Water Heating Systems

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What you should know

Heating water costs the average American family about $400 to $600 a year. That’s the second largest utility expense after heating and cooling. For many homeowners, upgrading to a more efficient water heater can make sense, especially if it’s time for a replacement. There are a few things you should know to help you make a decision.

Heat pump water heaters have a storage tank and run on electricity. Instead of applying heat directly to the water, these systems move heat from outside to inside the tank using a refrigerant circulated in tubing between two coils—somewhat like a refrigerator running in reverse. They can be more expensive, but are highly efficient.

Storage water heaters are most common. They consist of an insulated tank of water heated either by natural gas or electricity to a sufficient temperature. The heated water then flows through pipes to wherever it is needed in the home. Installation cost is low, and newer water heaters are better insulated and more efficient.

Tankless water heaters, sometimes called “on-demand” or simply “demand” water heaters, are a newer trend and run on natural gas. These systems heat water as needed when you turn on the hot-water faucet. Tankless systems cost more to install than their storage counterparts, but are more efficient and take up less space.

Cost and lifetime value

Benefits and Drawbacks


Electric Heat Pump

  • Most efficient

    Rebates often available

  • High installation cost

Natural Gas Storage

  • Low to moderate installation cost

  • Carbon Monoxide risk

  • Standby heat loss (keeps water hot even when not needed – see back of this sheet for more information)

Electric Storage

  • Low installation cost

  • Standby heat loss

Natural Gas Tankless

  • High efficiency
  • On demand hot water
  • Small footprint
  • High installation cost

Get Started

Thinking of starting a project? The first step is to schedule a phone consultation with an Community Energy Project Home Advisor to find opportunities to improve the efficiency, safety and health of your home. Book a Free Phone Consult