On a lifecycle basis, gas-fired tank water heaters are typically the least expensive means of heating water. One reason is that on a per-Btu basis, natural gas and propane are usually much less expensive than electricity. Another reason is that tank water heaters of 100 gallons or less are mass produced and are less expensive than most other types of water heaters. In some instances, other water heater types—such as electric heaters—are a better choice. But if gas is available and the water heater is in a location where a gas vent can be installed, a gas-fired tank water heater will likely be the least expensive to own and operate.

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. Residental water heaters are available with tank sizes up to 100 gallons and gas inputs up to 75,000 British thermal units per hour (Btu/h). Manufactured in large quantities, 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 energy input into the heater to warm that water. The higher the energy factor, the more efficient the heater. By varying the tank insulation, burner design, and a few other features, manufacturers make residential heaters available with energy factors ranging from 0.43 to greater than 0.65. 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 CertifiedEfficiency Ratings.

Commercial heaters. Two key differences between residential and commercial heaters are that commercial heaters are available with much higher gas input ratings (1 million Btu/h or more) and larger storage tanks (up to 250 gallons). They also have larger pipe connections, more rugged controls, and a few features only rarely found in residential heaters, such as flue dampers and electronic ignition. Unlike residential heaters, commercial heaters aren't rated for overall efficiency. Instead, they are rated for "thermal efficiency"—the portion of input gas energy that goes toward heating the water that is drawn from the tank. With few exceptions, commercial heaters are available with thermal efficiencies ranging from 78 to 80 percent. These heaters also must meet government standards for standby loss, which represents the portion of the stored energy lost when the burners are not operating. Standby losses are typically not published, but you can obtain them from the manufacturer.

Ultra-efficient heaters. With thermal efficiencies of 94 percent, these water heaters by far outperform the competition (Figure 1). They use power burners and enhanced heat exchangers to force hot combustion gases into chambers and tubes that are submerged in the stored water. Ultra-efficient water heaters are vented with plastic pipes that go directly through an outside wall. Because they draw combustion air directly from outside, through one of those pipes, their combustion processes are sealed off from the occupied space. That makes them safer than other gas water heaters (which, on rare occasions, may leak harmful fumes).

Tankless water heaters. Tankless water heaters, sized for both residential and commercial use, provide hot water without using a storage tank. They don't suffer standby losses and so have much higher energy factors than conventional units. See "Purchasing Advisor:Tankless Water Heaters" for details.

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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'

ASHRAE Handbook—HVAC Applications (which can be ordered online from ASHRAE's Web site). This quantity represents the greatest amount of hot water likely to be required over the course of a single hour. Then find a water heater whose "first-hour rating" exceeds that. Alternatively, several manufacturers provide free software on their Web sites for sizing water heaters.

Compare the cost-effectiveness of heaters with different efficiency ratings. The actual operating cost for any water-heating application depends on how frequently the heater will operate and on the local cost of natural gas. These parameters vary greatly among applications, so we recommend that you estimate the annual operating costs for a few heaters, using a range of load assumptions, and compare them with their first costs. Use the calculator below to estimate the simple payback period for gas water heaters based on their efficiency and purchase price.

Cost-effectiveness calculator. This calculator determines the energy consumption and payback period for standard commercial and ultra-efficient commercial water heaters and compares them with consumption and payback for residential models. By necessity, this screening model makes simplifying assumptions, so use it for initial screening only. For more accurate performance predictions, conduct a more detailed analysis that includes additional factors such as actual usage patterns, hot water loads, and part-load performance of equipment.

Begin by entering the average daily water draw in gallons, local natural gas cost in U.S. dollars per therm, and electricity cost in U.S. dollars per kilowatt-hour. For the residential model enter the energy factor, and for the commercial and high-efficiency models enter the thermal efficiencies (as fractions, not percentages: 0.8, for example, rather than 80). These numbers are available from manufacturers' data sheets. For typical values, use 0.55 for the residential model energy factor, 0.8 for a standard commercial water heater, and 0.94 for an ultra-efficient model. Finally, enter the purchase price for each unit and hit the "calculate" button.

If safety is an overriding issue, select an ultra-efficient heater. Every year, a few people are injured or killed when carbon monoxide and other products of combustion backdraft into occupied space. Ultra-efficient heaters use sealed-combustion technology so they cannot backdraft. Although backdrafting rarely occurs—and problems can be minimized by making sure that systems are properly sized and vented, ducts are leakproof, and carbon monoxide monitors are installed—the peace of mind offered by ultra-efficient heaters may be worth it for you.

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What's on the Horizon?

Little of the heat entrained in hot water is actually used. (When you take a hot shower, for example, the water that goes down the drain takes a lot of heat with it.) Several manufacturers are developing heat exchangers that recapture much of the heat (40 to 60 percent) that would otherwise accompany the water down the drain. The heat exchanger transfers the heat to cooler water and returns that warmed water to the tank (Figure 2). Although these drainwater heat recovery devices are only marginally cost-effective at present, their price may fall as research continues and plumbers become more familiar with installation procedures. If this technology becomes widely used, water heaters will become smaller and less expensive.

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Who are the Manufacturers?