I’m insulating my basement walls with rigid foam panels. My heat pump water heater sits in a little bay, where it is positioned so that there is not enough room to attach panels, furring strips and drywall around and behind it. 

I’m wondering if it is okay to just leave the bay uninsulated. How big an impact will that have on things like heat rentention, moisture, etc? My basement is very dry. 

Here’s a photo of the area: