Energy-Efficient On-Demand Water Heaters

Why pay to keep water hot when you’re not using it? Installing an on-demand water heater will lower your energy bill while providing exactly as much hot water as you need when you need it.

| October/November 2009

On Demand Water Heaters

You could save up to $75 a year with an on-demand water heater!


Although some conventional water heaters are more energy-efficient, most older water heaters and many lower-priced models waste about 20 percent of the energy they consume. Much of the heat they produce escapes through the wall of the tank as the hot water sits unused for hours at a time. This is known as standby loss.

Besides being inefficient, storage water heaters (conventional water heaters) don’t last long — only about 13 years. Homeowners can increase the life of their water heaters by lowering the temperature to a more reasonable setting, by periodically flushing sediment from the bottom of the tank, and by replacing the anode rod. Some of these measures also save energy.

If your water heater is more than 10 years old and has not been maintained, it may be approaching the end of its useful life. If it’s leaking or showing signs of rust, it definitely needs to be replaced. So consider your options before it goes kaput and you have to make a rushed decision to get hot water back. Now might be the time to install a tankless water heater.

How Do Tankless Water Heaters Work?

Also known as “instantaneous” or “tankless” water heaters, on-demand water heaters are surprisingly compact units. Some are designed to meet the needs of a laundry room or bathroom, but others provide hot water for an entire house.

Like conventional storage water heaters, tankless water heaters provide hot water 24 hours a day, 365 days a year. However, they meet this need without the standby losses of storage tank heaters.

Tankless water heaters don’t suffer from standby losses because they don’t store hot water — they generate it as it’s needed. When a hot-water faucet is turned on, cold water begins to flow into the water heater. A flow sensor inside the tankless water heater detects water flow and sends a signal to a tiny computer inside the unit. The computer sends a signal to the gas burner or electric heating element in the water heater, turning on the heat source. Water flowing through the heat exchanger in the tankless water heater heats up rapidly — increasing in temperature from about 50 degrees to 120 degrees in a matter of seconds.

9/26/2014 6:32:38 PM

We just bought a home with a water heater needing replacement. We chose to install propane for the stove, water heater, and dryer. WE HAVE NOT REGRETTED THE INSTALL ONE IOTA! ALL appliances are much more efficient than our old electric units. As the water here is very hard and we haven't installed a water treatment system yet, We have gotten into the habit of "flushing" the water heater with vinegar every other month, more so if needed. I also have plumbed the house to run the vinegar to clear out the other water lines, facets and shower heads. Regular maintenance would be the only "drawback" in my opinion. (Hey, the vinegar does make things smell fresh) Maintenance takes me about 2 hours, something I'm willing to pay for the benefits of on-demand We like the water HOT! and even with three "taps" opened at the same time, we have never had a problem with "luke-warm" water. We have had some experience with electric unit, both whole house and on site, but the gas unit is the only way to go! We also had a gas conventional heater-- give me the on-demand any ole day! WE ARE NEVER GOING BACK TO ANYTHING BUT GAS! and an ON-DEMAND WATER HEATER

9/26/2014 12:35:56 PM

I would suggest staying away. I did a lot of research and the numbers just didn't add up. I ended up with a new ultra high efficiency NG boiler and a dual coil hot water exchanger tank for about the same price as a properly sized on-demand system. The dual coil exchanger allows this unit to be used in conjunction with a solar collector to supplement the heating of the water.

9/26/2014 10:21:27 AM

I have electric and propane at $5/gallon, so I'm going to get rid of the 50 gallon propane hot water heater, the only appliance on propane in the house. I'll replace it with an 11 gallon electric hot water heater. This forces the rinse, stop, soap, rinse shower on everyone. I guess this would be considered about a 75% savings in water if the average shower was 40 gallons. Then taking away the 30% higher cost of the electric heating, that brings it down from 75% to a 50% savings. Behavior modification by temperature. One can have a longer shower in the heat of the summer, where unheated water feels great.

