The other day, my son asked about swapping out his current hot water system to an electric hot water tank.

He currently has what is called an indirect hot water heater that uses a zone off his oil fired boiler to make hot water. (See diagram)

There were a number of reasons why he considered doing this.

First, he has electric solar panels on the roof of his house which have lowered his electric costs significantly, so he thought an electric hot water tank might save money.

Second, in the winter, he had issues with his existing system providing enough hot water when he needed it for his morning shower.

Lastly, in the summer, he felt it was not efficient for the boiler to come on and heat up boiler water so it could produce hot domestic water.

electrical-hot-waterHe thought that maybe a stand-alone electric hot water tank (see diagram left) could cost less, provide consistent hot water, and be more efficient.

He asked me what I thought.

Before I tell you what I told him, I want to point out that  there is no simple answer. There are many variables in determining the ‘best’ way to produce hot water.  Variables, like what kinds of fuel are available, what type of budget one has for the initial cost of the equipment, monthly usage cost, and annual maintenance cost.  Also, where he lives enters into fuel costs and availability of expertise in the various solutions.  Other variables are family size and  hot water usage or demands.

Finally, technology and efficiency standards are constantly changing so the answer depends on when he wants to make this change.

To compare heating options, I first need to define a term called BTU’s (British Thermal Unit).  A BTU is a measurement of energy and is defined as the amount of energy to raise one pound of water 1 degree Fahrenheit.  Or for those who are visual, one BTU is equal to burning one kitchen match.

I will limit this analysis to the most common fuel types.  If we look at just cost per BTU, natural gas is the first choice, followed by fuel oil and then propane and electric.

However, fuel costs are seasonal and they vary significantly over time and within the US.fuel-oil-costs

The chart on the above shows that  fuel oil costs for the past two years varied from $2.75 per gallon to over $4.00 per gallon.

If we look at propane prices over the past two years (below), we see a big spike to $4.00 per gallon in the winter of 2013-2014 and a leveling of costs in the winter of 2014 – 2015 to around $2.30 per gallon.Propane-costs

Natural gas is measured in cubic feet.  Prices fluctuate with demand, so it goes up in the winter time (see below)Natural Gas costCurrently, natural gas prices are very low.  In the last year, prices varied from a low of $9.49 to a high of $17.39 per thousand cubic feet.

Electric costs are measured in kilowatt per hour or kWh.  The costs vary seasonally and throughout the US (see below).  electric cost

The US average is 9.94 cents per kWh.  However, if you live in New England, where my son lives, the cost can vary from 15.94 cents to 20.45 cents, a significant difference.

To compare fuel costs to heat water, we need to determine the BTU’s in a unit of fuel.  Then we also need to take into account two efficiency factors. One is the efficiency of taking the energy in a unit of fuel to BTU’s. And the other is the efficiency to heat water with those BTU’s to the desired hot water temperature.

Below is a chart of the BTU’s in each fuel type and efficiency in converting it to BTU’s. This chart calculates the cost for a million BTU’s using the low and high prices throughout the heating season and various parts of the US.

Unit cost Cost per million BTU’s
BTU’s Units Low  High  Eff. low high
Natural Gas 1,028,000 mcf $9.490 $17.390 82% $11.26 $20.63
Oil #2 138,000 gal $2.900 $3.550 82% $25.63 $31.37
Propane 91,800 gal $2.400 $4.000 82% $31.88 $53.14
Electrical 3,412 Kw $0.098 $0.245 100% $28.84 $71.81

But we still have not made hot water. We only have cost per BTU. Let’s now apply the second efficiency factor to those BTU’s to make water. To get this efficiency, we need to know the input water temperature, the output temperature, the heat loss of the tank, the efficiency of the burners or elements, and heat transfer efficiency.

This can get complex.  However manufactures of hot water systems do provide this data for their equipment. To find it, read the specifications for the system or look for it on a tag that is normally attached.

For my analysis, I’ll simplify it and use the following percentages: fuel oil and gas efficiency hot water tanks are in the 60 – 65% efficiency range; electric hot water tanks are in the 90 – 95% range.

To compare costs for hot water, it really does not matter what we assume for usage, as long as we apply the same usage to the various fuel types. The data is valid for comparison purposes.   I will use 70 gallons of hot water per day for a family of four, input water temperature of 60 degrees, output temperature of 120 degrees which requires 16.3 million BTU’s per year.   The chart below shows the range of low and high annual cost.

Cost  1 million BTUs. Annual cost
BTU’s Units System Efficency low high low high
Natural Gas 1,028,000 mcf 0.62 $18.16 $33.27 $296 $542
Oil #2 138,000 gal 0.62 $41.33 $50.60 $674 $825
Propane 91,800 gal 0.62 $51.42 $85.71 $838 $1,397
Electrical 3,412 Kw 0.92 $31.35 $78.05 $511 $1,272

The bottom line is that for tank type heaters, natural gas is best.  Fuel oil is second best and propane and electric the most costly.

So, what did I tell my son?  Since, he already has a indirect system using his fuel oil fired boiler, the additional cost of getting hot water in the heating season is very small.  So, I told him that replacing his fuel oil indirect hot water tank with a classic electrical hot tank will not be a good idea. His solar power electrical panels may produce electricity cheap, but a hot water tank would exceed the capacity of his panels, causing him to extra kilowatts from his local electric company.

However I should also point out that there are newer technologies on the market.  Tankless hot water, or on demand, systems have been on the market for some time and electric hybrid heat pump hot water tanks are now available.   There are also solar heaters and drain-water heat recover systems.  These systems may offer cost benefits over today’s classic solutions.

There is no simple answer to what is the best way to get hot water.  Below you can find pointers to various websites that I used to answer my son’s question.  You can use them to get an ideal on how to determine the best answer for your own situation.

What is a BTU: and

How much water the average homes uses:

Average electrical cost –

Selecting a new hot water heater:

To calculate cost of fuel to generate BTU’s:

Average hot water usage and cost per year:

This blog was written by Fred Wilbur. Fred was an employee of Keith Specialty Store from 2005 – 2015 and today enjoys sharing information to help people have a better life.