Last Updated on June 12, 2025 by Tanya Janse van Rensburg
Did you know that your hot water system could be one of the biggest energy guzzlers in your home?
For many households, water heating accounts for 15–25% of total energy use, making it a major contributor to high power bills.
Whether you have an electric, gas, solar, or heat pump system, its efficiency (or inefficiency) directly impacts your monthly expenses.
In this article, we’ll explore how different hot water systems affect your energy costs, signs that yours might be wasting money, and practical ways to reduce your bills without sacrificing comfort.
Heating water requires a significant amount of energy. The type of system you have, its age, and how you use it all play a role in how much you pay. Here’s a breakdown of common hot water systems and their efficiency:
1. Electric Storage Tank Heaters
How they work: Heats and stores water in an insulated tank.
Energy impact: High—electricity is expensive, and standby heat loss occurs.
Average annual cost: $400–$800 (depending on usage and rates).
2. Gas Storage Tank Heaters
How they work: Uses natural gas or LPG to heat stored water.
Energy impact: More efficient than electric but still loses heat over time.
Average annual cost: $250–$500.
3. Solar Hot Water Systems
How they work: Uses solar panels to heat water, with electric/gas boosters for cloudy days.
Energy impact: Very efficient—can cut water heating costs by 50–80%.
Average annual cost: $100–$300 (mostly for backup heating).
4. Heat Pump Water Heaters
How they work: Extracts heat from the air (like a reverse air conditioner).
Energy impact: Highly efficient—uses 60–70% less energy than electric tanks.
Average annual cost: $150–$350.
5. Tankless (Instant) Water Heaters
How they work: Heats water on demand instead of storing it.
Energy impact: No standby losses—can save 20–30% compared to storage tanks.
Average annual cost: $200–$500 (gas) or $400–$700 (electric).
Key Takeaway: Older electric storage tanks are the least efficient, while solar and heat pump systems offer the biggest savings.
How do you know if your system is inefficient? Watch for these red flags:
1. Rising Power Bills Without Increased Usage
If your electricity or gas costs are climbing but your habits haven’t changed, your hot water system may be the culprit.
2. Running Out of Hot Water Too Quickly
Frequent cold showers could mean your system is struggling to keep up, forcing it to work harder (and use more energy).
3. Strange Noises (Rumbling, Popping, or Knocking)
Sediment buildup in tanks reduces efficiency and can lead to overheating—costing you more in energy.
4. Rusty or Discolored Water
Corrosion inside the tank can decrease performance, making the system work harder.
5. Age of the System
Durable hot water systems last 8–12 years. Older units lose efficiency over time, leading to higher bills.
If you notice these signs, it may be time for a professional inspection or upgrade.
1. Lower the Thermostat
Many systems are set to 140°F (60°C), but 120°F (49°C) is usually sufficient—reducing energy use by 4–22%.
2. Insulate Your Tank and Pipes
Adding an insulation blanket to an older tank can cut standby heat loss by 25–45%.
3. Fix Leaks ASAP
A dripping hot water tap wastes both water and the energy used to heat it.
4. Use Low-Flow Fixtures
Water-efficient showerheads and faucets reduce demand, easing strain on your system.
5. Upgrade to a More Efficient System
If your unit is over 10 years old, switching to a heat pump or solar system could save hundreds per year.
6. Schedule Regular Maintenance
Flushing sediment, checking anodes, and inspecting connections keep your system running efficiently.
While some maintenance tasks are DIY-friendly, others require a licensed plumber or hot water specialist, especially if you’re dealing with:
A professional can help you choose the most cost-effective hot water system for your home and ensure it runs efficiently.
Your hot water system plays a huge role in your energy bills—often more than people realize.
By understanding how different systems work, recognizing inefficiency signs, and taking proactive steps, you can slash your power costs without sacrificing comfort.
If your system is old, noisy, or causing bill spikes, consider an upgrade. Modern hot water systems can pay for themselves in energy savings over time.
