Reduce Water Heating Costs

Absolutely Free or Really Cheap

Set the water heater thermostat to 120º. For each 10ºF reduction in water temperature, you can save between 3%–5% in energy costs.

Reducing your water temperature to 120ºF also slows mineral buildup and corrosion in your water heater and pipes. This helps your water heater last longer and operate at its maximum efficiency.

Reduce hot water usage by washing clothes in warm or cold water and rinsing in cold water. Save as much as 7 or 8 kWh per load.

Repair any water leaks in fixtures.

Payoff within 1 Year

Unless your water heater's storage tank already has a high R-value of insulation (at least R-24), adding insulation to it can reduce standby heat losses by 25%–45%. This will save you around 4%–9% in water heating costs. A tank that's warm to the touch needs additional insulation.

If your fixtures are older than 1992 you can install low-flow shower heads and aerators. For maximum water efficiency, select a shower head with a flow rate of less than 2.5 gpm.

Insulate all accessible hot water pipes, especially within 3 feet of the water heater. It's also a good idea to insulate the cold water inlet pipes for the first 3 feet. On gas water heaters, keep insulation at least 6 inches from the flue.

Longer Term Payoff

Any hot water that goes down the drain carries away 80–90% of the energy used to heat water in a home. Drain-water heat recovery systems capture this energy to preheat cold water entering the water heater.

Choose an on-demand (tankless) water heater. The most efficient models do not have a standing pilot light.

Install a passive or active solar hot water heating system. In our climate you would need an indirect circulation system that circulates a non-freezing, heat-transfer fluid through the collectors and a heat exchanger. Solar water heating systems almost always require a backup system for cloudy days and times of increased demand.

Any hot water that goes down the drain carries away 80–90% of the energy used to heat water in a home. Drain-water heat recovery systems capture this energy to preheat cold water entering the water heater.	Choose an on-demand (tankless) water heater. The most efficient models do not have a standing pilot light.	Install a passive or active solar hot water heating system. In our climate you would need an indirect circulation system that circulates a non-freezing, heat-transfer fluid through the collectors and a heat exchanger. Solar water heating systems almost always require a backup system for cloudy days and times of increased demand.
http://www.eere.energy.gov/consumer/your_home/water_heating/index.cfm/mytopic=12760