The global water heater market was valued at more than $29 billion in 2023, with projections indicating an escalation to approximately $40.09 billion by 2030, according to Grand View Research. Experts and industry leaders recently tell Supply House Times that much of this growth will continue to be driven by an increasing demand for energy-efficient and environmentally sustainable heat pump and water heater systems that can be controlled via smartphone apps. Despite the projected growth, industry leaders expect some challenges to come with new regulations from the U.S. Department of Energy, which will soon require manufacturers to only manufacture and import high-efficiency condensing water heaters.

Robert Aldrich, residential segment development leader at A.O. Smith, says the commercial and residential heat pump water heater sectors are growing amid ongoing electrification and decarbonization efforts throughout the U.S.

Aldrich adds he and other industry leaders are particularly excited about the development of new residential heat pump water heating technologies and “finding more economical ways to achieve high efficiency,” with the ultimate goal of making this technology more financially feasible for consumers.

“Things like new component options are helping us make units more affordable for homeowners. On the commercial side, we’re excited about the new options for commercial heat pump water heaters. Split systems and outdoor systems with broader operating temperature ranges will alter the commercial HPWH landscape in the coming years,” Aldrich says.

Consumer demands and tech trends

Homeowners today prefer water heaters with green certifications such as Energy Star and high UEF ratings. In addition, consumers are increasingly gravitating toward “smart” water heaters with the ability to communicate wirelessly via apps on smartphones.

“There are several exciting emerging technologies in water heating that are shaping up the industry. Some of these include heat pump water heaters, newer and more advanced tankless water heaters, and other hybrid water heaters,” says Chia Lin, water heaters product manager at Navien. “Smart water heaters, those with Wi-Fi connectivity, smart controls, and learning abilities will pave the way for future water heater designs.”

Consumers are generally looking for heat pump systems that can be easily integrated with smart home environments and commercial building management systems, according to Mike Boyd, a product manager at Weil-McLain. Boyd says this could include products with embedded communication technology that enables connectivity for remote monitoring, alerts and analytics for predictive maintenance, and water heating integration with hybrid dual fuel hydronic systems.

“These systems use an air-to-water heat pump within a boiler hydronic system to satisfy household needs for domestic hot water and space heating.”

Homeowners and business owners also want models with temperature control and multiple modes that offer more ways to manage their comfort. Scott Cohen, director of marketing and training at Rheem Manufacturing, said the industry is seeing an increase of smart offerings in residential and commercial solutions that include multiple products.

“Ultimately the top requirements are usability and reliability. Customers just want hot water when they turn on the tap. We have sharpened our focus on quality and durability,” Cohen says. “In fact, we have made great strides in our improvement and are proud to say that we have internal data that shows it is paying dividends.”

“Heat pump water heaters represent a significant leap forward in energy efficiency, utilizing ambient air to heat water while consuming far less energy compared to traditional systems,” Cohen continues. “Additionally, the integration of smart technology in water heating products is transforming how consumers interact with their appliances. Smart connected water heaters allow users to monitor and control their systems remotely, providing insights into energy usage and enabling efficient operation tailored to individual needs.”

Dustin Wiggins, commercial segment development manager at Lochinvar, says the industry has been increasingly focused in recent years on manufacturing energy-efficient products, such as high-efficiency gas tools and hybrid systems.

“Lochinvar plans to help make energy-efficient technologies more widely accessible for a variety of applications,” Wiggins says. “We recently launched the Veritus HPWH, which maximizes energy savings thanks to its high coefficient of performance (COP). The unit also utilizes a low Global Warming Potential refrigerant (R513A) to help facility managers meet sustainability goals and adhere to local regulations. This unit is a great option for many applications, even installations in cold weather climates.”

Overall, Cohen summarizes that contractors want “great products that are easy and fast to install.”

“We recently collaborated with a team of plumbers to add features that allow for faster and more flexible installation, which also result in cost savings for the end users,” Cohen says.

