A hot water heater in the corner of a garage with concrete floor and white walls.

As a homeowner, you want your hot water heater to help you cut down your energy bills and reduce your carbon footprint simultaneously — which is where energy efficiency comes in.

So, which type of water heater is the most energy efficient?

Energy Star-rated solar water heaters are the most energy-efficient, followed by ground source heat pumps and heat pump hot water heaters. An energy-efficient hot water heater should keep your electricity bills low and put out enough heat for your home’s needs.

The rest of this post explores the various types of water heaters and the most energy-efficient ones to help you make the best choices.

I’ll also touch on the factors that affect a water heater’s energy efficiency and general tips on choosing the best energy-efficient water heater.

So read on to find out more about this important topic.

Types of Water Heaters and Their Energy Efficiency

A stylized graph showing energy efficiency in the shape of a house that is green on the left hand side and colored bars indicating efficiency on the right hand side.
Energy efficiency is important for your bank balance as well as for the planet. Take a look at our Free Energy Efficiency eBook for tips and advice on this topic.

The energy efficiency of water heaters primarily depends on their type.

It also depends on the mechanisms they use to heat water and what energy sources they draw heat from (which I’ll discuss in more detail later in the article).

Below, I’ve ranked the most common types of water heaters from least to most energy-efficient.

I also discuss their pros and cons to help you decide if they’re worth purchasing given your home’s needs, budget, and preferences.

Conventional Electric Water Heaters

a grey tank water heater in the middle with wiring and plumbing going to it
A conventional hot water heater looks like a big cylindrical tank.

Conventional electric water heaters are the most popular choice for residential homes.

These heaters have large tanks that heat the water they distribute to faucets throughout the home using heat from oil, gas, or electrical sources.

As the hot water leaves the tank, a cold-water source refills the tank from the bottom.

Conventional water heaters are less energy efficient as they require a constant electricity supply. If the tank is oversized and too large for your home, which can sometimes be the case, this contributes further to higher electricity consumption.

Electric water heater manufacturers try to reduce heat loss by insulating the system, but their energy efficiency is still low compared to other heaters.

Still, there are reasons they’re popular among homeowners.

For example, conventional water heaters are relatively easy to maintain for the average homeowner, which is a big plus. So, it’s not obvious that the added cost of buying a more energy-efficient water heater makes sense for everyone.

Tankless Water Heaters

A tankless hot water heater mounted on a concrete floor. The heater has a stainless steel front and a small control panel.
Tankless hot water heaters are very efficient but might struggle to cope with extreme peaks in demand.

As their name suggests, tankless water heaters don’t hold any water. Instead, they supply hot water only when you need it.

Since they don’t store hot water in a tank and only heat the water you actually use, they don’t use as much energy as hot water heaters with tanks.

Also, no heat is lost from the tank as standby losses, making tankless water heaters more energy efficient than conventional water heaters.

Specifically, tankless water heaters use 24% to 35% less energy than conventional heaters for homes that use up to 40 gallons (151 L) of water daily. On the other hand, they use between 8% and 15% less energy in homes that demand more than 40 gallons (151 L).

If your household consumption is far above 40 gallons (151 L), you may find that tankless water heaters can’t put out the amount of hot water you need.

With these heaters, you may want to avoid using the dishwasher and hot shower simultaneously, for example.

Ground Source Heat Pump Water Heaters

Ground source heat pumps are one of the most energy-efficient types of water heaters. They tap into the solar energy stored in the ground to generate heat, as opposed to using electricity or other energy sources like conventional water heaters do.

Heat pumps need electricity to power their compressors and distribution pipes to move the hot water from one point to another, much like any other water heating solution.

Heat pumps can also be combined with conventional water heaters in a hybrid system to reduce electricity costs and your carbon footprint.

Heat pumps use up to 60% less energy to provide homes with hot water. While they require electricity to control critical parts, they use a much smaller fraction than conventional systems.

The only downside to ground source heat pumps is that they’re relatively costly to install. Once you get that part out of the way, however, you should see returns on your investment in a few years or so.

Condensing Tankless Water Heaters

Condensing tankless water heaters work like conventional water heaters but are far more energy efficient.

