Water Heating

In the United States water heating accounts for approximately 18% of a home's utility bill each year.1 The goal of this webpage is to decrease this energy use by providing a discussion of: important terminology associated with evaluating water heaters, water heater selection, types of water heatersenergy sources for water heating, sizing your hot water tank, cost of different water heaters, reduce heat loss from your current hot water systemreduce hot water use, and heat recovery from hot water systems. If you’re looking for simple retrofits for your hot water heating system, we also include a water heating upgrades section that serves as a portal to websites that introduce energy saving strategies for your current water heating system. 

Important Terminology

Energy Factor (EF)

The ratio of the useful hot water produced to the amount of energy supplied to the water heating element. 1.0 would indicate that all of the energy supplied (gas or electric) is turned directly into heat with no losses to the external environment. An efficiency greater than 1.0 can be achieved using heat pumps, but other fuel sources are limited to the 0-1 range. The higher the EF, the greater the efficiency of the water heater.20


An index to measure the water storage tank’s ability to resist heat loss. A higher R-Value indicates a lower heat loss from the hot water tank.

First-hour rating (FHR)

This is the amount of hot water that can be delivered from a hot water storage system in the first hour of operation. This value includes the initial volume of the tank as well as the volume of water that may be heated in an hour. When purchasing a storage water heating system, you should consider how much hot water your family may demand in the morning hours, and the first-hour rating must exceed your family demand.

Recovery time

The time it takes for a storage tank to replenish its hot water supply when emptied. 

Standby Losses

Average energy used per hour in order to maintain the required stored water temperature, expressed in Btu per hour.

Cycling losses

Heat lost in water distribution through a tank and pipes, expressed in Btu per hour.


Water Heater Selection

The first step to selecting an energy efficient water heater is determining the type of water heater you would like based on your fuel type availability. Most systems use hot water storage with electricity or natural gas as a fuel source. For these systems you will have to determine how much hot water you need, so you can determine the size of water heater (for common storage type water heaters) that is required. Lastly, you can determine the cost of installing a water heater for your home.2

Types of Water Heaters

There are many types of water heaters available including: storage tank, tankless, hybrid, solar, and tankless indirect hot water heaters. Pros and cons of these water heaters are discussed as follows.

Storage tank

Most U.S. homes use water heaters with a storage tank. These units use a small gas burner, heat pump or an electric resistant element to heat up water stored in an insulated tank. Water heater efficiencies are measured by the energy factor (EF). To reduce standby heat losses, consider using insulation with a R-12 or greater.6,12

     • Ample amount of hot water available
     • Lower installation cost
     • Potential of using off-peak electricity

     • Hot water availability limited by recovery time
     • Standby heat losses
     • Heat losses via the supply and discharge pipes

Tankless Water Heater

Heats water upon demand. They can be located centrally with distribution pipes, or they may be located at the point of use (bathroom or kitchen). Tankless water heaters can be fueled by either gas or electricity. For electric units, it is worth noting that the power requirement is fairly large, thus so are the current and voltage requirements. With these requirements, very large and expensive breakers and wiring is required in the service panel. It is not recommended that electric tankless water heaters be used for entire houses, though they may be considerable in smaller models for point of use heating.4,12

     • No standby heat losses
     • 8-34% more efficient than storage systems

     • Limited amount of hot water available at any given time (varies based on size)
     • Noise caused by air supply fans for gas systems
     • Higher up front costs

Hybrid water heater

These systems are relatively new on the market. These models incorporate on demand heating and a buffer tank that is smaller than normal storage tanks. Note: hybrid may also refer to heat pump water heaters.

     • Small buffer tank reducing the limitations of tankless system
     • High efficiency

     • Very high cost
     • Standby heat losses

solar water heater

Solar heating uses solar energy to heat your water. You can use active solar water heating to supplement water heating with natural gas or electricity, with energy savings up to 50%. ("Estimating the Cost and Energy Efficiency of a Solar Water Heater) Check out our Solar Hot Water webpage for more information on these systems, or see "Solar Water Heaters" by the Department of Energy for more information.12

     • Higher efficiency than gas or electric water heaters
     • Long life expectancy

     • High initial cost
     • Retrofits required for existing systems
     • Backup heating system required on cloudy days


Energy Sources for Water Heating

Water heating can use: electricity, fuel oil, geothermal energy, natural gas, or propane. Electricity and natural gas are most commonly used. Propane and fuel oil are the most expensive options, but may be used for remote sites that do not have access to natural gas. If you have multiple fuel sources available, it’s a good idea to compare the cost and energy use for each fuel type. The DOE provides an online fuel cost calculator to compare natural gas to electricity.

