Minimize, sure, but with those copper pipes sticking out, there are serious limitations on how much you will be able to reduce the heat loss.. The best you can do is to insulate the inlet all the way to where the water pipe comes into the house, and the insulate the outlet pipe till it goes into a wall.. That is still not very good.
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I shudder when I see people spend $5,000 for a tankless water heater to save $130 a year on hot water. A lot of energy saving projects are that way, and that's fine if you want to spend the money.
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Absolutely agree with you here. But making a timer for water heater should cost very little. I got a lot of fuji relays, 3 pole, 52 amps at 240 volt rated, with 120 volt coils, for free at the scrap yard. How much could they be surplus? Here is a brand new one with reasonable ratings for 13 bucks.
http://search.digikey.com/scripts/Dk...name=PB1007-ND
Add to this a inexpensive programmable electronic lamp timer for $15, to run the relay, a metal box, and its done.