Water Heating

Overview

Water heating can be a challenging end use to efficiently electrify. Electric resistance water heaters are dependable and relatively inexpensive to install but have high operating costs. Heat pump water heaters (HPWH) are a more recent market entry with nearly triple the efficiency of electric resistance models. The improved performance of HPWHs comes at a higher upfront cost and requires a more thoughtful design approach for proper operation. In most cases, HPHWs are equipped with electric resistance backup heat to ensure the equipment can meet hot water demand in all operating conditions.

Technology and Design

HPWHs function similarly to space heating heat pumps: instead of generating heat from electric resistance coils, heat is moved from ambient air to a hot water tank. The ambient air can come from either inside the building or from the outdoors. Once heat has been extracted from the air, cold air is discharged from the unit. If the air temperature is too cold for heat pump operation, most HPHW models have electric resistance backup heaters.


Electric heat pump water heater	Electric resistance water heater	Electric water heater

Equipment Configuration

HPWHs come in two types: packaged and split systems.

Packaged Systems

In a packaged system, the heat pump and water storage are an integrated unit. This means that the units are larger than electric resistance water heaters and that an adequate air source needs to be provided where the water heater is located. Packaged units are the most commonly available type of HPWH currently on the market.

Split Systems

The other configuration for HPWH are split systems, where the heat pump and water storage are in separate locations. Because the heat pump is located outdoors, the efficiency and heating capacity will be affected by the outside air temperature. However, split systems are typically designed for colder conditions, with some capable of operating at sub-zero Fahrenheit temperatures. Other advantages include more flexible equipment locations and the ability to scale the design for larger central installations. However, the cost of these systems can be three to seven times that of a comparable gas-fired boiler system. Water lines also typically run from the indoor tanks to the exterior equipment, posing a freezing risk during power outages.

In-unit Design Considerations

There are a few different approaches for providing a warm air source for the HPWH as well as a place to send the cold air discharge. For individual water heater located in each unit, common approaches include:

Outdoor intake/discharge
To avoid inadvertent exhaust of conditioned air from the building, the air intake should be ducted from the exterior whenever discharging outdoors. This strategy avoids stealing heat from the space during winter or causing comfort issues by discharging cold air to the unit. However, it limits HPWH efficiency in the winter since most equipment on the market is not capable of operating in heat pump mode below 40 degrees Fahrenheit.
In-unit intake/discharge
Supplying air from inside the building ensures that the HPWH can operate in heat-pump mode at all times. However, the cool discharge air should be transferred via a grill or duct to a location that will not cause resident discomfort. The added heating load also needs to be accounted for with the space heat equipment. Discharging to a heat source like a fan coil or even the back of a refrigerator can eliminate comfort concerns. The Northwest Energy Efficiency Alliance commissioned a useful study on in-unit HPHW venting design strategies.

When locating HPWH in a residence, the noise from the water heater compressor should also be considered. Some manufacturers have quieter equipment than others, and designing for noise reduction is important for the resident experience.

Central System Design Considerations

Shared HPWH
In some configurations, one or several HPWH units can serve multiple apartments in a semi-centralized domestic hot water (DHW) design. These units would have larger capacity and be paired with storage tanks. This approach eliminates the noise and comfort issues associated with in-unit HPWHs. Shared HPHWs can be located in a dedicated closet or boiler room organized by floor or riser. The shared equipment can either be vented to the exterior or the corridor if coordinated properly with the ventilation, heating, and cooling systems.
Central HPWH
Fully centralized systems typically locate the heat pump outdoors and pipe hot water to a central water storage location in a mechanical room. Heat pumps don’t provide the high heating capacity associated with gas-fired systems, so larger amounts of water storage are needed to meet hot water demands of the building. Additionally, equipment for this type of design is relatively new and there aren’t as many options available from manufacturers. This contributes to higher costs relative to gas-fired alternatives.

In shared and central HPHW configurations, hot water is not captured by tenant utility meters and becomes a common-area operating expense.

HPHW design approach has a large impact on system construction and operational costs. The designer must balance the limited heating capacity of the heat pumps, space available for hot water storage, electric resistance backup requirements, and the calculated hot water demands of the building.

Retrofits

Summary

Domestic hot water (DHW) systems are the second largest energy load in multifamily affordable housing and account for a substantial portion of operating costs. Selecting an appropriate DHW retrofit strategy requires careful evaluation of the existing system configuration, available electrical capacity, mechanical space constraints, and long-term operational impacts. Common retrofit pathways include both centralized (i.e. boiler plant) and distributed systems (i.e. in-unit water heaters). These approaches are outlined below, with notes regarding electrification feasibility and cost considerations.

