carbon-based fossil fuels. Palmetto can help you understand how solar and electrification might work at your home. Check out our easy solar savings calculator or home energy advisor to start.
How much does a water heater cost?
The cost of a water heater involves the water heater itself, installation, additional required construction or system components, and a number of other factors. It’s wise to consider long-term factors, too, such as fuel cost and operating costs. The initial cost of buying and installing a new water heater can go from a few hundred dollars to $5,000 or more for larger projects.
Is a tank or tankless water heater better?
It depends on your needs. Conventional tank water heaters may be a better option for families or properties that need larger capacities of water. Tank water heaters usually have a lower initial up-front cost compared to tankless water heaters. Tankless water heaters are more energy efficient and have longer lifespans compared to conventional. In many cases, tankless water heaters will save money over the long term because of efficiency and using energy only on demand.
Heat pump water heaters are the most efficient option on the market.
What is a heat pump water heater?
A heat pump water heater operates differently than an electric or gas water heater. Those options consume a fuel — gas or electricity — to heat the water. A heat pump water heater instead moves heat to the water, in the same way a refrigerator removes heat from its interior. Because it’s not generating heat, it can be highly efficient.
Can I switch from gas to electric water heating?
Yes. Switching from gas to electric water heating may make sense for multiple reasons. There will likely be added expense in the transition from gas to electric, but the benefits can make up for it. Benefits with electric can include using a cleaner fuel source, using your own (solar!) energy source, and saving money, especially if a new water heater is part of a larger home electrification and energy efficiency plan.
Can you lower your water heater temperature?
Yes. Lowering your water heater's temperature can save you money and reduce your risk of scalding. People with certain health concerns should avoid reducing the temperature of their hot water.
Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
Actual costs, savings, and environmental impact will vary. The numbers provided on this page are estimates only.
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