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Residential water heating is one of the least efficient energy uses in residences in the United States. To gain a better understanding of in situ performance, 24 natural gas water heaters (eight storage water heaters of a single, popular model and 16 instantaneous water heaters of nine different models) were installed in ten Minnesota homes. The water heaters were extensively monitored and tested under an alternating mode test procedure for 15 months. The nine noncondensing instantaneous water heaters used 22% to 54% less energy than the storage water heater, saving an average of 57 therms/yr (6.0 GJ/yr). The seven condensing instantaneous water heaters used 28% to 63% less energy than the storage water heater, saving an average of 74 therms/yr (7.8 GJ/yr). Even though instantaneous water heaters can substantially reduce water heating energy use, their high install cost is a major hurdle at current energy prices. Measured annual water heater efficiencies were also compared to the U.S. Department of Energy (DOE) energy factor (EF). Measured annual efficiencies of both types of instantaneous water heater were about 10% lower than their EFs, while those of the storage water heater were 19% lower than its EF, suggesting that the relative performance of these two types of heater is not well characterized by the EF metric.