Due to the high increase in the rate of energy demand, energy depletion became a major research preoccupation for scientists. Heat recovery is a promising solution to overcome wasting energy and then environment impact. This paper deals with a hybrid heat recovery system in which thermal energy in exhaust gases is being used to generate domestic hot water and produce electricity using thermoelectric generators. A thermal and electrical modeling is carried and a case study is done. The water temperature is measured experimentally over time and it achieved maximum temperature of 78 °C. Using the thermal modeling the power produced by thermoelectric generators is calculated. It shows that such system can produce up to 135 W at a 33.6 °C temperature difference over the thermoelectric generators. Economic and environmental studies are carried out showing that such system requires about 8 years as a payback period and about 5.1 tons of CO2 gas is reduced when the water is heated 80 times per month by the hybrid heat recovery system.