Amy Turner, vice president of marketing at Intellihot, says Intellihot’s products are designed to be intuitive for contractors, who generally “prefer products with straightforward installation procedures.”

“Our Neuron series of water heaters are designed with connections in the same place as traditional tanks, allowing for easy replacements,” she says. “We’re working on educating legacy contractors about the ease of installation of our tankless products as they’re used to like-for-like tank-type replacements.”

According to Boyd, comfort and reliability are among homeowners’ top needs. He says Weil-McLain’s Aqua Plus line of stainless steel indirect-fired water heaters matches those needs.

“The tanks feature a high output stainless steel heat exchanger that delivers superior first hour ratings and recovery,” he says. “Its compact size allows for easy installation in low ceiling basements, mechanical rooms or storage rooms, and is equipped with a digital tank controller that can be set in either residential or commercial mode. Built with durability and longevity in mind, and backed by a lifetime residential warranty, these AHRI-certified units were designed to satisfy the top needs of residential or light commercial applications.”

Experts add that there’s been a trend in recent years toward products that offer leak detection and integrated shut-off features.

“These features help prevent wasted time and money for homeowners, so they have been big selling points in recent product launches like A.O. Smith’s Voltex AL heat pump water heater,” Aldrich says. “We have also seen increased demand for scale management in tankless water heaters, which prevents scale build-up from hard water. A.O.Smith first launched our X3 Scale Prevention Technology in 2022 and since then we have only continued to expand and improve the technology. Now, X3 Technology can be found on many different models of our tankless water heaters, including our Adapt condensing tankless water heater.”

Regulatory challenges

One of the biggest challenges that all water heater manufacturers are facing right now is the changing regulatory landscape, particularly when it comes to new rules governing commercial water heating efficiency requirements.

According to new regulations from the U.S. Department of Energy, all water heater manufacturers will be required to meet new minimum efficiency standards for commercial applications by October 2026 and residential applications by May 2029.

Aldrich says these new regulations are “certainly top of mind across the industry.”

“While the new standards will present challenges and opportunities in the market, A. O. Smith has been manufacturing condensing products for more than 20 years and is prepared for the transition,” he says. “In addition to our technology expertise, A. O. Smith is focused on increasing awareness of the upcoming regulatory changes and the logistics and specifics of the transition. We want to ensure our customers are prepared and equipped with the knowledge they need to make this a smooth transition. One of the ways we are doing this is by updating the A. O. Smith website, www.hotwater.com, to include a page specific to the DOE regulations. This page will educate on the changes and the effects on the product portfolio to provide our customers with as much information as possible.”

David Federico, senior director of marketing at Rinnai America Corp., says he’s particularly concerned that the new rules around efficiency standards could “eliminate the affordable and efficient 0.82 UEF non-condensing tankless water heater” and result in many homeowners reverting back to the less efficient tank.

“We have been very vocal with our opposition to this rule as it limits consumer choice and creates and uneven market, and we will continue our efforts to get the rule reversed or amended in the coming year,” Federico says. “Additionally, we are seeing several markets attempting to restrict or eliminate gas usage. We believe gas appliances are a very efficient and effective solution for water heating and will continue to oppose these types of restrictions.”

With such concerns in mind, Turner says Intellihot is “keeping a close eye on DOE’s 2026 minimum efficiency standards.”

“The end of non-condensing water heaters will change the total available market share for some manufacturers,” she explains.

Lochinvar will also be closely monitoring such regulatory changes moving forward, in addition to policy changes on the local and state levels.

“Additionally, Lochinvar is closely monitoring the decarbonization movement on a more localized scale to see how state and local governments are changing their regulations as well,” Wiggins says. “Lochinvar is committed to providing customers with the products they need in order to meet the ever-changing market landscape.”

For a comprehensive introduction to the fundamentals of energy-efficient heat pump technology and the installation/maintenance of heat pump water heaters, visit PMCxE’s Heat Pump Water Heaters Academy.