Your water heater accounts for between 14% to 20% of your
household
energy expense. In this article, I am going to show you some ways that
you can cut down on the amount of energy you use in heating water.
Insulate your storage tank and pipes. You can purchase insulation kits
at your local hardware store. Avoid covering the thermostat. It's
important to insulate your heater correctly. If you are not sure what to
do or can't find a good "how to" guide, you should have a professional
install it.

Clean the sediment out of your water heater. This can be done by
draining a quart of water from the water tank once a month. The sediment
impedes heat transfer and lowers the efficiency of your heater.
Hot Water Usage
Install aerators in faucets and low-flow showerheads. Aerators deliver a
strong spray, but control your water consumption by mixing air with the
water.
Repair leaky faucets quickly. It's amazing how much water you can waste
in a short period of time when you have a leaky faucet.
Take showers instead of baths. On average, a 5 minute shower uses half
as much energy as taking a bath. A longer shower might use as much water
as bathing, so use your judgment on what method is best for you.
The good news is using a dishwasher tends to be the most efficient way
to wash your dishes. Be sure to run full loads and use energy saving
settings if your dishwasher has them. If you have an old dishwasher you
might consider upgrading. You can get a new, efficient dishwasher that
uses 5 gallons or less per load while an older dishwasher could use
twice that amount. There have been a lot of advancements in dishwasher
capacity and efficiency; a new dishwasher uses half the water and
electricity than one sold in from the early 1970's. If you wash dishes
by hand, keep in mind that a running faucet uses 2.5 gallons of water
per minute so try not to leave the water running as you wash.
Purchasing a Water Heater
If you are in the market for a water heater you are going to want to buy
a gas-fired heater if natural gas is available. It's more efficient than
an electric water heater. If you don't have gas in your area, but live
in a warm climate, you may want to look into solar water heaters.
The most efficient water heaters available are Demand (Tankless or
Instantaneous) Water Heaters. Demand Water eaters have been used in
Japan and Europe for decades. They have been available in the US; but
until recently, have not been very common. Demand Water heaters use less
energy because they heat the water as you use it instead of keeping a
tank full of water warm 24 hours a day. They are more expensive to
purchase but last 25% to 30% longer.