Abstract: An energy recovery system for heating water with by-product heat from a refrigeration system wherein a heat exchanger within a refrigerant compressor hot gas conduit may selectively heat water within a storage tank. The flow of water through the storage tank and heat exchanger is controlled by a pump operating during operation of the compressor, preferably, only when the heat exchanger is sufficiently heated, and a temperature sensing diverting valve causes pumped water to by-pass the heat exchanger when the water temperature within the tank reaches a predetermined maximum value.