Feature: Efficient hot-water heating

Feature: Efficient hot-water heating

By Amy Musser and Matthew Vande on 03/22/2010

Domestic hot water — used by showers, faucets, clothes washers and dishwashers — is the second largest energy-using system in most homes, after the heating and air-conditioning system. Efficient hot-water systems are often one of the shortest payback upgrades you can make to an existing home or to your plans for a new home. Even better, there is an efficient choice out there for every home and budget.

Solar hot-water systems

Most people are familiar with solar hot-water panels that can be used to harness the sun’s energy for hot-water heating. When the house orientation allows for good southern exposure, this can be a highly efficient way to produce the majority of your domestic hot water. The typical sytem includes one or two solar collectors on the roof, a solar storage tank and a pump to circulate the solar fluid through the collectors.


  • Low operating cost and carbon emissions 
  • Can augment space-heating systems
  • Federal and state financial tax incentives can make this a quick payback item


  • Larger storage tank required to hold water (usually 80 to 120 gallons) 
  • Backup system required for cloudy days or peak water usage 
  • Occasionally difficult to integrate into an existing home 
  • Must have un-shaded southern exposure available

Geothermal systems

A geothermal heat pump is primarily used as a central heating and/or cooling system that pumps heat to or from the ground. It uses the earth as a heat source (in the winter) or a heat sink (in the summer). Homes with geothermal systems have two options for generating hot water using their geothermal heat pumps.

The first is a device called a desuperheater that recovers heat from the air-conditioning process and uses it to pre-heat water. Desuperheaters don’t make all of a home’s hot water; they just preheat it to lower the home’s energy use. Savings with these systems are largest in the summer. The second is a full-time geothermal unit that can make all of a home’s hot water. These are about three to four times more efficient than a standard electric water heater.


  • Once installed, extremely efficient way to heat water 
  • Fast payback for this option (as an add-on to geothermal system) 
  • Federal and state tax credits available to offset high installation cost


  • High upfront cost to install new geothermal system 
  • Typically not cost-effective, unless geothermal HVAC is also installed

On-demand water-heating systems

Also called “instantaneous” or “tankless” water heaters, this type of system usually heats water with natural gas or propane, although electric models are also available. Since on-demand water heaters have no tank, there is no standby loss, and they can save energy in a house with low hot-water usage. Natural-gas models have lower expected operating costs and lower carbon emissions than standard electric tank hot-water heaters. Propane models have similar carbon emissions, but at recent propane rates there is little operating cost savings. Electric tankless water heaters are only slightly more efficient than regular electric tank-style heaters and should generally only be used for isolated low-use fixtures.


  • May last longer than traditional tank (20 years vs. 10 to 15 years)
  • Ideal for second homes since system shut-off is greatly simplified, yet provides endless hot water when house is in use for large gatherings


  • Electric version can require larger electrical service 
  • May actually use more hot water (for example, someone takes a longer shower because they haven’t run out of hot water!) 
  • Energy savings diminish with increased hot-water usage

Heat-pump water-heating systems

The latest development in efficient water heating is the heat-pump water heater. This often misunderstood device will most likely make conventional water heaters obsolete in the next 5 to10 years. Heat-pump water heaters use the same technology as a heat pump heats or cools your home but they’re a completely independent device. Heat pump hot-water heaters are much more efficient than conventional electric-resistance water heaters and have very low operating costs. They extract heat from the air in your home and transfer it to water in a storage tank, in much the same way that a traditional heat pump extracts heat from the outside air and transfers it to the inside for heating purposes.

Heat-pump water heaters have been available since the 1970s, so the technology is not new. The first models were available as “add-on” components that can be used to retrofit an existing tank water heater. These systems can still be purchased for about $700, and most people will need a plumber to help them install it and properly integrate it with their existing water tank.  For new homes, or if your tank needs to be replaced, several major manufacturers now sell integrated units that come with their own tanks.  These are sold for between $1,500 and $2,000, plus installation.


  • Highly efficient way to generate hot water (two to three times more efficient than standard electric tank water heaters) 
  • Produces a small amount of cool air, which can be used in other areas of the home 
  • Federal tax credit available


  • Recommended for use with larger storage tanks (50 to 80 gallons) 
  • Slower recovery time (can be several hours, depending on size of tank) 
  • Slightly noisy, so best to locate in a mechanical or storage room 
  • Reverts to traditional electrical tank operation when demand exceeds supply 
  • High upfront cost (for now)

With all of these efficient options, we rarely recommend standard tank-style gas or electric water heaters for our clients. With alternatives having payback times of three to five years, it’s difficult to justify buying one. However, if you do, check the yellow “Energy Guide” label and choose a model that is more efficient than the average.

The table below shows the estimated operating cost and CO2 emissions for several types of domestic hot-water systems. Simulations were performed using Asheville area utility rates, propane at $2 per gallon, and a generic 2,000-square-foot, 3-bedroom home. Although the gas and propane tank water heaters have about half the CO2 emissions, there is little or no operating cost savings over an electric tank water heater. The tankless gas and propane water heaters and the heat-pump water heater all have similar CO2 emissions (about 60 percent less than the electric tank), but they vary significantly in operating cost. Simple payback for the heat pump water heater with no tax credits is about five to eight years, but with the current tax credit, it is three to five years. The solar system has the lowest CO2 emissions and operating cost. With current tax credits, its payback could be as low at four years.

Currently, there are federal tax credits of 30 percent and state tax credits up to 35 percent (with some limits) available for solar hot-water systems. Most tankless gas water heaters and heat-pump water heaters are eligible for a federal tax credit of 30 percent of the cost — up to $1,500 — if installed in your principal residence. Since tax credits can only be used to offset taxes that you would have been required to pay, we recommend researching the rules and talking to your tax professional if your eligibility is not clear. The federal tax credits are summarized at the following Web site: https://www.energystar.gov/taxcredits.

[Amy Musser and Matthew Vande are co-founders of Vandemusser Design, PLLC, an Asheville-area energy-efficiency consulting and home-energy-rating company. Musser is a licensed mechanical engineer, and Vande is a licensed architect. Both are certified home-energy raters. They can be reached at info@vandemusser.com or (828) 348-4723.]