How to turn your water heater into a battery and ditch the gas company

Three years ago, Ted Treadwell turned his water heater into a battery.

His home in Santa Rosa, Calif., had relied on a gas-powered furnace and water heater for a quarter century to stay warm. But as the equipment neared the end of its life, the retired software engineer wanted something new — and to sever his ties to the gas utility.

So he chose a system designed by Harvest Thermal. Unlike systems that heat water and air separately, this one does both. One ultraefficient heat pump brings water up to 150 degrees Fahrenheit in a 119-gallon tank. This acts as a “thermal battery” capable of storing heat for 24 hours or more.

When Treadwell turns on the showers, hot water flows from the tap. When it’s cold inside, a fan blows air over coils recirculating hot water from the tank into the home. It’s all controlled by a small computer that ensures the heat pump uses electricity when it’s cheapest and cleanest. The company estimates that it shaves 20% to 30% off the average utility bill and 90% of emissions from heating the average home.

In Treadwell’s case, the utility now pays him each month.

Thanks to solar photovoltaic panels on his roof and the ability to soak up energy when it’s most abundant, he often generates more energy than he uses, and Pacific Gas & Electric adds credits to his bill. He expects to recoup his investment within a decade.

“It’s a great system,” Treadwell said. “I wish more people knew about it.”

Converting America’s water heaters into smart batteries could help address both climate concerns and energy issues.

Homes contribute about 20% of U.S. emissions. Roughly half of this energy goes to heating and cooling living spaces, while another fifth runs appliances that heat water, such as dishwashers and water heaters.

Utility companies are building pricey power plants, transmission lines, and storage to meet this demand and ensure electricity keeps flowing during the few hours each day (or even a few moments each year) when power demand peaks but supply is short.

The shift to electrification and the rise of renewables is amplifying this mismatch. Electrons are typically cheap, clean, and plentiful in the middle of the day (solar panels) or at night (wind turbines). Demand is highest as people return from work and in the early evening.

Decarbonizing America’s homes would be much easier if they could soak up power outside peak hours. A big tank of water may be the answer.

Jane Melia, co-founder of Harvest Thermal, was her own first customer. After her HVAC system began failing in 2018, Melia, an engineer with a Ph.D. in fluid dynamics, jury-rigged a system in her Berkeley, Calif., basement. It became the prototype for the one her company sells.

For Melia, the technology was simple. “It’s just a heat pump and a tank, right,” she said. “It’s not rocket science.”

Most Harvest Thermal systems use a five-foot-tall cylindrical tank similar to a standard water heater. If reheated twice a day, the tank stores heat energy equivalent to about 10 kilowatt-hours, slightly under the capacity of a Tesla Powerwall. Heat comes from a SANCO2 air-to-water heat pump that’s three to four times more efficient than gas appliances and uses CO2 as a refrigerant, rather than more climate-damaging chemicals. To heat homes, an air handler replaces the furnace and blows warm air over water-filled coils into the home’s ductwork (it can also plug into radiant floor systems). New versions of the system also integrate with AC units.

The company’s success depends on a tiny computer enabling the tank to serve as a heat battery. By ramping up or down, it can shift heating loads across the day. The controller checks the weather forecast, tracks energy prices, senses water temperatures, and predicts household demand to minimize emissions and electricity costs. If utilities begin offering demand-response programs, homeowners can earn money by enrolling their Harvest Thermal system to power up or down. “We’re future-proofing the house for homeowners,” Melia said.

Load-shifting technologies already do this. Utilities can ask factories to turn off machines. University campuses store energy as heat (or ice) in water tanks equivalent to Olympic-size swimming pools. But these are mostly for big customers. Single-family homes are only now getting into the game. Utilities are piloting payments for homeowners to lower their thermostats or delay EV charging at critical moments. Home lithium-ion batteries connected to utilities can send electrons back to the grid (although these are quite expensive).

So far, these don’t supply enough juice to substantially close the gap. Theoretically, a big cheap battery in every home might.

