A good heat-pump water heater (HPWH) would reduce your hot-water bill by two-thirds.

The amount you pay for hot water is most often itemised on your power bill as controlled supply. If it's not, divide what you pay each year for power by a third. You then take two-thirds off that to find your likely savings each year.

We estimate it'd cost you on average about $5000 to get a split model HPWH retrofitted in your home. If you borrow this money over 10 years at current interest rates (7.6 percent in early April), the monthly repayments would be just on $60.

The average household uses $54 worth of electrically heated hot water a month. A HPWH is not economic if you're making loan repayments of $60 a month.

However, if you usually pay $100 per month for your water-heating electricity, a good split model HPWH will reduce this to $33 a month. That $33 plus the $60 loan repayment comes to a monthly total of $93. So you're slightly ahead: you pay $90 instead of $100.

An HPWH is more likely to be cost effective for a household of four or more people than it is for a two-person household. The more hot water your household uses, the greater the savings and the shorter the payback time.

Government subsidy?

We think there's a strong case for a permanent government subsidy instead of the current temporary grant (see "EECA grant", below). If the government put in $1000, you would have to borrow only $4000 and the repayments would be just under $48 per month. The monthly cost of your HPWH would then drop to just over $81.

As electricity gets more expensive, the breakeven point would get lower (although rising interest rates may also affect the breakeven point if you borrow to pay for the HPWH).

That's the private benefit to you. But we think the country may benefit even more.

Everybody wins
A household uses on average around 8300 units of electricity a year: 2800 of these are for hot-water heating. If there are one million houses with electric hot-water heating, the annual consumption for hot-water heating is one million times 2800 kWh per year. That's 2800 gigawatt hours (GWh).

If those one million houses were fitted with a HPWH as good as our recommended model, the country could save two-thirds of the electricity now used to heat hot water. That's equivalent to the electricity use of 225,000 homes.

It also saves the equivalent of 320,000 tonnes of CO2 emissions a year. Substantial savings all round.

Equipping one million homes with a HPWH would cost around $5 billion - probably less with genuine mass production. On the other side of the ledger, we would save the cost of additional power generation and distribution infrastructure. Perhaps installing HPWHs on a large scale would help solve Auckland's electricity problem? And quite a large proportion of that $5 billion would go back into the local economy - manufacturers, distributors, installers and the like.

EECA grant

EECA (the Energy Efficiency and Conservation Authority) wants to gather HPWH performance data from real installations. It's offering $1000 in two instalments to homes and businesses that install a qualifying HPWH. EECA will supply special water and power meters that must be installed with the heater; and the readings from these meters must be forwarded to EECA for three successive months. The scheme runs until September 2009. See the EECA website for details.

Solar or heat pump?

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Which is the better option for water heating probably depends on your house and where it's located.

In the sunnier parts of the country the energy savings from a good solar installation are likely to be similar to those from a good heat-pump installation. In the south we think a heat pump is likely to give you bigger savings.

It's personal preference whether a heat-pump unit outside is less intrusive than a solar panel on the roof. But the heat-pump noise (for you or your neighbours) is something to consider.