By Pam Blair

Water heating is
the third-largest energy expense in the typical American home, accounting for about 15 percent of its energy use.

To cut your water heating bill, you have some choices: use less hot water, turn down the thermostat on your water heater, insulate your water heater or buy a new, more efficient model.

If it is time to replace your water heater, take a look at the options and determine which will best meet your needs, offer the greatest energy efficiency and save you the most money during the life of the unit (see the chart below).

A more energy-efficient model could have a higher purchase price, but be less expensive in the long run.

According to the U.S. Environmental Protection Agency’s Energy Star program, high-efficiency water heaters use 10 percent to 50 percent less energy than standard models, saving homeowners money on their utility bills.

Actual savings depend on family size, heater location, and the size and placement of water pipes.

Most homeowners are familiar with tank-based water heaters, but it is just one of the types available:

• Storage/electric-resistance water heaters—the most commonly used models—heat water and store it in an insulated tank. It is inexpensive and easy to install, and converts power at 100 percent efficiency.

• Tankless demand water heaters heat water directly—either for the whole house or at the point of use—but offer no storage. They are more expensive to purchase and install, but may cost less to operate, since they don’t maintain a tank full of hot water when not in use.

• Heat pump water heaters don’t directly generate heat, but through an attachment that transfers waste heat to heat water and stores it in a tank. Although they have a high initial cost, they can save up to 50 percent on water heating. They are most suited to moderate climates with relatively low heating loads.

• Solar water heaters—which use the sun’s energy heat water—can be used in any climate. They typically include collectors mounted on the roof or in a clear area of the yard, a separate storage tank near the conventional water heater, connecting pipe and a controller. The solar system preheats the water before it reaches and is stored in the conventional water heater. It can reduce annual hot-water costs by more than half.

• Tankless coil and indirect water heaters use a home’s space heating system to heat water. Because they rely on a furnace or boiler to heat the water, tankless coil water heaters work most efficiently during cold months when the heating system is used regularly. Indirect water heaters—which require a storage tank—are a more efficient choice for most homes, since the furnace comes on less often.

Storage tank water heaters are designated by the amount of water they hold in gallons.

As a general rule, when purchasing a storage water heater, look for a 30- to 40-gallon tank for a household of two people, a 40- to 50-gallon tank for a household of four people and a 50- to 80-gallon tank for a household with five or more people.

Many consumers buy water heaters based solely on the size of the storage tank, but the first-hour rating (FHR)—listed on the EnergyGuide label—is more important.

The FHR is a measure of how much hot water the water heater will deliver during a busy hour.

A larger tank may not result in a higher FHR.

When you buy a water heater, estimate your household’s peak-hour demand and look for a unit with an FHR in that range.

Everything else being equal, select a water heater with the highest energy factor (EF)—the measure of a water heater’s efficiency.

It is based on recovery efficiency, standby losses and cycling losses. The higher the EF, the more efficient the water heater.

Recovery rate is a measure of the number of gallons of water a storage tank water heater can heat in an hour. The greater your demand for hot water, the higher recovery rate you need.

Electric-resistance water heaters have an EF ranging from 0.86 to 0.95; gas water heaters from 0.5 to 0.6, with a few high-efficiency models at around 0.8; oil water heaters from 0.7 to 0.85; and heat-pump water heaters from 1.5 to 2.0.

Whenever possible, install your water heater in a heated area and minimize the length of the pipes that must be run to your bathroom and kitchen.

Warranties on water heaters vary, so compare them to make sure you are getting the best water heater for your money.