Tankless water heaters, also known as instantaneous or on-demand water heaters, provide hot water without using a storage tank. Like tank water heaters, tankless water heaters use either gas or electricity to operate. Cold water travels through a pipe into the unit, and either a gas burner (see Figure 1) or an electric element heats the water. Tankless water heaters can be supplementary units placed at the point of use or can replace a centralized tank water heater.

Figure 1: Gas tankless water heater

When a flow sensor detects cold water entering the unit’s heat exchanger, the fan provides combustion air and the controls fire the burner to indirectly heat the water. The controls adjust burner output in proportion to the amount of water flow to produce hot water at the setpoint temperature.

Tankless water heaters are very efficient because unlike conventional water heaters, they do not have standby losses incurred by continuous use of energy to maintain water in a tank at a set temperature. Tankless heaters are space savers, which can be particularly useful for a small business or where a faucet or shower is some distance from the current water heater.

Although they theoretically provide endless hot water, most tankless water heaters, especially electric units, provide it more slowly than conventional tank water heaters and will limit output pressure to maintain the correct water temperature. Because a significant drop in water pressure can develop if many users are trying to draw hot water at once, it’s especially important to properly size a tankless system before installation.

It is also possible to inadvertently increase hot water usage after switching to a tankless system because of the seemingly endless supply of hot water; activities like showering may last longer when no one is worried about getting a sudden flood of cold water. In some cases, the increase in hot water demand can actually outweigh the energy benefits of switching to a tankless system in the first place.

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Gas. Gas water heaters are usually more economical than electric heaters because gas is generally less costly than electricity on a per-Btu basis. Gas tankless systems also have wider applicability because they produce hot water at higher flow rates. However, centralized tankless systems will often require capacity upgrades to the gas supply. Two types of tankless gas heaters currently offer particularly high efficiencies: the Eternal hybrid tankless heater (which is manufactured by Grand Hall) and tankless condensing heaters.

The Eternal water heater is a centralized system. Rather than running water through a heated coil like most tankless heaters, it allows cool water to flow through a tank containing a number of heating tubes before being redirected to the final point of use. The end result is improved efficiency with higher output performance than a standard tank-based water heater.

Condensing water heaters, on the other hand, essentially work the same as standard gas tankless heaters. The difference is that these systems redirect the burned gases through another heat exchanger to maximize heat output, rather than immediately venting the exhaust fumes. Because the exhaust temperature is much lower than other tankless systems, less expensive polyvinyl chloride (PVC) pipes can be used for venting. In addition to saving money, this also simplifies installation. Two companies currently produce condensing tankless water heaters for residential use: Noritz and Navien.

Electric. In general, electric tankless heaters are only for point-of-use applications, whereas tankless gas heaters can be installed for both point-of-use and centralized applications. Be aware that depending on its capacity and usage, an electric tankless system could push your facility’s electricity usage into a new rate class, and you could incur new or increased demand charges. This is particularly relevant given that most hot water use occurs during peak demand periods. In general, electric tankless heaters are best suited for locations with low electricity prices and relatively warm groundwater temperatures of 60° to 70° Fahrenheit (F) (typically found in southern states).

Efficiency. The term “energy factor” characterizes the efficiency of both tank and tankless water heaters. The energy factor is the portion of the energy going into the water heater that gets turned into usable hot water under average conditions. It takes into account heat loss through the walls of the tank, up the flue, and in combustion. Typical energy factors for different types of water heaters are shown in Table 1. The higher the energy factor, the more efficient the heater.

Table 1: Energy factors for water heaters

Because tankless water heaters don’t have the losses associated with tanks, their energy factors are normally higher (although well-insulated, ultra-efficient tank heaters also have high energy factors).

Standing pilot or electronic ignition. Gas tankless water heaters with standing pilot lights waste energy, but they can be cost-effective in applications where water use is high—a beauty parlor, for example. Where water use is lower (as in a residence), use a tankless water heater with an electronic ignition.

