Because electricity is generally more expensive per Btu than gas, electric water heaters are typically more expensive to own and operate, over their lifetime, than gas water heaters are. Despite this economic disadvantage, there are four reasons why someone might select an electric water heater instead of a gas heater:
Given these attributes, it’s not surprising that about half of all commercial buildings in the U.S. use electric water heaters. And owners of electric water heaters have several alternatives available that help mitigate the higher operating expense associated with electric water heating.
Residential heaters. Even though they are designed for the residential market, these water heaters (see Figure 1) can be appropriate for many small commercial facilities—and even some large facilities. These units are available with tank sizes ranging from 20 to 120 gallons and are manufactured in large quantities. As a result, they are relatively inexpensive and widely available. The term “energy factor” is used to express the efficiency of residential heaters. It represents the amount of heat required to warm up a year’s worth of hot water for a typical home, divided by the amount of electric energy input into the heater to warm that water. The higher the energy factor, the more efficient the heater. Because electric resistance elements are nearly 100 percent efficient, the efficiency of electric water heaters depends primarily on how well they are insulated. Residential heaters are available with energy factors that range from 0.80 to 0.95. To determine the energy factor for a particular water heater, either obtain it from the manufacturer’s literature or look it up in the Air-Conditioning, Heating, and Refrigeration Institute’s (AHRI’s) Directory of Certified Product Performance.
Commercial heaters. Water heaters designed for the commercial market are available in a nearly unlimited range of tank and electric resistance element sizes. Manufacturers provide tanks that range in size from 5 to 1,000 gallons and have electric elements with inputs ranging from 3 to 162 kilowatts. Unlike residential heaters, commercial heaters are not rated for overall efficiency. Instead, national standards govern their “standby loss,” which represents the portion of the stored energy that is lost through the walls of the tank in a given amount of time. Although manufacturers typically don’t publish standby losses, they are often willing to share this information when asked. Alternatively, the AHRI provides this data in its Directory of Certified Product Performance.
Off-peak heaters. If you pay large electric demand charges, or if you are charged much lower rates during off-peak hours, you may benefit from installing an off-peak heater. These heaters differ little from ordinary electric water heaters, except that they incorporate much larger storage tanks and controls that only allow the electric resistance elements to operate during off-peak hours. Although these heaters take advantage of lower off-peak rates, they incur much greater standby losses, as their storage tanks must be large enough to carry them through the entire on-peak period. Usually, these systems are only cost-effective in locations where there is a large premium associated with on-peak power.
Heat pump water heaters. Some water heaters employ heat pumps to transfer heat from indoor air or exhaust airstreams to hot water storage tanks, thereby offsetting the energy consumed by the water heater’s electric resistance element and yielding energy savings. Because heat pump water heaters produce cool, dry air as a by-product, the best applications are those that can take advantage of both outputs simultaneously. Heat pump water heaters are especially well suited for commercial-sector applications where the demand for hot water is relatively constant and the need for cooling or dehumidification is continuous. The initial cost of a commercial heat pump water heater is much greater than that for an electric or gas-fired boiler, but in the right applications, the annual energy savings can be large enough that payback periods are often just a few years. Additionally, many manufacturers are now producing integrated heat pump water heaters for the residential market that may be applicable in small commercial settings as well. These units are slightly larger than comparable electric-only tank water heaters, and are easily configurable to best suit the application in which they are installed. For more information, see the Heat Pump Water Heaters topic.
Determine your building’s fuel availability. Electricity is widely available in U.S. buildings. Other fuels, such as natural gas, may also be good options if they are available. If more than one type of fuel is available, use the different fuel costs in calculating life-cycle expenses to determine the most cost-effective choice (see below).
Pick a size that’s just right. Plumbing contractors often oversize water heaters so they can quickly specify a model they know will keep up with demand. That’s bad news for customers who have to live with those water heaters, because an oversized heater is less efficient and more expensive than an accurately sized one. To make the best selection, calculate the “peak one-hour draw,” following the procedure from the American Society of Heating, Refrigerating and Air-Conditioning Engineers’ Applications Handbook or the U.S. Department of Energy’s Consumer’s Guide to Energy Efficiency and Renewable Energy. This quantity represents the greatest amount of hot water that is likely to be required over the course of a single hour. It is dependent on the tank size and heating element capacity. Once you’ve calculated this amount, find a water heater whose “first-hour rating” matches your need, within a few gallons. Alternatively, several water heater manufacturers provide free software from their web sites that sizes water heaters.
The only time that an oversize water heater may be appropriate is when there is a large premium associated with on-peak power. Make the storage tank larger, and you can reduce the heating capacity. That reduces peak demand, but at the expense of greater standby losses. The most advantageous relationship between storage and heating capacity varies depending on electric rates and hot water usage patterns. To find the best combination, analyze a few different models and compare their first costs to their annual operating expenses.
Use our cost-effectiveness calculators. We offer two calculators that can help you make the best decision when replacing or installing a new water heater. For a broad overview of expected annual costs for different water-heating technologies based on your water use, and to compare otherwise similar gas and electric water heaters, see the Water Heater Fuel Costs calculator. If you already have a general idea about what technology and fuel sources you’re interested in, our Water Heater Economic Comparison calculator provides a side-by-side economic analysis of up-front and annual costs, life cycle costs, and simple payback period. By necessity, these calculators make assumptions to simplify the calculations, so use them for initial screening only. For more accurate performance predictions, conduct a detailed analysis that includes such factors as actual usage patterns, hot water loads, and part-load performance of equipment.
Because of its design, a conventional electric tank-type water heater offers few opportunities for efficiency and performance improvement. However, these opportunities do exist with newer alternative electric technologies, such as heat pump water heaters and electric tankless water heaters. Both of these approaches offer reduced energy costs; tankless units can also offer greater capacity and, if installed at the point of use, quicker delivery. See the topics Heat Pump Water Heaters and Tankless Water Heaters for more information on these options.