Because gas is much less expensive per Btu than electricity, over their lifetime, gas water heaters are typically less expensive to own and operate than electric water heaters. Despite these economic advantages, there are four reasons why someone would select an electric water heater instead of a gas heater:

• Lower initial cost. Because they don't require combustion gas vents, electric water heaters are usually less expensive to purchase and install.

• Ease of installation. Electric heaters can be installed in locations in which it would be difficult or impossible to install a combustion gas vent.

• Safety. Electric water heaters don't require combustible fuel, which can leak or explode. They don't have pilot lights that can ignite flammable vapors. And they don't produce carbon monoxide, which can backdraft into occupied spaces.

• Flexibility. Not all buildings have gas supplies, but nearly all buildings do have electric supply.

Given these reasons, it's not surprising that about half of all commercial buildings in the U.S. use electric water heaters. However, owners of electric water heaters have several alternatives available that help mitigate the higher operating expense associated with electric water heating.

What Are the Options?

Residential heaters. Even though they are designed for the residential market, these water heaters can be appropriate for many small commercial facilities—and even some large facilities. These water heaters, which are available with tank sizes ranging from 20 to 120 gallons, and typically with 4.5 kW electric resistance elements, 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 on the how well they are insulated. Residential heaters are available with energy factors that range from 0.78 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 Gas Appliance Manufacturers Association's Consumers' Directory of Certified Efficiency Ratings.

Commercial heatersare available in a nearly unlimited range of tank and electric resistance element sizes. One manufacturer provides tanks that range in size from 3 to 10,000 gallons and that have electric elements with inputs ranging from 3 to 3,000 kW. 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. Standby losses are typically not published but can be obtained from the manufacturer.

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 discount associated with off-peak power.

Heat pump water heaters use refrigeration equipment to remove waste heat from indoor air or exhaust air streams and transfer it to hot water storage tanks (Figure 1). Every kilowatt-hour input into a heat pump water heater can actually produce about 2.5 to 4.0 kWh worth of useful hot water. As a result, these devices may cost from one-quarter to one-half as much to operate as resistance water heaters. Heat pumps are especially useful in hotels, restaurants, and laundries in warm climates, where, in documented case studies, their additional cost was recovered in energy savings in 3.5 years or less. In several locations, the simple payback period was as short as one year. Heat pumps are not suitable replacements for electric resistance heaters in every application, however. In cold weather climates, heat pumps could cause an increase in space heating requirements, offsetting a portion of their overall savings. Furthermore, they do require more maintenance than electric water heaters, although the expense associated with that maintenance is typically minimal.

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How to Make the Best Choice

Pick a size that's just right. Sometimes, plumbing contractors 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. This quantity represents the greatest amount of hot water that is likely to be required over the course of a single hour. Then find a water heater whose "first-hour rating" exceeds that. Alternatively, several water heater manufacturers provide free software from their Web sites that sizes water heaters.

Get the storage tank and heater capacities just right. Finding the right balance between storage and heating capacity is a tricky proposition. Make the storage tank larger, and you can reduce the heating capacity. That reduces peak demand, but at the expense of greater standby losses. Make the heating capacity larger, and you can reduce storage capacity, which reduces standby losses, but at the expense of greater peak demand. The most advantageous relationship between storage and heating capacity varies depending on electric rates and hot water use patterns. To find the best combination, analyze a few different models and compare their first costs to their annual operating expenses.

Compare the cost-effectiveness of different efficiency ratings. The optimum efficiency for any water heating application also depends on electric rates and water use patterns. These parameters vary so much from application to application that we recommend you estimate the annual operating costs for a few heaters and compare them to their first costs. Because they are the most efficient, heat pump water heaters can be an excellent buy if waste heat is available.

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What's on the Horizon?

Although heat pump water heaters are far more efficient than electric resistance water heaters, few units are sold every year. One reason sales are so low is that heat pump water heaters are more difficult to install than their electric resistance counterparts. The U.S. Department of Energy's Oak Ridge National Laboratory is providing technical support for and field testing a "drop-in" heat pump heater that is intended to be a simple replacement for many existing water heaters (Figure 2). The drop-in model will have the same footprint, electrical hookup, and plumbing requirements as ordinary 50- or 80-gallon water heaters. It is expected that when this heater is commercialized in 2000, it could be installed by virtually any plumber and will not require any special training.

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Who are the Manufacturers?