FuelThe realistic choices are electricity or natural gas. When natural gas is available, oil or propane offer no advantages. Electric water heaters tend to be cheaper to install but more expensive to operate. Since natural gas involves combustion, provisions must be made to supply combustion air and to vent the exhaust. The cheapest type to install is an atmospherically vented model. These draw combustion air from the room and rely on the temperature of the exhaust gas to draw the exhaust up a chimney. This type is not compatible with a high degree of air sealing. In a well-sealed house, the kitchen fan or dryer can lower the pressure in the house enough to reverse the flow in the chimney and draw exhaust into the house. The next step up the expense scale is a power vented water heater. An electric motor driven fan propels the exhaust products out of the house. Inside air is still used for combustion. The most expensive type is a powered direct vent which draws outside air for combustion and sends the exhaust outside.
Storage or TanklessStorage type water heaters heat a tank full of water up to a setpoint temperature and keeps it hot. Some heat is continuously lost from the storage tank. If too many people take showers in a row, the water heater cannot keep up and will eventually deliver cold water. The usual solution to that is to increase the size, say from 50 gallons to 80 gallons. Larger units cost more to install and have higher storage losses.
Tankless water heaters, on the other hand, heat the water as it is drawn. Tankless water heaters must have larger btu/hr capacities in order to keep up with the maximum water flow rate. Sometimes, that requires upgraded natural gas or electric service from the utility. They never run out of hot water no matter how many people shower in a row. Tankless heaters have been known to have trouble regulating the water temperature when the flow rate is low.
CirculationWhen you turn on the hot water, the water that had been sitting in the pipe comes out. If it has been there awhile, it is cold. You have to wait for hot water to start flowing. One solution to this problem is to circulate the hot water so that the hot water pipe is constantly full of hot water. Of course, that hot water in the pipes is constantly losing heat, increasing how much the water heater needs to do. This can be alleviated somewhat by only periodically circulating the water, such as when someone turns a light switch on in a bathroom.
Heat RecoveryDrain water heat recovery (DWHR) systems, such as Power-Pipe or GFX, are heat exchangers that recover some of the heat that is left in the drain water. They are most effective for showering. The recovered heat pre-heats the cold water entering the water heater and the cold water feed to a shower. In addition to reducing energy use, these systems increase the number of showers before a storage type water heater runs cold. These systems are installed in a vertical drain pipe.
My DecisionAfter much debate, I decided on a 50 gallon GE Geospring heat pump water heater. This unit uses an electric heat pump to transfer heat from the interior air into the water. It operates with a coefficient of performance of about 3, meaning that it only uses one watt of electric power for every three watts of heat that goes into the water. The other two watts come out of the interior air. In the winter, that increases the natural gas consumption of the furnace. In the summer, it reduces the electricity use of the air conditioner. Although it costs much less to operate than a regular electric water heater, it still costs a little more to operate than a gas water heater at current prices. My major motivation for this choice was to avoid having another combustion appliance in the house. Some people have complained that heat pump water pumps are noisy and take too long to recover. I decided that I was willing to take those risks.
Having finally made this decision, I arrived at the house one day and found the plumbing sub-contractor busily installing a power vented natural gas water heater. I didn't expect water heater installation for several more weeks. After a few phone calls, things were straightened out.
I decided against any kind of circulation system. The only fixtures that are very far from the water heater are in the guest bathroom, which I expect will be rarely used.
Although the drain for the master bathroom is suitable for DWHR, drains from the other two showers are not suitable. (The shower in the basement does not have a vertical section. The shower in the guest room is used too infrequently to justify DWHR.) I am pretty sure that the plumbers had never encountered a DWHR system (they had never seen a heat pump water heater). I decided that this was not the occasion to make the builders do something else completely new to them. The drain for the master bedroom is in an accessible location in the utility room, so the option remains open if I decide to take it on as a DIY project at some point.