When homeowners purchase a new water heater, they often consider a variety of factors, including confidence that the water heater will provide ample hot water, physical suitability for their home, maintenance requirements, carbon footprint, and of course, the cost to install and operate. Unfortunately, readily available information on annual water heating costs often takes the form of national averages or broad ranges that aren’t helpful or which can even be misleading. In this post, we’ll explore the drivers behind the annual cost to heat water, provide some examples, and discuss how the Cala heat pump water heater minimizes these costs while ensuring comfortable hot water and more.
Why General Estimates Don’t Work
Broad cost estimates like “water heating costs between $400 and $600 annually” don’t capture the wide variability of households in the U.S. In fact, the annual cost of water heating in U.S. homes ranges from $100 to over $1,000—a 10x difference! This range stems from five factors:
- Fuel Type
- Fuel Cost Variability
- Heating Technology
- Hot Water Usage
- Geographical Location
Let’s dive deeper into these five cost drivers.
The Five Key Drivers of Water Heating Costs
- Fuel Type
The type of fuel your water heater uses significantly impacts its operating cost. Figures below use the national average cost values.- Electricity is the most expensive fuel per unit energy at $0.16/kWh.
- Natural Gas is the least expensive fuel per unit of energy at an equivalent rate of $0.06/kWh, but is not available in every home.
- Oil and Propane are also expensive, at roughly an equivalent $0.09 and $0.10/kWh respectively.
- Fuel Cost Variability
National averages are useful to illustrate general price differences for different fuels, but the reality is that fuel costs vary dramatically across the country and over time.- Electricity prices in the continental U.S. currently range from a low of $0.11/kWh to around $0.30/kWh – a 300% difference based on location.
- Natural Gas prices also vary significantly, influenced by transportation costs, regional supply constraints, and more. Annualized average residential prices in the continental U.S. range from $9 per thousand cubic feet (MCF) to roughly $28 / MCF – also a 300% difference.
- Oil and Propane have less geographic fluctuation but vary more over time. For example, over the last five years New England heating oil has ranged in price from $2.00 to $5.88/gallon.
- Heating Technology
The heating technology used by your water heater also plays a pivotal role in its efficiency and operating cost.- Electric Water Heaters use an electric resistance element, like a toaster but much more powerful, to directly convert electricity to heat with an efficiency of approximately 0.93 -0.95. This means that for every 1.0 unit of electrical energy that goes into the water, 0.93 to 0.95 units of heat energy go into the water.
- Heat Pump Water Heaters like Cala use electricity to power the heat pump, which moves heat from the surrounding air into the water with efficiencies reaching as high as 4.0 or more.
- Natural Gas and Propane Storage Tank water heaters have an efficiency of around 0.6, while higher performing condensing units can reach up to 0.9.
- Oil Storage Tank water heaters will have an efficiency of around 0.6.
- Indirect Water Heaters, which use a home’s boiler to heat domestic water, will mirror the efficiency of that system in the winter and have a lower efficiency in the summer.
- Tankless Water Heaters, which use natural gas or propane, heat water instantly with a very high amount of energy. They have efficiencies from 0.82 to 0.97.
- Hot Water Usage
How much hot water a home uses can significantly impact how high water heating bills go. A typical one-person household typically uses 15-20 gallons of hot water daily, while a family of four would generally be expected to use around 60 gallons per day. And, of course, these numbers vary widely; for example, a four person household with high usage would be 80 gallons per day or more. So, water usage alone can cause a 4x range in water heating costs. - Geography
Homes in northern climates typically require more energy to heat water than in the south, due to colder average incoming water temperatures. For example, all other factors being equal, a home in Houston will use approximately 27% less energy for water heating than a home in Massachusetts.
Examples: The Drivers are Multiplicative
These variables don’t operate in isolation — they combine with each other. For example:
- A household using a natural gas tank water heater in a two-person household using 30 gallons of hot water per day in Georgia might spend approximately $245 annually.
- In contrast, a family of four in New England with an electric water heater using 65 gallons per day would pay approximately $1,147 per year. This same household might pay ‘only’ $655 annually with an oil water heater.
How Cala Lowers Operating Costs
Cala is the world’s first intelligent heat pump water heater, using advanced hardware, sensors and software to ensure ample hot water while minimizing operating costs. By learning your home's unique hot water usage patterns and utilizing other inputs like electricity pricing, emissions from the electrical grid, home solar forecasts, and more, it automatically optimizes water heating.
Let’s compare how Cala would save money in the examples we previously shared:
- In the two-person Georgia household, the annual cost of water heating would be approximately $60 per year, a savings of $185 annually.
- In the New England household, the annual cost would be approximately $380 per year, a savings of $767 per year versus electric resistance and $275 versus oil.
Final Thoughts
The annual cost of water heating in the U.S. is driven by multiple variables and has a far wider range than most online sources indicate. Because of this range, personalized analysis is important for understanding the true cost of water heating in your home. We will continue to support homeowners in understanding this topic, so stay tuned for more information here in the future.
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