Retrofit Options

DHW systems in multifamily buildings typically fall into two categories:

Central Systems: A central DHW plant located in a mechanical room serving the entire building. These systems typically consist of gas-fired storage tanks or boilers with separate storage. While central systems simplify maintenance and monitoring, they can experience significant recirculation losses, especially in older buildings with poorly insulated piping or continuously operating pumps.
Distributed Systems: Individual water heaters located within each dwelling unit. These are typically gas-fired or electric storage tank water heaters. In most existing all-electric properties, domestic hot water is provided by electric resistance storage tanks, which tend to have relatively high operating costs. With distributed systems, operating costs are often paid directly by residents (unless utilities are included in gross rent).

The existing system type strongly influences the feasibility, cost, and complexity of retrofit options. In many cases, maintaining the current configuration is the most cost-effective approach. However, when major infrastructure is failing (such as leaking distribution piping), owners may choose to shift strategies entirely rather than invest in replacing aging systems.

Central DHW Systems

High-efficiency Gas Replacement

This strategy replaces existing atmospheric or non-condensing gas-fired water heaters or boilers (<80% efficiency) with high-efficiency condensing gas equipment (90–95% efficiency). The existing hydronic distribution and recirculation systems are typically retained, minimizing infrastructure modification.
- Additional Easy-win Upgrades:
  - Install temperature- or demand-based recirculation controls to reduce standby losses and pump runtime
  - Add or replace pipe insulation to minimize distribution loss
- Benefits:
  - Lower first cost compared to electric alternatives
  - Reduced operating costs compared to electric alternatives
  - No additional electrical capacity required
  - Minimal modification to existing infrastructure
A condensing gas upgrade is often the most practical near-term solution for buildings with limited electrical infrastructure or constrained capital budgets. While the equipment replacement alone provides incremental efficiency improvements, pairing it with recirculation system optimization can meaningfully reduce standby losses and improve overall system performance. This approach preserves constructability and budget flexibility while extending the useful life of existing infrastructure.
Central Heat Pump Water Heaters (HPWH)

Central HPWH systems typically consist of air-source heat pump units coupled with large storage tanks. These systems can be highly efficient, significantly reducing site energy consumption.
- Key Considerations:
  - Substantial impact to electrical infrastructure (conversion from central gas systems often requires service, feeder, or panel capacity upgrades)
  - Increased peak electrical demand, leading to increased demand charges
  - Adequate mechanical room ventilation and airflow needed
  - Additional floor area required for storage tanks and heat pump equipment
  - Structural evaluation to confirm floor loading capacity where equipment weight increases
- Benefits
  - Eliminates or significantly reduces on-site combustion
  - Lower site energy consumption compared to electric resistance systems
  - May qualify for electrification or heat pump incentives
  - Additional thermal storage can further reduce peak loads to reduce demand based charges
Advancements in heat pump water heater technology have made central DHW electrification increasingly common in new construction projects, where systems can be designed around electrical and space requirements from the outset. In retrofit applications, however, limitations around existing system conditions, building infrastructure, space constraints, and electrical capacity. This often makes full central plant electrification challenging and cost-prohibitive. In these cases, retaining some gas-fired capacity within a hybrid configuration may provide a more practical and constructible pathway while still reducing overall fossil fuel consumption.

Central electric resistance boilers are typically not recommended as a retrofit option. Though simple to install, they require large electrical service requirements and result in significantly higher utility expenses compared to heat pump or gas-based systems.
Hybrid Approach

Heat pump water heaters meet base domestic hot water demand, while gas-fired equipment provides supplemental capacity during peak conditions. This strategy reduces peak electrical demand while still achieving meaningful reductions in gas consumption.
- Key Considerations:
  - Electrical infrastructure upgrades may still be required, but are often smaller than those needed for full electrification
  - Controls integration is required to manage sequencing between heat pump and gas systems
  - Mechanical room space must accommodate both heat pump modules and retained gas equipment
  - Thermal storage sizing is critical to minimize peak electric demand
  - Utility rate structure should be evaluated to optimize operating cost balance between fuels
  - Two system types must be maintained and serviced, which can increase operational complexity
- Benefits:
  - Reduces annual gas consumption while maintaining reliability
  - Limits peak electrical demand compared to full electric conversion
  - Helps avoid or minimize major service or transformer upgrades
  - May still qualify for partial electrification incentives
  - Provides redundancy and resiliency by maintaining multiple heating sources
Hybrid central DHW systems often represent the most constructible pathway in affordable housing properties with limited electrical capacity. By allowing heat pumps to serve the majority of annual load while retaining gas for peak demand, this strategy balances decarbonization objectives with infrastructure and budget realities. Although it does not achieve full electrification, it can meaningfully reduce operational emissions while preserving system resilience and cost control.

