This is the most common type of residential water heater used in the United States today. It provides a ready tankful—20 to 80 gallons, normally—of hot water, which is drawn from the top of the tank when a hot water tap is turned on. Cold water enters the bottom of the tank to replace the hot water that has been drawn off, so that the tank is always full (although not always of hot water!)

Fuel sources for this type of water heater include natural gas, propane, fuel oil, electricity, and solar energy.
Some energy is necessarily wasted with this type of water heater since the water in the tank is constantly heated, even when there is no hot-water demand. This is known as stand-by heat loss. Newer models have less stand-by heat loss and, therefore, lower operating costs because they are better insulated than older tanks. If you are shopping for a new storage water heater, look for one with an R-Value (thermal resistance value) of not less than R-12. Some have an R-Value as high as R-25.The better-insulated tanks have a higher purchase price, but the price can be quickly recouped, depending on your specific use-patterns and energy costs. To help determine your most energy-/cost-efficient choice, check the Energy Guide label (which is required on storage water heaters) for either the annual estimated system-operating cost or for energy efficiency ratings.
If you currently have an older tank and want to increase energy efficiency, you can add an insulating blanket to the outside of the tank to reduce heat loss. The blanket must be the properly sized for your specific tank and not block safety or drainage valves, controls, or airflow. Adding an unnecessary insulation blanket, particularly in very humid locales, can cause condensation problems, possibly leading to mold or rust.
According to one source, (which I believe is not from the United States, so I’m not sure this is an option in the U.S.), efficiency can be increased if you have an intelligent electrical power distribution, heating the water when the power demand is low and turning off when it is high. “This could be implemented by allowing the power supplier to send load-shedding requests, or by the use of real-time energy pricing.”
Keep in mind that smaller tanks have less surface area, and therefore, less heat-loss, which can be 10-15 percent of the water heater’s operating cost, although, as indicated above, the more insulation, the less the heat loss.
Also, if the storage water heater is located in the home’s heated/cooled space, heat loss from the water heater can actually contribute to heating the home. However, in the months when the home is cooled, it also contributes heat, thus creating a larger cooling load. Often, this type of water heater is located in non-heated/non-cooled areas of the home, and therefore does not affect the temperature inside the home, but instead simply loses the heat to the outside air.
Also keep in mind that the space you have—where the water heater will actually be installed–may limit your choices. However, storage tanks come in a number of sizes and proportions, thus accommodating a fairly wide variety of space considerations.
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