In Island County, WA, you may be able to take advantage of Puget Sound Energy's energy efficiency rebate program. A $50 rebate is offered for electric storage water heaters with an Energy Factor of 0.94 or higher and a capacity of at least 50 gallons. ENERGY STAR electric heat pump water heaters qualify for a $250 rebate and must be installed outside the conditioned living space.

Additionally, you could consider switching to a gas water heater. Puget Sound Energy (PSE) is currently offering conversion rebates of up to $950 if you currently heat your home with electricity from PSE and switch the heating source of your water heater to gas. Also, gas water heaters are eligible for an additional rebate ranging from $100 to $200, depending on the equipment type.

Finally, if you update your water heater to an electric heat pump water heater, you could be eligible for the energy efficiency tax credit. The credit is equal to 10% of the cost, including installation, up to $500. Specific equipment caps exist. For example, the credit is capped at $300 for both electric heat pump water heaters and gas water heaters. To qualify for the credit, electric heaters must have an Energy Factor of 2.0 or greater, and gas heaters must have an Energy Factor of 0.82 or greater to qualify. If you have claimed more $500 or more of this credit in previous tax years, you will not be eligible for 2011.