Electric Resistance Heaters

Though electric resistance is nearly 100% efficient, the cost of electricity is expensive due to the production and transmission losses associated with electricity. Another drawback of electric units is that fouling can occur on the heat exchanger coils if your water has many salts and minerals in it. Most manufacturers recommend that you flush and descale the coils periodically, adding to installation and maintenance costs.26

Heat Pumps

In heat pump water heating, heat is typically transferred from the space around the heat pump to hot water tank. Heat pumps have the highest EF rating, which can also be referenced as the coefficient of performance (COP).26

Fuel Oil

A low viscosity liquid petroleum fossil fuel heating source typically is only used when natural gas and electric heating are both unavailable.26

geothermal energy

Water heaters use the heat from the Earth to heat water. Typically, additional heating units such as an electrical heater or a heat pump is needed to achieve the desired hot water temperature.26  Visit our Geothermal webpage for more information.

Natural Gas

Also known as methane, natural gas is a common cheap fuel used in water heating. Natural gas requires that a gas line be available to your home.26


Propane is a fossil fuel gas that can be used to heat water. Propane can be stored as liquid in tanks, so it is easier to transport than natural gas, making it more readily available to remote areas. It is typically only used when natural gas is unavailable, and can be cheaper than electric resistance heating.26


Sizing Your Hot Water Tank

If you choose to have a water heater with storage tank you will have to properly size the tank. Generally speaking, for 1-2 people you can get a 30-40 gallon tank, for 3-4 people you will require a 40-50 gallon tank, and for 5 or more people you will require a 50-80 gallon tank. For tankless, demand type, solar, and storage type water heaters, you can learn how to size your system at "Sizing" by the Department of Energy webpage.24 

For storage type water heaters (the most common), gas heaters have a better FHR and recovery time, so these units will allow for smaller tanks with the same EF rating.26 You will need to size your tank based on your estimated peak water demand. To get a more accurate estimate for your peak water heating demand you can estimate the number of gallons of hot water required for each household task using the following numbers:


Hot Water Use (gal/task)









Dishwashing by hand




Food preparation


Washing machine


Source: howstuffworks.com and "Sizing A New Water water Heater" by the Department of Energy

Cost of Different Water Heaters

According to homeadvisor.com traditional storage type water heaters have an average cost with installation of $889 (40-50 gallon tank) and tankless water heaters have an average cost with installation of $3,000.

Reference the resources to get an idea of how much installation costs or simple payback will be for different types of hot water heaters.

Reduce Heat Loss from Hot Water System

Heat loss from hot water system includes heat loss from the tank and distribution pipes. It is estimated that modern electric water heaters can lose 1.4 kWh of heat due to standby losses from the storage tank, while a similarly insulated gas water heater will have 8.3 kWh of standby losses from the tank. The difference between the two is the pilot light that is always on for the gas unit. Distribution pipes can also lead to energy losses, as it is estimated that the water temperature drops 2°F - 4°F between the source and the point of use. Consider adding extra insulation or installing custom pipes to reduce this heat loss (this is a project you can do yourself).15 Additionally, you can reduce your heat loss by lowering your set-point water temperature.14 When leaving your home for multiple days, be sure to turn down the temperature setting on water storage tanks to save energy.

Reduce Hot Water Use

Water heating is the second largest expense in your home, so it is good to reduce hot water use whenever possible. The primary way to reduce your hot water demand is to install low-flow fixtures. Alternatively, taking shorter showers, turning the water off when brushing your teeth, and other behavioral changes can help reduce hot water use. By using less hot water you can reduce the size needed for your hot water tank, which will reduce the heating demand as well.10

Learn more about how you can reduce your hot water use to further decrease the hot water tank capacity required.

Heat Recovery from Hot Water System

Each time you take a hot shower all of the thermal energy held in the water goes down the drain. This loss of heat must be replenished in your hot water tank, which requires energy use. For this reason, it is beneficial to install a heat recovery system for hot water. In these systems, the hot water leaving your bath tub will preheat the incoming cold water from the city, resulting in warmer water entering your hot water system. This simple fixture can result in large savings ($150-$200 per year for electric heating systems), and has a payback of approximately 2-7.5 years. Learn more at the Department of Energy’s "Drain-Water Heat Recovery" webpage.