Energy inputs. Electric heating element and gas requirements for tankless water heaters are much larger than for storage water heaters. A typical gas storage water heater has a gas input of 40,000 Btu per hour (h). A centralized gas tankless heater, though, will require at least 160,000 Btu/h and so may require larger gas lines and vents than conventional water heaters. The switch to larger gas lines in a retrofit may make the installation cost-prohibitive if the unit is installed far from the gas meter. Similarly, although a typical residential electric storage water heater draws at most 7,000 watts, a centralized electric tankless heater can draw as much as 38,000 watts and may require upgraded copper wiring and possibly upgraded electrical service. Specifications for tankless water heaters also include requirements for minimum flow rates to activate them—usually around 0.5 to 0.75 gallons per minute (gpm), as well as minimum and maximum water pressure (usually 15 to 150 pounds per square inch).

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Pick the right size. The method for sizing tankless water heaters is different from that for storage water heating equipment. Choose an appropriate model based on peak demand, incoming water temperature, and desired outgoing water temperature. Most water heater purchases are centralized units, but in some cases a point-of-use unit is desirable to cut down on the waiting time for hot water when a sink is a long way from the main water heater. For point-of-use installations, an electric unit is likely the best choice because it doesn’t require venting. Centralized units that are advertised as “whole-house” will provide 2 to 4 gpm of hot water at a 75°F temperature rise. (See Table 2.) Choose the model of water heater closest to your flow rate and temperature rise needs.

Table 2: Tankless water heater flow rate comparisons

Gas tankless water heaters can provide hot water at higher flow rates than electric tankless heaters. When choosing a tankless model, be sure that flow rates will meet your peak demand at the temperature rise you need.

To figure out your peak demand, list the number of devices you expect to draw hot water at one time, and add up their flow rates. This is the desired flow rate for the demand of water. For example, let’s say you want a tankless water heater to operate a shower and two sinks at the same time. Assuming your peak demand is 2.5 gpm for the shower and 0.75 gpm for each sink, your total peak demand would be 4 gpm.

Calculate cost-effectiveness. Gas tankless water heaters can be cost-effective, especially when used in high-water-use applications and new construction where incremental installation costs are lower than retrofit applications.

Analysis of a hypothetical situation reveals that payback periods for tankless heaters are significantly longer in lower-water-use applications than in high-water-use applications. In the example shown in Table 3, tankless water heaters have paybacks ranging from approximately 8 to 25 years in low-water-use applications compared to approximately 2 to 6 years in high-water-use applications.

Table 3: Cost-effective applications for gas tankless water heaters

For a conventional 50-gallon residential-size gas tank unit, the installed cost is approximately $600. The incremental costs for an installed gas tankless unit differ depending on whether the unit is installed in a new building, replaces a failed unit in an existing building, or replaces operable equipment in a retrofit. The installation costs for replacements are typically much more expensive than for new construction, because frequently the gas line will need to be replaced due to the higher input capacity, the venting system will need to be replaced, and there will be electrical requirements as well that require hiring an electrician. In a retrofit application, where a tankless water heater is installed in place of an operational existing water heater, the economic calculation must account for the full cost of the new unit.

Tankless heaters become more attractive when replacement costs are considered, because tank water heaters must be replaced between 6 and 10 years and tankless heaters last about 20 years, according to manufacturers.

For a broad overview of expected annual costs for different water-heating technologies based on your water use, and to compare otherwise similar gas and electric water heaters, see our Water Heater Fuel Costs calculator. If you already have a general idea about what technology and fuel sources you’re interested in, our Water Heater Economic Comparison calculator provides a side-by-side economic analysis that compares up-front and annual costs, life cycle costs, and simple payback period. By necessity, these calculators make assumptions to simplify the calculations, so use them for initial screening only. For more accurate performance predictions, conduct a more detailed analysis that includes such factors as actual usage patterns, hot water loads, and part-load performance of equipment.

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Although several condensing tankless water heaters are currently available, more are likely to be developed over the coming years. As more of these systems enter the market, prices are likely to fall, making them more competitive and shortening payback periods.

Also, with the 2008 addition of Energy Star criteria for efficient water heaters, there is a strong likelihood that more efficient tankless gas systems will be developed, both to get the Energy Star label and to appeal to an increasing number of consumers who are concerned about their energy use.

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