"The least expensive water heaters to buy are the most expensive to operate."
Water heating is typically the third largest energy expense in your home (after space heating and cooling). It typically accounts for about 14% of your utility bill. If your gas water heater is more than 10 years old, it probably has an efficiency no higher than 50%. An old water heater can operate for years at very low efficiency before it finally fails. One way to reduce water heating costs would be to replace your old water heater with a new, higher-efficiency model.
A water heater's efficiency is measured by its energy factor (EF). EF is based on recovery efficiency, standby losses, and cycling losses. The higher the EF, the more efficient the water heater. Electric resistance water heaters have an EF ranging from 0.7 and 0.95; gas water heaters from 0.5 to 0.6, with a few high-efficiency models ranging around 0.8; oil water heaters from 0.7 and 0.85; and heat pump water heaters from 1.5 to 2.0.
Although many consumers make water heater purchase decisions based only on the size of the storage tank, the first-hour rating (FHR), provided on the Energy Guide label, is actually more important. The FHR is a measure of how much hot water the heater will deliver during a busy hour. The FHR is required by law to appear on the unit's Energy Guide label. Therefore, before you buy a water heater, estimate your household's peak-hour demand and look for a unit with an FHR in that range. And beware that a larger tank doesn't necessarily mean a higher FHR.
Point-of-use water heaters are also known as "tankless" heaters because they have no (or only a tiny) storage tank. They are relatively small units that provide hot water on demand. They use gas or electricity for fuel, and can be installed near demand points, such as under kitchen sinks. They are often more expensive than a conventional water heater, but can cost less to operate since they don't maintain a tankfull of hot water when not in use. A tankless heater typically provides 1-2 gallons of hot water per minute. Before installing a tankless water heater in your home, make sure its reduced capacity will be adequate for your needs.
A solar water heater typically includes collectors mounted on the roof or in a clear area of the yard, a separate storage tank near the conventional heater in the home, connecting pipe, and a controller. Solar water heaters can reduce the annual fuel cost of supplying hot water to your home by more than half. Throughout the year, the solar system preheats the water before it reaches the conventional water heater. During the summer, it may provide all the required heat.
A desuperheater is an attachment to your air conditioner or heat pump that allows waste heat from that device to help heat domestic water. In hot climates, a desuperheater can provide most of a home's hot water needs during the summer.