Water Heating Upgrades

The Department of Energy has a do-it-yourself series that shows you how you can improve your water heater system by lowering your hot water temperature, insulating hot water pipes, or insulating your water heater tank




  1. "Water Heating" by the Department of Energy - Introduction page for exploring water heating energy saving measures. 
  2. "Selecting a New Water Heater" by the Department of Energy - Introduction to the types of water heaters and selection criteria for water heating. 
  3. "Sizing" by the Department of Energy - Discussion of sizing tankless or demand type water heaters, solar water heating systems, and storage water heating systems. 
  4. "Tankless or Demand-Type Water Heaters" by the Department of Energy - Introuduction to demand type water heaters with detailed selection criteria and installation and maitenance information. 
  5. "Heat Pump Water Heaters" by the Department of Energy - Introuduction to heat pump water heaters with detailed selection criteria and installation and maitenance information. 
  6. "Storage Water Heaters" by the Department of Energy - Introuduction to storage type water heaters with detailed selection criteria and installation and maitenance information. 
  7. "Tankless Coil & Indirect Water Heaters" by the Department of Energy - Introuduction to tankless coil and indirect water heaters with detailed selection criteria and installation and maitenance information. 
  8. "Solar Water Heaters" by the Department of Energy - Introuduction to solar water heaters with detailed selection criteria, installation and maitenance information, and efficiency improvements possible with the system. 
  9. "Drain-Water Heat Recovery" by the Department of Energy - Introduction to drain-water heat rcovery with cost and installation information. 
  10. "Reducing Hot Water Use" by the Department of Energy - Information about how to reduce overall hot water use. 
  11. "Swimming Pool Heating" by the Department of Energy - Introduction to energy saving measures for reducing pool heating energy requirements. 
  12. "Which Water Heater Is right for You?" by the Department of Energy - Comparison of the pros and cons of a variety of water heater types. 
  13. "#AskEnergySaver: Home Water Heating" by the Department of Energy - Frequently asked questions about how to reduce hot water energy use. Good discussion of simple energy-saving measures related to hot water usage. 
  14. "Savings Project: Lower Water Heating Temperature" by the Department of Energy - A do-it-yourself project video on how to save energy by lowering your hot water temperature. 
  15. "Savings Project: Insulate Hot Water Pipes for Energy Savings" by the Department of Energy - A do-it-yourself project video on how to save energy by insulating hot water pipes in your home. 
  16. "Savings Project: Insulate Your Water Heater Tank" by the Department of Energy - A do-it-yourself project video on how to save energy by insulating the hot water tank in your home. 
  17. "Estimating the Cost and Energy Efficiency of a Solar Water Heater" by the Department of Energy - Good estimation of how much a solar water heater can save you, and how long a simple payback period will be. 
  18. "New Infographic and Projects to Keep Your Energy Bills out of Hot Water" by the Department of Energy - Infographic about water heating. 
  19. "How to Choose a New Water Heater" by Howstuffworks.com - Discussion of water heating fuel sources, tankless water heaters, and sizing storage type water heaters. 
  20. "ENERGY STAR Program Requirements Product Specification for Commercial Water Heaters" by ENERGY STAR® - ENERGY STAR® product criteria information, including key terminology for water heaters. 
  21. "ENERGY STAR® Residential Water Heaters: Final Criteria Analysis" by ENERGY STAR® - Information about water heater technologies and savings and payback associated with each technology. 
  22. "High Efficiency Water Heaters" by ENERGY STAR® - Great document showing energy savings for a variety of high efficiency water heater types. 
  23. "Energy Cost Calculator for Electric and Gas Water Heaters" by the Department of Energy - Great tool to estimate the cost savings of new electric or gas water heaters compared to your current water heater. 
  24. “Replacing a Water Heater Cost” by costhelp.com - Typical costs associated with various types of water heaters. 
  25. “How Much Does It Cost to Install a Water Heater” by Homeadvisor.com - Typical costs associated with purchasing various types of water heaters. 
  26. "How to Choose a New Water Heater" by howstuffworks.com - Detailed discussion of how to select a new water heater.