Since they use a tankless system, they don’t have to waste energy by maintaining a constant high temperature within a tank. Instead, these heaters heat water as it passes through their heat exchanger before releasing it to the faucets.

Condensing tankless heaters use up to 30% less energy to provide homes with hot water than conventional tank heaters. However, they still depend on electricity, fuel oil, or gas to generate heat, although they have the advantage of retaining excess heat for reuse.

Solar Water Heaters

A solar water heater with orange trim on a beige floor.
Solar water heating is very efficient, provided you have sufficient sunlight.

As their name implies, these heaters use energy from the sun via solar panels to heat water in a tank.

Solar energy is renewable, contributing fewer emissions to the atmosphere. Therefore, it’s one of the most energy-efficient systems for sourcing hot water.

Solar heaters are up to 90% more energy efficient than other water heaters.

However, there are a couple of downsides to solar water heaters that you should be aware of.

  • They’re expensive to install.
  • They’re more practical in areas that see more sunshine. If you live in places with meager UV index ratings, you may need to spend more money on solar panels that can capture more UV rays in low-light conditions. Alternatively, you may need to consider a backup power supply.

Factors That Affect the Energy-Efficiency of Water Heaters

Closeup of a chrome mixer faucet with hot water and steam coming out of it.
You can heat your water in various different ways, but the most energy efficient system depends on the fuel source and the size and lifestyle of your household.

Fuel Type or Energy Source

Electricity, fuel oil, solar, propane gas, natural gas, and geothermal systems are a few energy sources that can help power your water heaters.

Let’s look at the various energy sources and how they influence energy efficiency:

  • Electricity: Electric heaters cost homeowners a lot of money each year, yet they’re more efficient than gas for heating water.
  • Natural gas: Natural gas is cheaper than electricity and other fuels. However, it may not be accessible in your location.
  • Solar: Solar power is the most energy-efficient source for heating water. It can serve as a power source for conventional and tankless water heaters but can be unstable due to unpredictable weather conditions. Also, these systems are more expensive to install.

The Heating Mechanism

A tankless water heater will always be more efficient than a conventional system because it doesn’t need to preheat water and only heats the water you use.

Conventional water heaters must maintain the water temperature in the tank and keep it from going cold.

On the other hand, tankless water heaters only become active when there’s an immediate need for hot water. The heating mechanism allows the heater to deliver the exact amount of hot water you need every time.

The Size of the Home

The size of your water heater must match your home’s hot water needs.

A single-family home with only three to four occupants can efficiently use a tankless water heater. In these homes, only one person usually uses hot water at any time.

On the other hand, tankless water heaters may not be suitable for larger households.

For example, several people may be using the hot shower in separate bathrooms simultaneously.

In this scenario, a tankless water heater will consume much more energy to keep up with the demand. If the hot water demand is very high, a tankless system might be unable to keep up.

Therefore, conventional water heaters are often more cost-effective for larger households.

Choosing the Most Efficient Water Heater for Your Home

A man holding a sign saying "choice" with multiple different colored arrows emanating from the sign indicating different choices.
The choice can be bewildering, but energy efficiency is worth spending some time on to ensure you reach the right decision.

The best way to select the most efficient water heater for your home is to carefully review the above factors and take note of the recommendations that apply to you.

If you have a large family, you should consider installing a conventional water heater using natural gas as the energy source.

This is especially true for homes with radiant heating systems.

However, if you don’t need a constant hot water supply, you can get by with a tankless water heater.

For the best results, consult a qualified HVAC professional for advice. The HVAC team will inspect your home and consider any challenges and needs before making a definitive recommendation.

Conclusion

The most efficient water heater will vary from one home to another. In general, it’s the one that strikes the right balance between energy consumption and meeting your home’s hot water needs.

Solar heaters and hybrid systems featuring heat pumps and conventional water heaters are the most energy efficient on paper. However, they might not be suitable for everyone.

Solar water heater systems are costly to install and don’t work well in regions without enough sunlight.

Ground source heat pumps are also expensive. The installation requirements (such as the amount of space required for a ground source heat pump) make them impractical for many homeowners as well.

For more information on hot water heaters, including which ones qualify for an EPA and US Department of Energy (DOE) Energy Star rating, read our article here.

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