9/26/2014 10:14:28 AM

I used to think these gizmos made sense, but now I doubt it. The extra cost is outrageous. The article rationalizes this by claiming they last 25 years, but that's doubtful; if you've got mineralized water, think 8 to 10 years. At that point there's no payback at all. Then there's the actual performance. My eco-chic neighbor has three very expensive tankless units -- one for each bathroom. One of these units is 5 feet away from the kitchen faucet. If you don't turn on the kitchen faucet full blast, you get only cold water. If you do turn it on full blast, it takes more than a minute for the cold water to turn hot. Since saving water is something else we should be doing, I don't see how maybe saving a bit of energy otherwise lost from a tank heater offsets the eco-damage. I'm a skeptic.

dale blankenship
1/8/2012 1:14:22 AM

Don't forget that if you have hard water you will need to pair the tankless unit with a softener, Or expect to have the heat exchanger cleaned often. also negating the savings of the unit. As a plumber I just can't recommend them in my area.

greg swob
1/4/2012 4:09:17 PM

A few things not mentioned in the article and maybe a repeat from the Comments below, but here is my view as a homeowner with one of the units in our house. It came with the house or we would not have one. My wife hates it, as it is a huge waste of water and takes a long time to deliver hot water to fixtures. While it does use a little less energy than a storage water heater, but with a 54 second wait to get warm/hot water to some fixtures is a source of issue. We capture the water in a small bucket to use for house plants or other uses, but that is inconvenient. The unit does make some sound, but is located in the basement, so it doesn't bother much. Maybe I should state that I am a professional energy auditor, so I monitor such things as actual energy use, economics, etc. and do not rely on rules of thumb or guesses. For a homeowner to replace a standard tank type model, fuel gas piping will likely need to be redone, a new flue network will need installed and some learning curve will need to be embraced. The learning curve is to get used to wasting water while waiting for hot water, capture the waste water for other uses, time to wait for hot water delivery and maintenance. No one seems to mention maintenance. An annual flushing with an cleaning compound is necessary so minerals do not build up and damage the heat exchanger. I do my own such maintenance, but wonder how many typical homeowners do? A circulating pump, cleaning solution, bucket and knowledge of the steps required to do this are necessary. I am not knocking tankless water heaters, but hope anyone shopping for one has ALL the facts so they can make an informed decision. As with anything else, we need to look with both eyes open and listen very carefully to any sales hype.

4/7/2011 9:22:52 AM

Not only does the tankless cost more, it allows you to take really long showers meaning even more hot water usage. The don't last 25 years in most homes due to water quality eating them up long before you receive the payback. For one person or a vacation home seldom used, or maybe a couple with no children these are a viable option. Or, if you have lots of money, like to spend 30+ minutes luxuriating in the shower, or have 12 kids who all have to be showered every night, this may be the right option. I'll purchase a newer, high efficiency tank type very soon now.

4/3/2011 7:38:28 AM

Interesting article - except that the link to Consumer indicates that these units are not a saving for even small families.

keith hallam_1
4/3/2011 1:38:57 AM

This type of hot water system is not allowed to be fitted on new build in the UK now. It is not an efficient way of providing hot water unless it is used sparingly, like one old person living alone. A properly insulated copper storage tank is best, I stress properly insulated, not a retrofit jacket held in place with string.

mark c
4/2/2011 12:52:21 AM

CFL lights will definitely help you save time and money. Aside from having CFL lights in your homes and buildings you can also try to do other things like installing window films in your windows because for every dollar spent, window film delivers 7X more energy savings. This item that can be added in this article is available in and get totally independent quotes for solar control window film, you will find that people can reduce consumption without any visual effect on their windows for much less than other energy saving technologies. Window tint is a known and trusted "Green" technology, it is cost-effective, energy-efficient and above all, it is eco-friendly.

4/1/2011 10:33:15 AM

Something else to add to the evaluation is noise. I've heard some people complain about how noisy their system is. We were lucky, ours (a Rheem) is very quiet, and we were able to install it ourselves (with much paranoid testing of our gas line joints). As far as electrical knowledge, all we had to do was plug it in like any other household appliance.

daniel mc cutchen
12/25/2010 6:42:07 PM

One feature that should also be considered when researching the available tankless gas heaters is whether or not the ignition system requires electricity. One example of this would be the Bosch Model 1600H, which has an ignition system which operates when water flows, requiring no electricity. This could be very valuable in the event of power failure, or if there is no electric service to your house.

daniel mc cutchen
12/24/2010 9:54:53 AM

This was an interesting article. One point that I did not see addressed is the fact that a tankless gas heater will require a bigger gas line than a conventional storage type. I did some looking into this a few years back, and found that the cost to replumb my gas line would totally negate my projected savings.

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