There a few different types of water heaters to choose from, but one of the most energy-efficient water heaters on the market, which will save you the a lot of money in the long run, is a tankless water heater. By providing hot water as you need it, tankless water heaters can save you a lot of money on your utility bills because unlike the standard storage tank hot water heater, they don't have to continually turn on and off all day and night to provide you with hot water. Another incentive to go tankless is that tankless water heaters with an Energy Factor 0.82 or better are eligible for the federal Residential Energy Efficiency Tax Credit.

The tax credit covers up to 30 percent of the cost of a new water heater as well as 30 percent of the cost of the installation labor for up to a total of $1,500. Qualifying standard water heaters include gas, oil and propane. Electric heat pump water heaters with an Energy Factor of 2 or better are also eligible for the credit.

If you decide that a standard hot water heater with a storage tank is the best choice for your home, make sure you choose one with an ENERGY STAR label. Unfortunately, there are no residential storage tank water heaters that qualify for the tax credit because there aren't any that meet the Energy Factor requirements.

In addition to replacing your water heater, you can install a solar water heating system to pre-heat your water, which will reduce the amount of energy needed to bring your water up to temp at 110 degrees. Lakeland Electric offers free solar water heater installations through the Solar Water Heating Program. After the free installation, the homeowner pays for the electricity the system offsets at $0.08/kilowatt-hour.