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Hot Water Heaters Decoded

Water Heaters Demystified: How They Keep Your Showers Warm

Steve Hansen
December 7, 2023

How Water Heaters Work

If you have showered recently, or done dishes with hot, soapy water, thank your water heater. Though we usually prefer not to think about this appliance, life without it would be sort of a pain. How would you like to heat your bath water on the wood stove? Right, I’ll pass too.

Three Main Types of Water Heaters

The old standby water heater is that big tank in the basement or closet, but two other types are now common, as well: the on-demand water heater and the heat pump water heater. In most ways, these units are better than the old tank units, as they’re just so much more energy efficient.

How Different Types of Water Heaters Do Their Job

Storage-tank water heaters are heated by gas—natural gas or propane—or by electricity. There’s a bit more infrastructure involved with a gas water heater but the cost to operate is usually lower.

Gas storage-tank water heaters

Your gas line connects to the water heater’s gas valve at the front of the unit. You’ll also see the heat adjustment setting right here. The gas valve controls the flow of gas to the burner, which sends combustion gasses to a heat exchanger, which heats the water in the tank. Combustion of the gas creates by-product gasses—carbon dioxide, carbon monoxide, and nitrogen oxide—so there’s a flue that runs directly up from the burner through the tank to exhaust the gasses out the top of the unit. These gasses are dangerous, so venting these units is serious business, and some areas require a low-emission unit like this. Some models have a powered vent to allow venting through the roof or out a wall. Power-vent units need an electrical connection, but not all gas water heaters do, such as the linked unit.

The tank itself is made of steel surrounded by foam insulation to hold the heat and save energy. Tanks are lined with a type of glass to avoid corrosion of the tank. The tank also has a safety feature called a T&P (temperature and pressure) relief valve located near the top, which will actuate automatically if needed to relieve pressure. The overflow pipe then extends down from the T&P valve to handle any water that needs to drain.

The water arrives into the tank through the cold water line and the dip tube. The dip tube connection is located at the top of the tank and the tube extends quite far down into the tank so the cold water is delivered down close to the burner. Then the burner does its work heating the water and natural convection moves the water to the top of the tank where the hot water outlet is located.

Because water is mildly corrosive and contains a variety of dissolved minerals, tank-style water heaters have an anode rod, which is a sacrificial rod made of magnesium or aluminum. Over time this rod erodes so that the other parts of the water heater don’t corrode. You need to have a plumber replace this rod periodically. Tank-type water heaters also have a drain valve near the bottom of the tank so you can drain off any sediment periodically. We’ll come back to this maintenance.

Electric storage-tank water heaters

These units are mostly similar to gas-fired units with a few key differences. First, there’s no burner, so there’s no flue or exhaust gasses, or need for a gas line. Instead of a burner, these units have two electric heating elements stacked vertically inside the tank. Each has a thermostat for temperature control.

Other than that, they do the same job, and all the other parts are present, from the T&P valve to the anode rod. You might have to replace the heating elements or thermostats on electric water heaters every few years, but these are simple devices overall.

Both gas and electric water heaters are available in multiple sizes from 20 gallons up to 98 gallons. A medium-sized tank of around 50 gallons should be about right for 3–5 people like this smart unit that lets you monitor energy usage and water temperature.

Heat pump water heaters

While also a storage-tank type of water heater, heat pump water heaters are vastly more efficient than the other versions. Instead of making heat from combustion or resistance, heat pumps move heat in the way your refrigerator moves heat from inside its insulated box to outside the box, thus creating a chilled space. In the case of a heat pump water heater, it pulls the heat from the room in which it’s located and pumps it into the water in the storage tank. In most models, the storage tank also has electric heating elements as a backup, so technically these are “hybrid” water heaters. They also work best in a warm room and tend to cool the space where they’re located, so that can be a factor in their performance and also where you choose to locate yours. (Newer heat pump water heaters have been developed to only need a standard 120-volt outlet. These heat pump water heaters don’t include the backup heating elements so they can have a lower amperage draw.)

Compared to a standard electric tank-style water heater, a heat pump water heater will use about 70% less energy. That’s a huge difference, but they are expensive, like this smart model. However, you can take a tax credit of up to $2000 thanks to the Inflation Reduction Act, you may be able to get a rebate, and the manufacturer estimates that the unit will save $490 per year compared to a conventional model. Californians also have more incentives available to them: search what you qualify for here. So actually, it would be foolish not to take advantage of these incentives!

On-demand gas and electric water heaters

Also called tankless water heaters, this type of water heater will heat water only when you’re use hot water at the faucet or shower head, so they’re often thought of as more efficient than a storage-tank style water heater (though depending on usage habits, they can use more water than a tank water heater). You’ll find these in natural gas, propane, and electric models. Downsides include their inability to keep up with multiple simultaneous demands, such as supplying two showers and the dishwasher. That seems pretty easy to deal with, however, such as setting the dishwasher to run overnight. Their capacity is also limited by the temperature of the water coming into your home.

For example, this unit is made by one of the top brands. The product literature states: “​​Flow Rate @ 35°F Rise (gallons/min): 9.5 gal (US)/min”. If the unit has to raise the temperature by 55°F, however, you’ll get a lower flow rate than 9.5 gal/minute. It would be wise to know what the actual temperature is at your home and then you can calculate the flow rate for 120°F or whatever temperature you prefer.

As for how these units actually heat water, they’re simple. The gas is burned to create heat in the burner, then the heat exchanger transfers the heat to the water that’s passing through adjacent water piping. For electric models, the heat is created by an electric heating element and also transferred to the water in the copper pipes within the heater. Water enters cold and exits hot. Like electric tank-style water heaters, you don’t need a gas line or a flue, and there are no toxic fumes to worry about.

These units offer two major advantages over tank-style water heaters: longer lifespan and greater efficiency. On-demand units are now expected to last for 20 years and perhaps longer. That more than justifies their higher price, even without their greater efficiency. That efficiency is impressive though: the U.S. Department of Energy says they’re 24–34% more efficient than a standard water heater for homes that use up to 41 gallons of water per day. For homes that use up to 86 gallons of water per day, the efficiency bump drops to 8–14%.

How to Prolong the Life of A Tank-Style Water Heater

Conventional wisdom says tank-style water heaters are good for roughly 10 years, and that’s reflected in their warranties. What if there were two simple tasks that could get your old water heater to 15 years or even 20 years? It looks like there are!

  • Change the anode rod every five years or so
  • Drain the tank yearly.

Whether you decide to change out the anode rod yourself or call a plumber is another story, but one service call every five years for $200 or $300 instead of a new water heater at $1500 and up every 10 years sounds good to me. Draining the tank is a basic task that anyone can do, too. Just hook up a length of hose to the drain spigot, open the spigot, and let the water and sediment drain out.

Get Your Tax Credits and Rebates

I mentioned this for the heat pump water heaters, but ENERGY STAR models of gas tank-style and on-demand water heaters also qualify for a tax credit of up to $600. You can also use the rebate finder on that page to see what else is on offer. Don’t leave that money on the table!

Editor’s note: If you make a purchase through our affiliate partner links, we may receive a commission. This does not impact the recommendations we make.

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