As recently as last year, replacing a broken water heater meant paying a few hundred dollars for a relatively inefficient storage-tank unit or spending thousands to eke out energy savings with a solar or tankless system. But smarter new heaters are changing that.
Three we tested saved enough energy to pay for their roughly $2,000 cost in about five to seven years rather than decades. Known as hybrids, they have a conventional electric storage heater paired with a heat pump that extracts heat from the air and uses it to help heat the water. Models from GE, Rheem, and A.O. Smith used almost 60 percent less energy than standard electric heaters, which account for roughly half of all water heaters sold. That's a $325 savings per year, based on national average costs for electricity.
Those savings grow when you factor in the array of incentives. You can still get a 30 percent federal tax credit on a hybrid we tested if you install it by the end of the year, when the credit runs out. Add in any state and local rebates, and a hybrid heater could pay for its purchase price and its $300 to $400 installation in even less time, compared with the 10 years or more that's typical for the solar heaters we tested.
Our tests through winter snow and summer heat also show that what you save with solar and tankless systems can vary significantly based on which one you buy and where you live. We also tested an add-on heat pump that costs far more than its low price suggests. (See Is the AirTap a good investment?)