Water Heater Efficiency and Running Costs

What does water heater efficiency mean?

Water heater efficiency is how much of the energy a heater uses ends up as hot water at the tap over a day of typical use. A tank loses heat through its walls while it waits (standby loss), and gas units also lose heat up the vent; tankless units avoid standby loss, according to DOE (archived). Heat pump models can rate above 1.0 because they move heat from the surrounding air instead of making it.

Efficiency is not the same as running cost. DOE notes that "higher energy factor values don't always mean lower annual operating costs, especially when you compare fuel sources," because a kilowatt-hour and a therm are priced differently. Compare UEF within a fuel, then compare yearly cost across fuels; the gas vs electric page does that comparison by type.

• 18%Share of home energy use that goes to water heatingDOE Energy Saver (archived)
• 3.3–4.1Rated UEF range for certified heat pump tanksENERGY STAR
• $550/yrHeat pump tank savings, household of four, at $0.146/kWhENERGY STAR
• 18.16¢U.S. residential electricity price per kWh, August 2026EIA

How do you read a UEF rating?

Read a UEF rating as a ratio: the higher the number, the less energy the heater uses for the same daily hot water. DOE's test first measures how much hot water the unit can deliver, then simulates 24 hours of use. ENERGY STAR says most conventional heaters rate between 0.63 and 0.95, with a gas tankless or standard electric tank around 0.93.

The catch is the bin. DOE assigns each model to one of four draw patterns, very small, low, medium or high, based on its first-hour rating (tanks) or flow rate (tankless), and states that "a water heater's UEF can only be compared with water heaters within the same bin." A 0.65 medium-draw gas tank and a 0.65 high-draw gas tank are rated against different usage. To find a model's bin, check its FHR, which the sizing page explains.

What does the EnergyGuide label tell you?

The EnergyGuide label shows a water heater's estimated yearly energy cost, its first-hour rating and a cost range for similar models. DOE says the first-hour rating sits in the top left corner as "Capacity (first hour rating)." The range bar lets you see where one model falls among others of the same fuel and size bin.

The ranges come from 16 CFR 305, the FTC labeling rule, last set in January 2023. They are comparison figures for similar models, not a forecast of any one household's bill.

The wide electric ranges are the useful clue: the low end reflects heat pump models and the high end standard resistance tanks. Propane versions of gas units carry roughly double the cost ranges of natural gas.

What does ENERGY STAR require?

ENERGY STAR requires efficiency well above the federal minimum, plus minimum warranties. The current Version 5.0 criteria apply to units made from April 18, 2023. Key levels:

• Heat pump, integrated: UEF ≥3.30, FHR ≥45 gallons, sealed-system warranty ≥6 years.
• Heat pump, 120 V/15 A or split system: UEF ≥2.20.
• Gas tank, over 20 to 55 gallons: UEF ≥0.81 (medium draw) or ≥0.86 (high draw); FHR ≥51 gallons.
• Gas tankless: UEF ≥0.95, at least 2.8 GPM over a 67°F rise, heat exchanger warranty ≥6 years.
• Solar: solar UEF ≥3.00 with electric backup or ≥1.80 with gas backup.

For comparison, gas tankless units must legally reach only 0.81, and a 50-gallon medium-draw gas tank's floor is about 0.56 (derived from 10 CFR 430.32). Those floors rise for tanks built from May 6, 2029; see the 2029 rule page.

How much does a water heater cost to run each year?

A water heater typically costs a few hundred dollars a year to run, and an electric resistance tank in a busy household can cost more than $700, judging by the label ranges above. The cheapest option depends on local prices. EIA's August 2026 national average was 18.16¢ per kWh, up from 17.57¢ a year earlier, and its 2025 average residential gas price of $15.34 per thousand cubic feet works out to about $1.48 per therm (EIA conversion, derived).

ENERGY STAR's heat pump savings table assumes $0.146 per kWh: a household of four saves 3,760 kWh, or $550 a year, against a standard electric tank. At August 2026's 18.16¢, the same 3,760 kWh is worth about $683 a year (derived). For gas, ENERGY STAR estimates a certified gas tank saves a family of four $25 a year and a certified gas tankless unit $95 a year against a standard gas tank. The heat pump vs electric tank page runs these numbers by household size.

How can you cut water heating costs?

The cheapest savings come from the thermostat. DOE says a tank set at 140°F can waste $36 to $61 a year in standby losses and that lowering it to 120°F saves 4% to 22% a year (DOE (archived)). The temperature setting page covers the scald and Legionella trade-offs.

Other steps with sourced numbers:

• Insulating blanket (electric tanks only): DOE estimates 25–45% less standby loss and 7–16% lower water heating cost; do not set the thermostat above 130°F under a blanket. DOE says a blanket does little on gas tanks, where heat goes up the flue.
• Pipe insulation: PNNL's checklist calls for at least R-3 insulation on accessible hot water pipes.
• Maintenance: flushing sediment, covered on the flushing page, helps keep the tank working as rated.

Frequently asked

Related reading

• CompareGas vs electric water heaters
• CompareHeat pump vs tankless water heaters
• BuyingWhat size water heater do you need?
• BuyingChoosing a water heater