said by Frink:
is there any way I could circumvent that neutral to ground requirement
That requirement is for your safety and hopefully your water heater is built in such a way to make it more difficult to bypass the safety feature then it is to use it properly.
At the minimum you need to connect neutral and ground at your generator
(that is easy enough to do). However I would also suggest to take that 25ft 8 awg wire and connect the generator ground to your building ground (at the grounding rod would be perfect but anywhere is better then that 10 awg wire stuck in the earth).--
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