In 2022, Peninsula Clean Energy, a nonprofit municipal utility just south of San Francisco, decided to test the idea in customers’ homes, said Blake Herrschaft, who manages building electrification programs for the utility. It installed free Harvest Thermal systems in four homes in its service area.

“They exceeded my expectations,” said Herrschaft, keeping homeowners comfortable and costs competitive: $22,500 after incentives, similar to the cost of installing a separate heat pump water heater and HVAC. Most importantly, he said, virtually all of the load was shifted to the night and noon hours, avoiding periods of peak demand.

Today, thermal batteries are part of Peninsula Clean Energy’s strategy to electrify hundreds of homes for low- to moderate-income families each year, lowering rates by upgrading ratepayers’ homes rather than new infrastructure.

Cooper Marcus, CEO of QuitCarbon, helps homeowners electrify their homes. Thermal batteries are a powerful technology. “But like a lot of things,” he said, “it’s not for everyone.” Today’s systems are best for smaller homes (about 3,000 square feet or less, according to Harvest), with lower heating needs in milder climates. People also need to be comfortable with new technology developed and supported by companies that don’t yet have a long track record. Since heat pumps warm up rooms over time, they don’t offer blasts of hot air like gas furnaces.

They’re also expensive. To make financial sense, Marcus advises homeowners to replace their water and air heating at the same time, and tap into incentives that include state and federal rebates exceeding 30% of the entire system cost (such as the 25D tax credit for energy storage, which Congress is considering cutting in the latest budget bill). To maximize utility bill savings, homeowners will also want to enroll in time-of-use pricing.

I priced my own home to see what it would cost. Swapping out my aging appliances with gas ones would be the cheapest option, at least up front: around $6,000 to $8,000 for a new gas water heater and furnace. That would, however, lash me to gas bills and fixed connection charges of at least $70 annually.

If I wanted a separate heat pump water heater and HVAC system, it would cost around $26,000, according to Aaron Gianni of Larratt Bros. Plumbing. The sticker price for a Harvest Thermal system installed by Larratt Bros. was more expensive before government incentives, roughly $36,000, but came out cheaper after expected rebates. A federal 25D tax credit promised $11,340. If I capped my gas line, I could knock off another $9,000 courtesy of California’s Energy-Smart Homes. The final price tag was around $15,000. That’s well under standard heat pumps, and I could save on my utility bills each month.

The key is avoiding peak consumption. That can be the difference between saving money or paying more when you electrify your home — at least in California, as frustrated homeowners beholden to the state’s investor-owned utilities are discovering. Pacific Gas & Electric, for example, has raised electricity rates more than 100% since 2014, reports the California Public Utilities Commission’s Public Advocates Office.

Melia said Harvest Thermal is expanding into Washington, Oregon, New Mexico, Colorado, and, soon, Vermont. The clean energy rebates are a bridge until the company can bring down costs. Congressional Republicans have indicated they plan to curtail or eliminate many clean energy incentives, while maintaining those for fossil fuels. “Getting this cheaper than gas furnaces, that’s certainly something we’re working towards,” she said.

But the value isn’t just being cheaper than gas, something Harvest Thermal can’t do for the foreseeable future. It’s controlling how and when you consume energy in the future, argues Marcus at QuitCarbon.

Utilities across the country are beginning to price electricity based on the time of day, raising electricity rates by 40% or more during peak hours. While most states still offer flat-rate electricity, “those places are going away,” Marcus said. Natural gas, he predicts, will become more expensive relative to electricity, as natural gas exports rise and cheap renewables come online.

Investing in thermal batteries is a hedge against this future and a down payment on reducing climate pollution. “We’re starting to get past subsidies for electric cars,” said Marcus. “We aren’t yet quite there for most forms of electric homes. And it would be a shame to take away the rebates right before we get there.”

For Treadwell, the investment is already paying off. He no longer worries about his utility bills. He’s on track to earn back his investment within 10 years, even after dipping into his 401(k) to finance the solar panels and Harvest Thermal system. Not only did he reduce his home’s emissions, but he is cleaning up the electricity grid.

“I think it’s the right thing to do,” he said.