Hot Water Heater Purchase Tips

When we think about where our energy dollars go, we notice the obvious choices we see every day around the house – lights, kitchen appliances, television, and air conditioning and heating. But we tend to overlook the expense of heating water for our daily needs, however 25% of each energy dollar goes to heat water.

Like most appliances, water heaters have improved greatly in recent years. Today’s models are much more energy efficient. That’s why you probably couldn’t replace your existing water heater with the same exact model – and you probably wouldn’t want to. Instead, you may be able to purchase a more efficient water heater that will save you money on energy each month. That’s why you shouldn’t just consider the initial purchase price – think about how much it costs to operate. You could save hundreds of dollars in the long run.

The average life expectancy of a water heater is around 8 to 12 years. That’s how long you’ll be living with the decision you make now. If you choose a water heater that saves you money, the savings will continue for years.

If your new water heater saves an average of a dollar a month in energy costs, that amounts to a savings of $12 a year – or $156 over its expected useful life of the product.

Electric vs. Gas

Your first decision should be whether to buy a gas or electric model. If you’re replacing an existing water heater, check to see what type you have now. Is it gas, electric or even propane? Do you have a natural gas outlet available at the water heater, or only an electric outlet? Many homes are not equipped with natural gas. Obviously, it would not be a good idea to buy a gas water heater if you have an all-electric home.

Which is better – gas or electric?
Historically it cost three times as much to heat the same amount of water with electricity as with gas. If you have an electric water heater and a gas furnace or stove, you may save money in the long run if you extend the gas line to your water heater. If you live in a rural area that has propane service instead of natural gas, propane is usually less expensive than electricity.

Comparing Fuel Costs
To estimate your water-heating bill, locate the price you pay for gas, electricity or propane on the charts below: (Based on general energy prices)

Natural Gas Propane Electricity
Price per therm Yearly Cost Price per gallon Yearly Cost Price per kilowatt-hour Yearly Cost
$0.50 $136 $0.95 $283 $0.08 $390
$0.60 $163 $1.05 $313 $0.10 $488
$0.70 $190 $1.15 $343 $0.12 $585

Buying Smart

Now that you know whether you want a gas or electric water heater, to buy smart, determine the size you need. To do this, estimate how much hot water your family uses during its busiest hour. We call this the “First Hour Rating.”

Determine your “First Hour Rating” with this chart.

Your house has:
How many bathrooms? 1 to 1.5 2 to 2.5 3 to 3.5
How many bedrooms? 1 – 2 – 3 2 – 3 – 4 – 5 3 – 4 – 5
You need a First Hour Rating of: 43 – 60 – 60 60 – 70 – 72 – 90 72 – 82 – 90

Understanding the EnergyGuide

Once you’ve figured out your “First Hour Rating” – how much hot water your family typically needs and the size of the water heater you should buy – look for the “First Hour Rating” figure on the EnergyGuide.

The EnergyGuide will be a large yellow sticker that, by law, has to appear on water heaters and other appliances. In this case it compares the average yearly operating costs of different water heaters, using the same criteria for all models tested. It lets you see which one would probably cost you less to run.

In this example, the “First Hour Rating” appears on the upper left-hand corner, underneath the water heater’s energy source. The “First Hour Rating” is 66.

Choose a model with a “First Hour Rating” close to the capacity you need. Don’t just rely on the physical size of the storage tank – gas water heaters work quicker than electric ones, so they produce more hot water in an hour. A gas water heater that holds 40-gallons may turn out as much hot water in an hour as a 65-gallon electric model!

If you decide to increase the size of your water heater, make sure you have room in your home for a bigger model. Water heaters are sometimes crammed into tight spaces – check the manufacturer’s specifications on any model you buy to make sure it will fit.

Note the big number – $156 – in the center of the EnergyGuide. That’s the estimated cost of energy needed to operate this water heater for one year. On the bar immediately below this yearly cost, the label even displays the range of yearly costs of comparable-sized water heaters, from the least expensive to most expensive. That’s why an EnergyGuide label is such a valuable tool – it makes comparison shopping easy.

Understanding the Energy Factor Label

There is another label on new water heaters listing that unit’s “Energy Factor.” It’s a number with a decimal point, usually listed on a separate tag beside the EnergyGuide.

