What’s the Most Energy-Efficient Water Heater?

The new generation of eco-friendly heat pump water heaters will reduce your home’s emissions while also shrinking your utility bills.

Of all the appliances that compete for a homeowner’s attention, from vacuum cleaner robots to video-enabled door locks that double as security guards, the standard 50-gallon water heater is the most likely to be ignored. Hidden from view in the basement or a dark utility closet, the tall metal cylinder that heats water for our sinks and showers typically functions reliably for a decade or more with little or no maintenance.

Pierre Delforge

Photo by Rebecca Greenfield for NRDC

But the day will come when that trusted water heater springs a leak and shuts down permanently—prompting an urgent call to the plumber. And it’s best not to wait that long. The technological advances and increasing energy efficiency found in the new generation of environmentally friendly heat pump water heaters (HPWH) make them a worthy investment for anyone looking to reduce both carbon emissions and utility bills at once, says Pierre Delforge, senior scientist on NRDC’s building decarbonization team. HPWHs, which produce heat using the same technology that refrigerators employ to stay cold, release no emissions and get the job done on as little as one-half to a third of the energy of a conventional electric resistance or gas heater.

“The game changer in this technology is that it is 300 to 400 percent more efficient than conventional heating, using much less energy to provide the same level of service,” Delforge says. Here’s all you need to know to make the switch.

Teasing Out the Costs

Currently, water heaters of all types account for 19 percent of U.S. households’ energy consumption—more than cooking and refrigeration combined. Roughly 40 percent of America’s homes are equipped with electric resistance heaters that needlessly draw excessive amounts of energy from the national power grid and contribute to high utility bills. The impact of gas and propane water heaters, now operating in half of all U.S. homes, is even worse: They burn fossil fuels, releasing greenhouse gases and dangerous toxins like nitrogen oxides, which has been linked to numerous respiratory diseases.

In contrast to conventional gas-fired heaters, which generate heat from pollution-spewing combustion, or electric heaters, which use the same type of mechanism found in a toaster, HPWHs use an energy-efficient compressor that gathers heat from the atmosphere and concentrates it in a water storage tank. The result: savings for the average four-person U.S. household of close to $350 a year on electricity bills, or $3,750 over the life of a typical HPWH, according to the Department of Energy’s Energy Star consumer website. (Actual savings will vary, depending on location and the municipal or private utility that supplies electricity to your home.) 

Residential energy efficiency is an important tool in addressing climate change, and embracing greener technologies like this one is a meaningful contribution for the homeowner looking to help propel a low-carbon economy forward. “We've been making great progress with decarbonizing the power sector, and we're moving forward in the transportation sector with greater efficiency standards and the electrification of vehicles,” Delforge says. “But to put us on trajectory, we also need to use clean energy from the grid to decarbonize homes and businesses.”

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Getting Started

Updating your water heater is easy and highly cost-effective in the long run. Of the several types of HPWHs now available from respected brands like A.O. Smith, Rheem, and Bradford White, the models marketed as hybrids are the most popular. In addition to compressors that warm water by trapping heat from the environment, they’re equipped with auxiliary immersion heating units. These components are set to activate automatically during periods of high demand, offering reassurance that the hot water won’t run out even when the house is full of guests. It’s true that the initial cost of investing in new HPWH technology (from $1,100 before incentives) is higher than what you’d expect to pay for a conventional water heater (from $300). But that additional cost will be more than offset by savings accrued over the lifetime of the appliance—in some cases, in just two to three years. A growing number of local utilities are offering incentives to reduce the upfront price, making the HPWH an even sweeter deal.

Unless you’re a skilled plumber (and possess the permit required by many municipalities), you’ll probably rely on a licensed contractor to buy and install a new heater. Plan to speak to several plumbers in your area to identify those who have experience with HPWHs. Since they currently account for just 2 percent of the water heating market, HPWHs will be unfamiliar territory to many contractors, who may even try to steer you away from energy-efficient options simply because they are more familiar with standard heaters. A qualified professional can also advise you on the right appliance to buy for your home; many municipal utilities list local qualified contractors on their websites.

As a rule of thumb, you may want to choose a heater with a water tank that is larger than the one typically recommended for the size of your household, which will help you to avoid using the hybrid unit’s less-efficient high-demand auxiliary feature. A larger tank that fills with hot water overnight, for instance, will prevent a shortage during bathroom rush hour the next morning. Considering the long-term value of an HPWH, going bigger is worth the additional cost. Water heaters with smart thermostats that initiate heating during off-peak hours (when there is less demand for electricity use) have the added benefit of allowing you to take advantage of clean energy at a lower cost, while still delivering plenty of hot water when you need it most. They essentially act as “batteries” for storing clean energy, says Delforge.

Maximizing Savings

Given the clean air and climate-change mitigation potential of HPWHs, the most pressing issue today is persuading large numbers of people to adopt the new technology. Toward that end, state and local governments and utility companies now offer incentives such as mail-in rebates at the time of purchase ($1,000 from both New York’s ConEdison and Southern California Edison, for example), tax credits, and discounted electricity rates. Check with your local utility company or municipal utility district to explore your options. “The chances are pretty good that if you have an electric resistance water heater, you may be able to get an incentive for a heat pump water heater. If you currently have a gas, propane, or fuel oil heater, you may also be able to get one, especially in California and the Northeast,” says Delforge. “And we’re going to see more of this across the country in the future.”

Evolving Technology: The Space Heater That Also Does Air-Conditioning

In addition to heating water, heat pump technology can also be used to heat and cool air as an energy-efficient alternative to standard air conditioners (ACs) and furnaces. Just like heat pump water heaters (HPWHs), heat pump space heaters simply move heat from a cool space to a warm space instead of burning fuel to generate heat, thereby reducing emissions and lowering your utility bill. One of the biggest advantages to owning a heat pump is that it’s a two-in-one system—you get both heating and cooling for the price of one.

On why this technology hasn’t been more widely adopted yet, Alejandra Mejia Cunningham, an NRDC building decarbonization advocate, says a lack of familiarity is partly to blame. “People are most comfortable doing what they have always done,” she notes. “It is the job of policymakers to provide the right incentives to help consumers and installers get more familiar with and excited about these advanced, healthy, climate-friendly technologies.” Right now, only 11 percent of homes in the United States use heat pumps for space heating and cooling. If this technology became the standard for people installing new ACs, we could see them in up to 44 percent of homes by 2032.

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