Pakistan is currently a facing major energy crisis, with frequent electricity outages and gas shortages. This is a major concern for households where a good percentage of energy is provided for water heating, especially during the winter months. Another concern for such households is also the rise in electricity and gas prices. Therefore, this paper takes up the challenge to find a solution to these problems. The development of smart hybrid water heaters is proposed that can help to optimize energy usage by switching between gas and electric power to save energy couples with hot water storage. Smart hybrid water heaters offer a number of benefits, including energy savings, cost savings, convenience, reliability, and safety. This paper discusses the design, development and testing of a smart control system that can be implemented onto traditional water heaters to address these concerns.