New Efficiency Standards Heat Up Tank Vs. Tankless Water Heater Debate

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Heating water is the second largest source of energy consumption in our homes, behind heating and cooling. For years, our traditional storage tank water heaters have been responsible for sucking up around 17% of our home’s energy use. The average American household spends between $400 and $600 each year burning energy to heat their water. This expense makes the water heater a prime target in the quest for energy efficiency.

The problem? Large tanks, holding dozens of gallons of water, continuously heat and re-heat water to maintain a constant temperature, even when the water is not being used.

The solution? For energy savings, it’s hard to beat tankless “instantaneous” water heaters that heat the water as needed. Compared to the “storage tank” water heaters, tankless water heaters are 27% to 50% more efficient. Tankless water heaters also have a longer life expectancy (20+ years, compared to 10 to 15 years for storage tank water heaters).

The catch? Tankless water heaters are significantly more expensive than storage tank water heaters—around $1,200, compared to $400, depending on size, and they utilize gas versus electric power (although there are electric models that may require an upgrade to your home’s electric system, and point-of-use tankless models for a single faucet or shower). While you will save, on average, around $100 a year through reduced energy bills, that has not been compelling enough for many homeowners. Water heater manufacturer Rheem estimates that 98% of American households still have a storage tank water heater.

The game-changer? This spring (April 16, 2015, to be precise), new Department of Energy requirements went into effect for all water heaters. Most tankless water heaters already met this requirement, but many larger storage water heaters, specifically those over 55 gallons, didn’t. The new requirements, known as NAECA Standards (National Appliance Energy Conservation Act), raise the Energy Factor requirement of all water heaters manufactured after April 2015, decreasing the energy use of the largest water heaters by 47%.

This EF requirement indicates the overall water heating efficiency by measuring how much of the energy delivered to the water heater is actually used to heat the water. The higher the EF, the more efficiently the unit converts power into hot water, while reducing heat loss. For example, the EF requirement of a 65-gallon storage heater was .88; it is now 1.98.

Home water heater efficiency chart

Source: Rheem.com

The chart to the right illustrates the change in efficiency requirements for the different types of water heaters:

By DOE’s estimations, under the new regulations, water heaters shipped between 2015 and 2044 will save approximately 3.3 quads of energy. This is a savings of around $63 billion in energy bills, and will remove 172.5 million metric tons of carbon dioxide emissions; equivalent to the annual greenhouse gas emissions of about 33.8 million cars.

To meet the new standards, manufacturers are incorporating heat pump or gas condensing technology into the larger units, both of which use self-produced energy to help heat the water. Heat pumps in water heaters larger than 55 gallons will reduce energy consumption by about 50%; gas condensers reduce it by 25%. The DOE estimates that these changes will save an average household almost $300 per year on its electricity bills, or $100 per year for gas.

However…

Rheem Prestige EcoSense Hybrid Heat Pump

The Rheem Prestige EcoSense Hybrid Heat Pump 50-gallon water heater has an EF of 2.45, making it almost 3x as efficient as a standard electric water heater.

In order to achieve this leap in energy efficiency, manufacturers had to redesign their products, primarily to allow for extra insulation and incorporation of the new heat pump technology. This has meant a minor increase in size of about 2 inches for all water heaters, and an increased cost for larger tank water heaters due to the new heat pump technology. These changes have brought some storage tank water heaters closer in both price and annual energy costs to the on-demand tankless heaters; making the choice less clear for homeowners seeking energy savings for their pocket and the planet.

While you can still purchase water heaters that don’t comply with the NAECA Standards, once the current stock is depleted, that’s it. NAECA compliant water heaters are significantly more expensive, but they also save significantly more energy, just like a tankless water heater. For example, the Rheem Prestige EcoSense Hybrid Heat Pump 50-gallon water heater has an EF of 2.45, making it almost 3x as efficient as a standard electric water heater. Rheem estimates it will reduce operating costs by $370 annually.

Prices for these highly energy efficient models are still fluctuating, as is often the case with new technologies, but you can expect to pay upwards of $1,200 for a 50-gallon Energy Star-rated, hybrid electric water heater with a EF above 2.45, and an estimated yearly energy cost of $182. An equivalent tankless, Energy Star-rated, gas-powered tankless will also cost around $1,200, with yearly operating costs of $174.

Conclusion

This shift in energy savings brings storage tank water heaters closer to par with tankless, meaning the choice between tankless and storage tank water heaters will now boil down to which suits your home and lifestyle better:

Do you use electricity or gas to heat your water?

  • Tankless is a good option for gas, but a storage tank water heater will be better for an electricity-only household, as a tankless may require a significant upgrade of your electrical system, or the installation of a gas line.

Do you have a small home?

  • Tankless water heaters have a tiny footprint compared to a storage tank water heater, so you could gain valuable square footage by switching to tankless.
  • You should also consider your ground water when selecting a tankless water heater, because your needs will vary based on the region you live in.

Do you have a large home?

  • A single tankless could struggle to supply enough hot water to a home over 3,000 sq. ft., meaning you may need two or more. However, now you can purchase a large storage tank water heater without the eco-guilt.

About the author – Jennifer Tuohy, writes about new developments and technologies that will help you be more energy efficient and save money.  Her tips will fuel you with the right knowledge to make more informed buying decisions.  Visit your Home Depot to find out more about the tankless and new more energy efficient water heater options.

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