Conventional storage water heater fuel sources include natural gas, propane, fuel oil, and electricity. Natural gas and propane water heaters basically operate the same. A gas burner under the tank heats the water. A thermostat opens the gas valve as the water temperature falls. The valve closes when the temperature rises to the thermostat’s setpoint. Oil-fired water heaters operate similarly, but they have power burners that mix oil and air in a vaporizing mist, ignited by an electric spark. Electric water heaters have one or two electric elements, each with its own thermostat. With two electric elements, a standby element at the bottom of the tank maintains the minimum thermostat setting while the upper demand element provides hot water recovery when demand heightens.

Because water is constantly heated in the tank, energy can be wasted even when a hot water tap isn’t running. This is called standby heat loss. Only tankless water heaters—such as demand water heaters and tankless coil water heaters—avoid standby heat losses. However, you can find some storage water heater models with heavily insulated tanks, which significantly reduce standby heat losses, lowering annual operating costs. Look for models with tanks that have a thermal resistance (R-Value) of R-12 to R-25.