When considering a water heater model for your home, estimate its annual operating cost. Then, compare costs with other more and/or less energyefficient models. This will help you determine the energy savings and payback period of investing in a more energyefficient model, which will probably have a higher purchase price.
Before you can choose and compare the costs of various models, you need to determine the correct size water heater for your home. If you haven't done this already, see the following:
Calculating Annual Operating Cost
To estimate the annual operating cost of a storage, demand (tankless or instaneous), or heat pump (not geothermal heat pump) water heater, you need to know the following about the model:
Then, use the following calculations:
For gas and oil water heaters
You need to know the unit cost of fuel by Btu (British thermal unit) or therm. (1 therm = 100,000 Btu)
365 X 41045/EF X Fuel Cost (Btu) = estimated annual cost of operation
OR
365 X 0.4105/EF X Fuel Cost (therm) = estimated annual cost of operation
Example: A natural gas water heater with an EF of .57 and a fuel cost of $0.00000619/Btu
365 X 41045/.57 X $0.00000619 = $163
For electric water heaters, including heat pump units
You need to know or convert the unit cost of electricity by kilowatthour (kWh).
365 X 12.03/EF X Electricity Cost by kWh = estimated annual cost of operation
Example: A heat pump water heater with an EF of 2.0 and a electricity cost of $0.0842/kWh
365 X 12.03/2.0 X $0.0842 = $185
Comparing Costs and Determining Payback
Once you know the purchase and annual operating costs of the water heater models you want to compare, you can use the table below to determine the cost savings and payback of the more energyefficient model(s).
Models 
Price of Water Heater 
EF 
Estimated Annual Operating Cost 
Model A 



Model B (higher EF) 



Additional cost of more efficient model (Model B) 


Price of Model B  Price of Model A = $Additional Cost of Model B 
Estimated annual operating cost savings (Model B) 


Model B Annual Operating Cost  Model A Annual Operating Cost = $Model B's Cost Savings Per Year 
Payback period for Model B 


$Additional Cost of Model B/$Model B's Cost Savings Per Year = Payback period/years 
Example:
Comparison of two gas water heaters with a local fuel cost of .60 per therm.
Models 
Price of Water Heater 
EF 
Estimated Annual Operating Cost 
Model A 
$165 
.54 
$166 
Model B 
$210 
.58 
$155 
Additional cost of more efficient model (Model B) 


$210$165=$45 
Estimated annual operating cost savings (Model B) 


$166$155=$11 per year 
Payback period for Model B 


$45/$11 per year = 4.1 years 
Other Costs
If you want to include installation and maintenance costs, consult the manufacturer(s) and a qualified contractor to help estimate these costs. These costs will vary among system types and sometimes even from water heater model to model.
