Estimating the Cost of a New Water Heater

My water heater started leaking on the ground a couple weeks back, a sure-fire sign that it needs to be replaced quickly before it rusts out entirely and we’re stuck with no hot showers or dishwasher.

I happen to live in a town that has it’s own electric company, affording me the luxury of having electric rates that are somewhere near one-third the cost of the next town over. My electric rates are $0.03591 / kWh.

So my immediate inclination was to replace my old dying natural gas water heater with a new electric water heater. It felt like it should be the cheaper option for us to run. But I never did the calculation, so I thought it’d be a fun exercise to geek out and see what my bills should look like for my old natural gas heater versus a new electric or natural gas heater. We can see whether or not I was correct to choose electric out of hand just because I have super cheap rates compared to the norm.

Electric Water Heater Estimate

First let’s run the numbers for the new electric water heater. I bought mine at Lowe’s and you can see the energy guide sticker to get the expected kWh usage for a year. They state it’s 4721 kWh in a year. So running the simplest math we get:

4721 kWh * $0.03591 / kWh = $169.53/yr

New Natural Gas Heater Estimate

Now let’s move on to the new gas heater. The energy guide sticker states we should expect to use 224 therms a year. Unfortunately, my local utility makes it rather difficult to get the “all-in” rates for natural gas. They do provide a relatively simple usage rate listing:

Usage Rate

First 3 therms or less $16.30
Next 97 therms, per therm $0.23097
Next 400 therms, per therm $0.21538
Next 500 therms, per therm $0.19041
Over 1,000 therms, per therm $0.10859

However, this is only the “usage” rate. They also charge a supply rate that varies month-to-month, have weather adjustments, surcharges, etc. So to get a fair rate, I looked at a past bill and averaged these costs out per therm to be around $0.58370712 / therm.┬áSo to get our bill for the water heater usage we have to use the graduated usage rates plus the simple multiplication of the misc/supply charges and therms:

Usage: $16.30 + ($0.23097 * 97) + ($0.21538 * 124) = $65.41/yr
Supply/Misc.: 224 therms * $0.58370712 / therm = $130.75/yr
Total: $196.16/yr

Phew… I was right

So looking at those numbers we can see that I happened to luck out and pick the right choice by about $27/year. Plus, the electric water heater was $140 cheaper to buy!

Let’s do a simple sanity check using some more geeky numbers just in case. We’ll convert the kWh into BTUs it generates and we’ll convert therms to BTU as well to make sure we’re actually comparing the same amount of expected BTUs (heat) in both cases. With a quick search we find that 1 kWh = 3412.14163312794 BTU. A little more Googling helps us see that 1 therm = 100,000 BTU.

So for our electric water heater we expect 4721 kWh:
4721 kWh * 3412.14163312794 BTU/kWh = 16,108,720.69 BTU

For a natural gas heater we expected 224 therms:
224 therm * 100,000 BTU/therm = 22,400,000 BTU

Oh snap, those numbers don’t line up! The problem is that both water heaters are not 100% efficient, so we need to account for that. We want to be sure that based on their efficiency numbers they end up converting the same BTUs after accounting for loss. The numbers really just tell us that the natural gas heater is much less efficient at converting the input to heat. So let’s take another stab at it, this time taking the efficiency rating from the water heater specifications.

Natural gas: 22,400,000 BTU * 0.67 efficiency = 15,008,000 BTU
Electric: 16,108,720 BTU * 0.93 efficiency = 14,981,109 BTU

Much better. While not the exact same number, we can see that they both are converting down to roughly the same amount of BTUs, which means our estimated values from the energy guide are actually good for comparison (they’re expecting the same amount of water being heated).

What about your old heater?

Just for kicks, let’s take a look at what the old water heater was costing us using these numbers. My old energy guide sticker only rated it as 54% efficient! So let’s take the number of BTUs needed to heat the water from above: 15,008,000 BTU. And let’s adjust based on the efficiency to see how many BTUs it would have needed to burn to get that output:

x BTU * 0.54 = 15,008,000 BTU converted
x = 15,008,000 / 0.54 = 27792592.5926 BTU

Now let’s convert that back into therms:
27792592.5926 BTU / 100000 (BTU/therm) = 277.925925926 therm

Let’s round that to 278 therms. Now let’s run the numbers like we did for the new gas heater:

Usage: $16.30 + ($0.23097 * 97) + ($0.21538 * 178) = $77.04/yr
Supply/Misc.: 278 therms * $0.58370712 / therm = $162.27/yr
Total: $239.31/yr


Well, luckily I did pick the right choice not only in up-front cost but also in yearly energy costs. And looking back, I should expect to save about $69.78/yr in my utility bills compared to last year. With those numbers I can actually expect to recoup the cost of the water heater back in just over six and a half years!

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