For most homes, water heating is the second-highest energy cost. It’s about 18% of a home’s average energy consumption, and trimming this cost can save hundreds of dollars a year. A new water heater can heat water more efficiently and benefit the environment.
So, if your home water heater just happens to be nearing its end, you want a more efficient home, or just want to switch to an electric water heater, here’s what you need to know about the cost of installing and running it.
See how much you can save with home energy changes
Water Heater Installation Costs
When buying and installing a new water heater there are a surprising number of important factors. Should you buy a tank, tankless, or heat pump water heater? Using what fuel or energy source? What size is most efficient? How much hot water does your family need? There are upfront and long-run expenses to consider.
Here are the initial costs to expect by type of water heater.
Conventional tank water heaters
More than 80 percent of water heaters in US homes are gas or electric conventional tank systems. That number, though, was about 94% in 2009.
Conventional water heaters cost between $600 to $7,200 to purchase and install, according to our survey of online estimates. Tank water heaters can run on electric, gas, geothermal power, or propane. The installation cost is typically most of the expense. Electric tank water heaters tend to be less expensive up front but, thanks to current low gas prices, often have higher operating costs than gas.
There are more variables to the purchase and installation cost. Larger tank size, switching fuels, the removal of your old water heater, and any additional equipment needed could all increase the cost.
Putting an Energy Star-certified storage water heater in your home could qualify you for a tax credit of 30% of the purchase and installation costs up to $600 of credit, as part of the federal Energy Efficient Home Improvement Tax Credit.
Credit: US EIA
Tankless water heaters
Tankless water heaters can run on gas or electricity. They heat water on demand and do not keep water in a tank 24-7.
The Department of Energy estimates tankless water heaters save about 8%-34% on a home’s energy for water heating. The average home spends $400-$600 a year on water heating, so the savings can be up to about $200 a year.
Purchase and installation prices range from $600 to $5,400, according to our review of online estimates. A tankless water heater has an expected lifespan of 20 years or longer, which can mean decades of energy savings.
Putting an Energy Star-certified tankless water heater in your home could qualify you for a tax credit of 30% of the purchase and installation costs up to $600 of credit, as part of the federal Energy Efficient Home Improvement Tax Credit.
Heat pump water heaters
Heat pump water heaters, also known as hybrid electric or hybrid heat pump water heaters, are the most energy efficient water heaters. Purchasing and installing a heat pump water heater costs about $1,200-$5,000, according to Energy Star. Heat pump water heaters have an expected lifespan of 13-15 years.
A heat pump water heater uses electricity to move heat from the air or ground to your water. They also have settings and scheduling functions you can use to heat water when you need it and save energy when you don’t, increasing efficiency and savings.
Like conventional and tankless water heaters, there are Energy Star-certified models and potential federal tax credits. The credit is 30% of your cost up to $2,000 of credit.
Switching fuels and other factors
If you’re switching from a natural gas water heater to an electric one, you will pay for a new unit, the installation, and a bit extra for converting from gas to electric. Conversion from gas to electric adds about $250-$600 to the installation according to online estimates, similar to switching from a gas furnace or range to an electric model.
Heat pump water heaters are typically more expensive up front, but installation may be easier and less expensive in some cases. Energy savings, the unit’s expected lifespan, and incentives such as tax credits are other typical benefits.
Rebates for Water Heaters
In addition to federal tax credits Energy Star tank, tankless, and heat pump water heaters, could qualify for home energy rebates.
This rebate program is a federal program, but paid out by states. To see your state’s program, application information, and more details, go to the Department of Energy page on the program.
See how much you can save with home energy changes
Operating Costs for Water Heaters
Once you have a new water heater, what are the estimated operating costs?
Conventional tank water heaters
Your exact expense here will depend on your local gas or electric utility rates, the BTUs or watts your system uses, and your hot water usage. In most cases, gas water heaters will have lower operating costs thanks to current low gas prices.
Gas water heaters have an energy cost of $120-$360 a year, with averages generally coming in at $200-$250 a year, according to a range of sources. The wide range varies due to tank capacity, water usage, and natural gas rates.
With conventional electric resistance water heaters, the annual energy cost range is $400-$600. Again, these electric numbers are variable based on your local utility rates.
Another factor in long-term operating cost is lifespan. Electric tank water heaters average a longer lifespan, usually lasting 10-15 years. Gas water heaters have an average lifespan of 8-12 years.
Tankless water heaters
Electric tankless water heaters have lower operating costs than gas tankless water heaters primarily because they are more energy efficient. Electric tankless water heaters can be more than 95% efficiency while high efficiency gas models peak just below that.
Electric tankless water heaters are typically, depending on your home’s usage and other factors, less expensive than tank water heaters because they work on demand. There’s no energy usage for storage or stand-by energy being used much of the time when you don’t need hot water.
Electric tankless water heaters cost $75-$300 a year to operate. Gas tankless water heaters cost $175-$500, according to retail and consumer sites .
Both types of tankless heaters have usual lifespans of 20 years or more, which is a major financial plus.
See what home electrification can do for you:
Heat pump water heaters
Installing an Energy Star-certified heat pump water heater can take your annual energy cost to $104-$160. Energy Star estimates an annual electric bill for a family of four can be reduced by about $550 compared to electric resistance water heaters, and the lifetime energy savings from a heat pump water heater may be more than $5,000.
One measure of efficiency shows that heat pump water heaters are some of the most efficient models out there. Uniform Energy Factor (UEF) measures how much of the energy a water heater uses goes to heating the water and how much is lost.