The higher the “Energy Factor” number, the more efficient the water heater. Gas water heaters have energy factors between 0.5 to around 0.7. Electric models range from 0.75 to 0.95. Those Energy Factor numbers show that electric models make better use of energy, primarily because gas water heaters lose some of their energy up the exhaust vent. However, new gas water heaters boast more efficient combustion than older ones, meaning that less heat escapes up the flue, and less gas is needed to heat the water. Gas efficiency has improved. But since electrical energy often costs three times more than gas, it’s still cheaper to use natural gas, if you have a choice.

“Energy Factors” vary because different water heaters are made to be more energy efficient. Today’s models are better insulated than the ones manufactured years ago. As a result, most cost about 18 percent less to run than older models. The savings are due to reduced heat loss, thanks to the added insulation.

It’s Your Money

Whichever type of water heater you buy – either gas or electric – look for a unit with a higher energy factor. It may cost more initially, but the energy (and your money) savings may more than make up for the higher sticker price. Consider the price difference and how long it would take to recover the money through energy savings.

For example, say a gas water heater with an energy factor of 0.57 sells for $129, while one with an energy factor of 0.61 sells for $145. To begin with, you’ll spend $16 more for the model with the higher energy factor, but it will save you almost $11 a year in the natural gas. You have recovered your initial $16 investment within 18 months. Over the estimated life of the water heater, you should save an additional $125.

Here’s a comparison of what various water heaters with different Energy Factors could cost to operate each year, using a consistent price for energy. Note the savings compared to the 0.53 model over the 13-year life expectancy of a water heater. Energy savings are based on the average use of a family of four.

Energy Factor Energy Cost Each Year Savings Over Life of Appliance
0.53 $177 $0
0.57 $166 $143
0.61 $155 $286
0.65 $144 $429

As you can see, spending more up-front for a more efficient water heater – one with a higher Energy Factor – can mean major savings over the life of the appliance.

Tankless water heater

Tankless water heaters provide hot water right where you need it, when you need it, without a storage tank. Using electricity, gas, or propane as a heat source, tankless water heaters, in some cases, can cut your water-heating bill by 10 to 20 percent. The savings come by eliminating standby losses – energy wasted by warmed water sitting around unused in a tank.

Units large enough to supply hot water for an entire house can be located centrally. More commonly, tankless water heaters usually sit in a closet or under a sink where its hot water is used.

A tankless water heater can supplement a regular water heater in a distant location, or it can be used for all your hot water needs. But be aware that they aren’t appropriate for all applications, and that sometimes they won’t save that much energy or money.

Residential-sized gas-fired models that are now on the market supply only five gallons of water heated by 90 degrees per minute – a comfortable enough output for a house with one or two people. If you have a large family, however, and need to do laundry and wash dishes at the same time others shower, a tankless system probably won’t meet your needs. Electrically heated models provide even less hot water than gas models – more like two gallons a minute, heated 70 degrees.

Tankless water heaters are compact in size and virtually eliminate standby losses – energy wasted when hot water cools down in long pipes or while it’s sitting in the storage tank.

By providing warm water immediately where it’s used, tankless water heaters waste less water. People don’t need to let the water run as they wait for warm water to reach a remote faucet. A tankless water heater can provide unlimited hot water as long as it is operating within its capacity.

Equipment life may be longer than tank-type heaters because they are less subject to corrosion. Expected life of tankless water heaters is 20 years, compared to 10 to 15 years for tank-type water heaters.

Tankless water heaters range in price from $200 for a small under-sink unit up to $1000 for a gas-fired unit that delivers 5 gallons per minute. Typically, the more hot water the unit produces, the higher the cost.

In most cases, electric tankless water heaters will cost more to operate than gas tankless water heaters.

Tankless water heaters usually cannot supply enough hot water for simultaneous uses such as showers and laundry.

Unless your demand system has a feature called modulating temperature control, it may not heat water to a constant temperature at different flow rates. That means that water temperatures can fluctuate uncomfortably – particularly if the water pressure varies wildly in your own water system.

Electric units will draw more instantaneous power than tank-type water heaters. If electric rates include a demand charge, operation may be expensive.

Electric tankless water heaters require a relatively high electric power draw because water must be heated quickly to the desired temperature. Make sure your wiring is up to the demand.

Tankless gas water heaters require a direct vent or conventional flue. If a gas-powered unit has a pilot light, it can waste a lot of energy.


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