Energy Credit - HAH!

6/10ths (my better half) has been worried about our water heater for some time. It's over 10 years old and sits in our attic. While it is in a drain pan connected to a drain, she has no faith that the pan will be able to handle a catastrophic failure of the tank.

Based on the water released when other water heaters I've known have failed, I think she's right.

So we've been wanting to replace the heater before it fails, but have been procrastinating for a couple of years now. Friday's newspaper contained a Sears advert saying that major appliances (including water heaters) were 10% off, so she thought that was a good excuse to go buy one.

But Wait... we might be able to get an Energy Credit on our taxes — up to $300! IRS Form 5695 says that you can get an "energy credit" off your taxes if you buy a water heater with an energy factor rating of 0.80 or higher. Each dollar spent on such an appliance gets you $1 off your federal income taxes (up to $300).

"Cool," says 6/10ths. She goes to the Sears web site. Nothing about energy factors. She calls Sears. None of their gas heaters qualify. We go to Lowes' web site. They report energy factors on gas water heaters as around 0.60.

Huh? How can this be? What does it take to get this tax credit? We poke around some more. It seems that the only gas water heaters which qualify are tankless. They cost a lot of money. They would also cost a lot to put into my house because I'd have to run a bigger gas line to my attic, or a new gas line to some other part of the house, before I could install one. Sorry guys.

But wait, several of the electric units have energy factors over 0.80! Great!

Or maybe not.

I don't have a 30-amp, 240V circuit in my attic.

So how much do those electric puppies cost to run? For a 50-gal heater they range from $350 to $400 per year, compared to $209 for the gas unit we were looking at @ Sears (all figures from the yellow energy label). Hmm. Those figures are based on 2004 prices. How much does gas cost today? How about electricity? The yellow label says electricity in 2004 was 8.4 cents per kilowatt hour. Today we pay over 14. So that electric heater will cost us (for comparison purposes) $583 to $666 per year. EVIL!

The yellow label says that gas is about 91 cents per therm. My gas bill doesn't list therms, but the internet quickly tells me that a therm is about 10 times more than an MCF, which is how my gas company measures. A crude calculation (which ignores the fact that I pay a fixed $10 per month just for the privilege of being a customer), shows that I pay about $1 per therm, so the adjusted cost of operating the gas heater would be $230 per year.

So even if I had the choice of gas vs electric, it would cost me $350 to $430 more per year to run the electric one. Even factoring the $300 energy credit and the slightly lower cost to purchase the electric one, within a year and a half I'd be better off with the gas model. And with these puppies lasting 10 years or more, I'd be stupid to buy the electric model, wouldn't I?

On the other hand, how much would I save, purely in operating costs, with a tankless unit? Lowes doesn't show the energy label, so maybe I can assume that my Sears gas tank model has an energy factor of 0.60 and the tankless is 0.80. Does that mean that the tankless would cost 75% as much as the tank one? If so, then my yearly cost to operate the tankless would be $172, or almost $60 per year less. At that rate, the $400 difference in price would take over 6 years to break even. Factor in the cost of plumbing upgrades that are needed (the bigger gas pipe) and it would probably go out to 10 years or even longer.

Sorry, I can't afford that right now. Maybe if I were building a new house or doing some major remodeling. But not for an existing home.