Distributed DHW Systems

In-unit water heaters eliminate central distribution losses and shift both equipment and utility costs to individual dwelling units.

High-efficiency Gas Replacement
Replace existing atmospheric gas equipment (UEF <0.60) with high-efficiency, sealed combustion condensing gas water heater (UEF >0.90) The existing gas service is retained, and venting may be upgraded to PVC or concentric vent systems depending on configuration.
- Key Considerations:
  - Venting modifications may be required (sidewall venting, combustion air intake)
  - Condensate management must be provided for condensing equipment (including drainage and potential neutralization requirements)
  - Closet space and combustion air clearance must meet heat pucode
  - Replacement may trigger code upgrades for drain pans or expansion tanks
- Benefits:
  - Leverages existing gas piping
  - Minimal impact to building electrical infrastructure
  - Familiar maintenance requirements
  - Lower operating cost than electric systems
This approach offers a pragmatic near-term solution in buildings where electrical upgrades are cost-prohibitive. Additionally, if the DHW system also provides hydronic heat for space heating (Aquatherm), a high-efficiency gas replacement is likely the best option for maintaining the same HVAC system configuration.
Heat Pump Water Heater Upgrade
- Description: Replace existing gas or electric resistance water heaters with electric heat pump water heaters (HWPH)
- Key Considerations:
  - Increased electrical loads (Electrical panel capacity within each unit must be verified, as cumulative load increases can be substantial across the building)
  - Larger closet space requirements
  - Venting or ducting requirements depending on installation location
  - Noise mitigation and resident comfort impacts.
- Benefits:
  - May be eligible for electrification or heat pump incentives
  - Lower operating cost than electric resistance systems
Although more complex to install than a standard gas or electric resistance water heater, HPWH systems are the most efficient electric water heating option currently available and can significantly reduce energy consumption and greenhouse gas emissions relative to both gas and electric resistance systems.

Electric resistance water heaters also provide a simple, combustion-free alternative. However, they significantly increase operating costs and peak electrical demand. As a result, this option is generally discouraged unless utility rates are highly favorable, on-site solar PV substantially offsets load, or existing electrical capacity is sufficient to accommodate the additional demand without upgrades.

Design Considerations and Constructability

The feasibility of domestic hot water electrification strategies is largely determined by existing infrastructure and constructability constraints. Early assessment of electrical capacity and physical system conditions is critical to identifying viable pathways.

Key design and constructability considerations include:

Available electrical service, feeder, and panel capacity to accommodate new loads
Whether the DHW system also serves space heating
Condition and configuration of the existing domestic hot water distribution network
Mechanical room or in-unit space to accommodate heat pump equipment and storage tanks
Impacts of proposed backup or hybrid strategies on electrical load
Long term operating costs

Upgrades to electrical or distribution infrastructure can be costly and may trigger code-required compliance updates, significantly expanding project scope. Where major service upgrades, structural modifications, or mechanical room reconfiguration are required, certain electrification options may become financially infeasible.

To evaluate these constraints effectively, building owners should engage experienced professionals, including MEP engineers and energy modeling consultants, early in the planning process. A coordinated interdisciplinary approach will help ensure that the selected strategy aligns with infrastructure and constructability limitations as well as long-term financial sustainability.

Operations and Maintenance

Electrification of domestic hot water systems should not be assumed to reduce operating costs. Under current utility rate structures in Colorado, central heat pump water heaters typically result in comparable or slightly higher utility costs relative to high-efficiency gas systems, while electric resistance systems generally produce significantly higher operating expenses.

For HPWH systems, operational costs are strongly influenced by the extent of backup heating required, and whether that supplemental heat is provided by natural gas or electric resistance.

Electrified and hybrid systems also introduce additional operational complexity. Central HPWH systems often require integration with a building automation system (BAS) to manage staging, storage temperatures, and backup heating sequences. While a BAS can improve performance monitoring and reduce manual oversight, it increases system sophistication and necessitates appropriate staff training.

Building owners should plan for:

Initial and ongoing operator training
Clear documentation of system sequences
Knowledge redundancy to address staff turnover
Routine monitoring to verify performance

Without proper operation and maintenance, even high-performance systems may fail to deliver projected efficiency outcomes.