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What is the Most Efficient Water Heating System?

You need a water heating system that provides enough hot water for your family’s needs — but if you’re like many other eco-conscious homeowners, you also need one that minimizes energy and water consumption as much as possible. 

Believe it or not, your water heater has the potential to be one of the most rewarding green building technologies in your home. But, that’s only if you choose the right one. Let’s explore which type of water heating system is most efficient and suitable for your home. 

What Is the Most Efficient Water Heating System?

Well, it depends. There are many different water heating systems, all with different estimated ranges of efficiency. And while you can solely base your decision on those numbers, it’s most important to figure out which option will work best for your home. Depending on your home’s location, your family’s needs, and your green building goals, you may opt for an entirely different system from somebody else — and that’s normal. 

Thus, we can’t confidently make that decision for you without some additional context. What we can do is provide and describe options that we’ve seen work well for many homeowners. But first, we’ll start with an option we know to be the least-efficient choice for homeowners: traditional, fossil fuel-powered water heaters. 

The Least Efficient Water Heating System: Traditional Fossil Fuel-Powered

Currently, the most common way to heat water in America is with a fossil-fuel-powered water heater — but just because it’s the most common way doesn’t mean it’s the best way. 

Fossil fuel-based water heaters work by consistently keeping a large tank of water hot. There are two types of them: direct-vent and power-vent. Neither are particularly efficient. 

  • Direct-vent water heaters use a chimney to passively vent the system. They offer a 0.55-0.62 ratio of useful energy to total energy used. 

  • Power-vent water heaters use an electric fan to vent through the sidewall of your house and therefore don’t require a chimney. They offer a 0.62-0.65 ratio of useful energy to total energy used. 

While power-vent water heaters are slightly more efficient than direct-vent water heaters, both systems still lose about 35-40% of every unit of gas used to heat the water. Also, their storage tanks usually only have about one inch of insulation, so they don't store hot water very well either. And since they’re typically located in utility areas — homeowners rarely even get a benefit from the copious heat loss.  

Basically, the only benefit of these fossil fuel-based water heaters is that their upfront costs are relatively low — but that’s not even really a benefit when you factor in their high lifetime operating costs and short lifespans. These standard systems can cost several hundred dollars per year to operate, and will last about 12-15 years on average, sometimes failing catastrophically with lots of leaking water.



4 Types of More Efficient Water Heating Systems

So that’s that. It’s time to ditch the traditional, fossil fuel-based water heater and find a better solution. Luckily, there are plenty of options to choose from. We’ll look at four of them below. 

1. Next-Generation, Fossil Fuel-Powered Water Heaters

There are next-generation, fossil fuel-based water heaters that are significantly more efficient, with high insulation levels and glass-lined or polypropylene tanks. Additionally, internal heat exchangers can boost the efficiency of a fossil fuel system to about 95%, or sometimes they’ll also use electric resistance heat. 

While these next-generation systems upfront costs are often more than their traditional counterparts, they quickly start paying for themselves with their energy-efficiency and longevity. 

2. On-Demand Water Heaters

On-demand (also known as “tankless”) water heaters are another efficient way to heat water. As the name implies, on-demand water heaters only heat water as it’s needed in the house, rather than storing it in a tank. Thus, they’re sometimes advertised as providing unlimited hot water.

Water running from a tap into a kitchen sink

On-demand water heaters also burn gas at about 95% efficiency. Therefore, they save a lot of energy compared to a traditional system. Many years ago, these models sometimes had a few issues with “cold water sandwiches” that made for shocking shower experiences, but the bugs are mostly worked out these days. 

As with any higher-quality piece of mechanical equipment, their upfront costs are higher, but again, you'll save money in the long term. 

3. Heat Pump Hot Water Heaters

Heat pump water heaters use electricity and operate like a reverse refrigerator to make hot water in a tank very efficiently, making essentially 2-3 units of hot water for every unit of electricity used. This means they’re 200-300% efficient!

The compressor unit is usually on top of the hot water heater, kind of like a helmet, but there are also models that are uber-efficient and keep the compressor unit outside, so that you’re not robbing heat from your home to make hot water. 


Heat pump water heaters are almost the norm in Western European countries. The United States is woefully behind in this technology, but we’re catching up quickly. 

4. Hot Water Recirculation System

Hot water recirculation systems allow you to get hot water to remote fixtures without running gallons of water down the drain — not only helping you save energy, but also A LOT of water (about 18,000 gallons per year for a family of four!). 

Recirculating hot water lines will lose energy to the home through their pipes if they’re not insulated well, but if these are piped through conditioned spaces, at least the home is getting a benefit from the heat loss. With a recirculating system, the water is usually at the fixture pretty quickly, with the ideal being under 10 seconds. 

Pex Manifold

It’s common to use a timer with a hot water recirculation system, but an even better method is a push-button system or an occupancy sensor-activated pump. You’ll have to wait a minute or so after the pump is activated, but the water isn’t going down the grain, and typically you can do something else like brush your teeth while you’re waiting. You also won't recirculate hot water while no one is using it, thus losing less energy from the plumbing system

An energy-efficient home needs an energy-efficient water heating system. While there are multiple options to choose from, there may be one that’s best for your home and your needs — and if you’re not sure what that is, talk to the green building experts at Meadowlark. We’re excited to help you design and build the sustainable custom home of your dreams.


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