Approximately 15% of each household's energy dollar goes to heat water. Using less hot water is one of the easiest ways to decrease your water heater's energy output and lower your bills.

Storage water heaters are the most popular--and the least efficient type--of residential water heaters used in the US.  A storage heater keeps a tank full of water heated at all times, causing energy to be wasted even when the unit is idle. This is called standby heat loss. Newer, more energy-efficient storage models can reduce the amount of standby heat loss, making them less expensive to operate.

On-demand or instantaneous water heaters, which use electricity or gas to heat water instantaneously and have no storage tanks, eliminate standby loss and reduce energy consumption 20 to 30%.  Cold water travels through a heat exchanger in the unit, and either a gas burner or an electric element heats the water as needed. Models with electronic ignitions save the energy consumed by a continuously burning pilot light.

Solar hot water heating can be used on its own, or used in conjunction with an on-demand system.  There are numerous solar water heating techniques available depending upon the requirements of each installation.  With the solar boost method, the sun is used to preheat water that is then stored in an insulated tank, until it passes through the on-demand unit to raise the water temperature to the final desired level.  Preheating the water in this way reduces the amount of energy necessary to bring the temperature to the final level, and helps during overcast and evening hours.

Check with your utility for rebates that may be available for the on-demand or solar, and ask your tax preparer about Federal tax credits that may be available for qualifying models.