Why Tankless Water Heaters Might Not Hold Water

The average U.S. homeowner uses 17 percent of their total annual household energy consumption to heat water. Water heaters are so energy intensive because they heat and then re-heat a large tank of water to a particular set point temperature (e.g., 120°F). This means that hot water is always available for use, but can lead to “standby” heat losses, as the water in the tank loses heat to the environment around it within the house.

One solution has been to insulate the hot water tank to reduce the standby losses. But to eliminate standby losses, another way is to eliminate the standby altogether. In other words, get rid of the tank. Witness the rise in popularity among customers of tankless water heaters. In theory they give you as much hot water as you need when you need it. They’re hot water on demand.

The inelastic demand of tankless hot water

These water heaters are small boxes that use heat exchanger coils to heat the water as it flows through the device only when it is needed. Since the devices do not retain heated water, there are no standby heat losses, and total energy use for the same amount of hot water delivered is generally lower than with a standard water heater.

But one of their Achilles heels is that, by definition, they demand energy precisely when you need the hot water. That inelastic demand can be a disadvantage, especially for electric hot water. Because they need to heat up water in such a short amount of time (basically instantly), the devices draw a high amount of electricity.

For the 4.6 million American households with electricity rates that vary by time of day, a tankless electric heater could actually increase operating costs if the hot water is used during peak price times. And regardless of the customer’s rate structure, if they need hot water during grid peak, those demand spikes are only going to exacerbate the peak demand problem (especially if you draw big soaker-tubs full of water or take especially long showers, unlike actress Jennifer Aniston’s famously short three-minute showers).

The advantage of hot water heaters with tanks

Unlike their on-demand tankless counterparts, water heaters with tanks have an important but often undervalued capability: they can decouple when you need the hot water from when you heat the water.

Why do we care about this ability? Because of the nature of our electricity system, which maintains expensive assets to meet peak demand, the behind-the-scenes true cost of electricity service changes constantly over time—minutes, hours, days, seasons. With traditional water heaters’ ability to shift their load’s timing, and appropriate price signals like real-time or granular time-of-use pricing, we can optimize energy use against these changing costs … and save money and improve grid operations in the process.

Furthermore, in a grid system with ever-increasing adoption of wind and solar energy this ability to smooth demand thus reducing grid peak can also be deployed to ease renewables integration, such as heating electric hot water to coincide with peak rooftop solar output.

This is no small capability. A properly-enabled water heater with a 55-gallon storage tank can shift up to 8 kWh of energy per day from peak periods to off-peak periods, while keeping hot water available for use at all times. Over time those cheaper kWh will add up, and quickly.

How do water heaters shift their demand?

Most households use hot water in the morning to shower, and again at night to do a sink of dirty dishes or run a dishwasher and perhaps a load of laundry. So how can water heaters shift their energy demand, even as they continue to provide sufficient hot water at those needed times?

Here’s one of many ways: Instead of drawing down and then re-heating the water in the tank based on a temperature set point—probably during a more-expensive time of day closer to grid peak—the heater can be turned on when grid demand is below average and prices are cheaper. The water heats to a higher temperature than normal. Then, when hot water is needed, a smaller volume of the hotter water can be mixed with cold water at the tank outflow to provide the house hot water at the same temperature as before.

This, of course, requires more than just the tank. Not all water heaters can provide this capability. A standard tank-type electric water heater will need minor modifications to have full load flexibility functionality and to become a grid-interactive water heater (GIWH).  These modifications on an existing water heater include installing a grid-connected communications device and are in the $500 range, requiring just a few hours for installation. However, built in at the factory as a default feature, this capability can add only a few dollars to the cost of a standard unit while unlocking orders of magnitude more value to customers and the grid.

Grid-interactive water heaters offer value to utilities and customers

Pilot programs for GIWHs are already in place and highlight the potential to reduce peak load, more easily integrate renewable energy, and save all utility customers money that would otherwise be spent on expensive infrastructure upgrades. For example:

• Hawaiian Electric launched a pilot in September 2014 to deploy networked, utility-responsive water heaters in small and medium-sized businesses on the island of Oahu.
• Great River Energy of Minnesota controls over 70,000 water heaters to modulate demand.
• New Brunswick Energy partners with a third party to offer GIWHs as a rental service to customers.
• Peninsula Light Company avoided an outage on its Fox Island site by taking advantage of its GIHW program.
• Sunnovations has created an application that does for water heaters what Nest does for air conditioners.

This is just the tip of the proverbial iceberg. According to U.S. Energy Information Administration data, about 40 percent of American homes are served by utilities that offer customers opt-in, time-varying rates. For customers in Massachusetts and California, these time-varying rates that can enable savings from GIWHs will soon become the default. Combining this type of utility rate with a GIWH can offer substantial bill savings to customers, paying back the incremental cost of the GIWH technology within a few years.

If you are one of the 8+ million annual water heater shipments in the U.S., you will probably spend a hectic day calling your local plumber trying to get a new one installed as quickly as possible. It may be worth taking the time now to assess your options for grid-enabled water heaters, and consider if there are any utility rates or incentive programs in your area that would allow you to start saving money on your bills while also providing a valuable grid service.

This is a ripe market: just two companies account for 80+ percent of the market, and three account for 95+ percent of the market. Making grid interactivity a standard capability on new water heaters—or least clearly labeled product lines—for basically negligible marginal cost, GIWHs could soon become the nationwide default, opening up immense economic value for customers and utilities alike.

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