While most tank and tankless water heaters have UEF ratings up to about 0.95 (95% efficiency), heat pump water heaters can have UEF ratings of 3.3 to 4.1 (330-410% efficiency). Because heat pumps move heat rather than create it, you can get the equivalent of 3.3 to 4.1 kWhs of heating for every 1 kWh of electricity you put in.
Electric vs. gas water heaters
There are some general differences in gas and electric water heaters’ expenses. Gas rates are typically lower than electricity rates. Electric water heaters are usually more efficient. Upfront costs are typically lower with electric.
This whole calculation can be different depending on your energy source. If you’re using home solar power to generate your own renewable electricity, your water heater’s electricity demand may be covered by your home solar panels.
Whether you’re using solar power or not, there are ways to use less electricity to heat water. An average shower uses 10 gallons of (usually) hot water. A load of laundry uses 25 gallons of (sometimes) hot water. Should you not shower? Or not wash your clothes? Those are bad ideas.
You can install efficient or low-flow showerheads and faucets throughout your home. If you’re buying a new washer or dishwasher, getting Energy Star-certified appliances will save energy. If you’re not up for a new appliance, only washing full loads or using cold water cycles more often can make a difference. Checking faucets, showers, and pipes for leaks can save water and energy. If a leak drips one drop a second for a year, it would leak 1,661 gallons of water.
EnergyGuide Labels
When you’re shopping for a new water heater, you can get a good idea of the operating cost thanks to the EnergyGuide label, the yellow sheet of paper with energy consumptions and cost estimates attached to many new appliances, water heaters included.
EnergyGuides’ estimates for costs and consumption are based on national averages and might vary from your actual use. The label will list assumptions that go into calculating the cost like the electricity rate and performance of similar water heaters.
This EnergyGuide label for a dishwasher shows the typical facts and figures given. Credit: Federal Trade Comission
When Should I Replace My Water Heater?
You might need to replace your water heater because it’s near the end of its life or you just want an upgrade.
Signs of end of life
Here are some signs your water heater is on its last leg.
- No or not enough hot water
- Inconsistent temperatures
- Nearing the end of its expected lifespan in years
- Rusty or dirty-colored water
- Leaks from tank or components
- Loss of water pressure
- Rattling sounds
- Pilot light frequently goes out (gas heaters only)
Reasons to upgrade
Your water heater might not meet your needs for any number of reasons.
- New hot water demand above water heaters capacity
- Home electrification
- Switching from gas to electric before or after going solar
- If you’re going to your own clean, renewable, independent electrical power, it makes sense to maximize your home’s usage of that electrical source.
Water Heater Maintenance
With any water heater, routine and proper maintenance will likely improve its efficiency and extend its lifespan.
For tank water heaters maintenance includes flushing a quart of water through the tank every three months, checking the temperature and pressure valve on the tank every six months, and checking the anode rod every 3-4 years. The US Department of Energy recommends checking the owner’s manual for your appliance’s needs.
Tankless water heaters typically need less maintenance. For some models, it’s recommended to flush it with vinegar, but check the owner’s manual first. Other recommendations include checking the anode rod and the temperature and pressure valve.
Heat pump water heaters should have regular professional maintenance, just like an HVAC heat pump. Maintenance steps, whether DIY or by a professional, also include cleaning or replacing air filters as often as the manufacturer recommends and cleaning the condensate drain about once a year.
Solar Water Heaters
Using solar power for hot water can provide many of the same benefits home solar panels overall. The US Department of Energy estimates solar water heaters can reduce a home water heating bill by 50-80%.
Most solar water heaters harness the sun’s energy by having sunlight warm an outdoor water supply or using special solar thermal energy collectors. Although you can run a water heater with electricity generated by solar panels, self-contained thermal solar water heaters can be another great way to go green and save money on monthly energy expenses.
Home Electrification and Energy Efficiency
Switching to an electric water heater — be it conventional, tankless, heat pump, or solar — may be a good idea on its own. It’s also a key step in electrifying your whole home. Pairing home electrification with solar lets you power more of your home with clean, renewable energy.
Each of these steps may save you money, make your home more energy independent, and reduce your home's use of carbon-based fossil fuels. Palmetto can help you understand how solar and electrification might work at your home. Check out our easy solar savings calculator or contact form to start.
See what home electrification can do for you:
Water Heater Cost Frequently Asked Questions
How much does a water heater cost?
The cost of a water heater involves the water heater itself, installation, additional required construction or system components, and a number of other factors. It’s wise to consider long-term factors, too, such as fuel cost and operating costs. The initial cost of buying and installing a new water heater can go from a few hundred dollars to $5,000 or more for larger projects.
Is a tank or tankless water heater better?
It depends on your needs. Conventional tank water heaters may be a better option for families or properties that need larger capacities of water. Tank water heaters usually have a lower initial up-front cost compared to tankless water heaters. Tankless water heaters are more energy efficient and have longer lifespans compared to conventional. In many cases, tankless water heaters will save money over the long term because of efficiency and using energy only on demand.
Heat pump water heaters are the most efficient option on the market.
Can I switch from gas to electric water heating?
Yes. Switching from gas to electric water heating may make sense for multiple reasons. There will likely be added expense in the transition from gas to electric, but the benefits can make up for it. Benefits with electric can include using a cleaner fuel source, using your own (solar!) energy source, and saving money, especially if a new water heater is part of a larger home electrification and energy efficiency plan.
Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
Actual costs, savings, and environmental impact will vary. The numbers provided on this page are estimates only.
Andrew GiermakWriter and EditorAndrew joined Palmetto in Charlotte in August 2024. He’s been a writer in journalism, then in business, going back to almost the 20th century. He’s lived in Indiana, Virginia, Pennsylvania, Virginia again, and now North Carolina for the last 12 years. He likes golf. Is he good at it? Not so much.
