I need a new water heater! Gas or electric? With a tank or tankless? Propane? Solar? Heat pump? Which is better?!

Written by Karen Summerskill

Written by Karen Summerskill

At some point, every home owner must replace their hot water heating system.  Since water heating accounts for about 20% of a home’s energy use, it’s worthwhile doing a little research. It quickly becomes apparent that deciding which system is better is not all that simple.

The answer depends on what you mean by “better.”   Purchase price is not the only thing you need to consider.

Doesn’t a tankless water heater use less energy than a traditional water heater with a storage tank?

It takes the same amount of energy to heat water, no matter what system you use.  A traditional system heats water and stores it, so hot water is ready when you want it, but then the tank loses heat (and energy) from the storage tank.   A tankless system uses an intense amount in a short time, but doesn’t have heat loses from stored hot water.

Isn’t natural gas cleaner than electricity?

In Ontario, our electricity is generated mainly by nuclear, water, wind and solar energy.  So, an electric water heater generates less greenhouse gas than a natural gas water heater.  Hold on to that thought while you consider the economics of using natural gas to heat water.

Is it cheaper to buy an electric water heater tank than a natural gas water heater tank?

Yes, electric water heater tanks are generally less expensive to buy than tanks heated by natural gas.

Is it cheaper to heat water with natural gas or with electricity?

Yes, given current prices, it is generally less expensive to operate a tank heated by natural gas than one heated by electricity.

Isn’t electricity 100% efficient?

Water heater storage tank systems are never 100% efficient since the tanks lose heat. Insulating a hot water tank is always a good investment. That said, electric water heaters have an efficiency rating of 90% since almost all the energy entering the heating elements goes directly to heating water.  Conventional natural gas water heaters have efficiency ratings around 60%, while condensing natural gas water heater tanks can achieve efficiencies over 85%.  

Over its lifecycle, which will cost more?  A natural gas or an electric water heater tank?

The lifecycle cost of either system will change as prices change and a household’s use changes, but, in general, an electric system will cost about 30% more over the 13-year lifecycle of the tank.  That could be a difference of up to $300 dollars each year.

What about tankless systems?

Tankless heating provides a limitless supply of hot water, with no standby heating expenses and no heat loss from storage.  No storage tank means extra space.  However, tankless heaters are much more expensive than traditional storage water heaters.  Electric tankless heaters may require upgraded wiring and they will use electricity on demand, which may mean higher costs if high use is during peak billing hours.  Natural gas models are available but tankless water heaters are generally not an option for rural homes due to lack of access to natural gas and problems with mineral build-up in the heat exchanger.  

I don’t have natural gas where I live.  How does propane compare to electric water heaters?

If you are replacing your oil furnace with a propane furnace, you may also be considering a propane water heater.  Propane creates 38% less greenhouse gas than heating oil (source: propane.ca), but hydro electricity generation creates far less GHG than either propane or natural gas.   Propane is not regulated like electricity, which means that the prices will fluctuate, making it harder to budget and sometimes much more expensive than electricity.  

What about solar thermal?

Solar thermal is an excellent choice for seasonal swimming pools.  For year-round systems in Canada, solar thermal panels collect heat in antifreeze, which is then circulated through a heat exchanger to transfer the heat to water.  The system will require roof space, a backup traditional system, and electricity for pumps. A solar thermal system can meet about 60% of a family’s hot water needs and will reduce your energy bill accordingly.  

What about heat pumps?

You will be hearing more about heat pumps in the future.  Heat pumps move heat from one place to another, working like a refrigerator in reverse.  A typical heat pump water heater will cost over $1,100 compared to $350 for a traditional electric water heater tank.  However, according to Natural Resources Canada, heat pumps water heaters use up to 50% less electricity than traditional water heaters.  An average household of four will see a $330 drop in their annual electricity bill.  Look carefully at the efficiency ratings on the energystar.gov website. It’s not a typo: there are heat pump water heater systems with efficiency ratings of over 250%.  In other words, the higher the demand for hot water, the more sense it makes to invest in a heat pump system. 

Heat pump water heaters require a suitable location, where air can circulate freely.   www.energystar.gov/products/water_heaters/high_efficiency_electric_storage_water_heaters/considerations

Any other options?

Your great-grandparents probably managed with a wood stove and a large cast iron pot to heat water.  It’s not an option that most people would consider, but it’s still an option!

For more information, and to compare products, go to


Select the option “Canada” at the bottom of the Energy Star menu to see products available in Canada.