Cost Analysis: Replacing a Gas Hot Water Tank 

Answer: In short, heat pumps reign supreme.

Summary: Integrated heat pump hot water tanks are so impressively efficient that they eclipse the installation of electric hot water tanks - even the tanks that are uber well built like the Rheem Marathon series. A Net Present Value model reveals that the hybrid heat pump tank, though more costly up front, is the best financial choice over a period of 20 years; this is even true accepting that the heat pump tank must be replaced once after 10 years, well prior to the questionable end of a Marathon "conventional" electric tank.

The analysis shows the heat pump tank introduces 1/4 the cost to upgrade a solar system to accommodate the electric water heating.

Comments on sensitivity and assumptions follow, however it's worth noting that if gas rates stay the same or better over the period of 10 years (in relation to the cost of electricity) then a gas power direct vent hot water tank is by far the best financial choice for a family (but by far the least environmentally friendly).

Capital Costs Year 2 and beyond…

Discounted Cash Flows

Since the discounted cash flows of the heat pump hot water tank, including costs and savings over a 20 year period, are notably less than the "conventional" electric tank, the heat pump technology is a clear winner; this is true even with the added cost of the tank and mid-period tank replacement.

The distance between the two is 13.47% in favour of the integrated heat pump option.

Energy Rates

• Lower electricity rates defeat the benefit of higher efficiency for the integrated heat pump tank (IHP, in dollars not tonnes of CO2eq) – at around 11 cents per kWh the electric conventional tank becomes the best option.
• Conversely, higher rates increase the savings with the IHP tank over the electric tank.
• Replacing a gas tank with a gas tank is economically the best choice at current rates (just barely), however if gas were to double in price, any electric tank becomes the best choice while the heat pump flies ahead with solar offsets.
• Solar PV offers the only decent protection against electricity rate increases and makes the gas choice irrelevant.

Tank Life Cycle

• The all electric tank (no heat pump tech) boasts a lifetime warranty. Over a twenty year period, this would require that a gas tank be replaced twice and the heat pump tank once (based on warranties).
• If the tank warranties were to improve in the heat pump tank category, this would further the argument for this one even without solar offsets.

Capital Costs

• There’s no real argument to say that any tank will become cheaper or more expensive (inflation built-in already) as technology improves (over the 20 year analysis period).
• However, the cost of solar arguably goes down every year and ignoring peak demand periods. Lower solar PV install costs benefit both electric options. However, higher solar PV costs favour a gas option.

Time of Use

• It is assumed that most of the hot water demand occurs when the PV system isn’t producing at peak (like in the morning and evening). If a household has more demand during the day than is average, then more of the distribution and transmission costs could be offset therefore improving the electric over gas argument (direct consumption of solar generation).

Environmental Value

• This analysis only compares costs (and solar offset savings from adding system capacity because of the shift in energy mix at the home), but we could quantify the value of greenhouse gas emission reduction if it was important enough to the homeowner. In regions where the electricity is produced much by hydro, natural gas, and renewables this would argue well for the electric options. Regions where coal, diesel, and oil fired electrical utilities reign supreme, the environmental benefits would net out much higher.

Modelling

• EnerGuide Labels show extremely similar annual costs to our data (< 2% variation).

Feel free to reach out to us if you have any questions about the modelling or would like guidance on the best energy-efficient upgrades for your home!

matt@thatenergyblog.com

P.S. The Greener Homes Grant Loan is still going strong! $40,000, zero percent, 10 years – complete energy efficiency upgrades on your home and pay later. Savings on your bill today!

Learn more: CEIP Frequently Asked Questions: https://ceip.abmunis.ca/frequently-asked-questions/