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.

10/11/2017 7:54:06 AM

first off ask the plumbers in your area if they install them if you dont know how to do it yourself, second see if you can find out what the flow rate has to be for it to work, I bought one and the plumbers in the small rural town I moved to didn't know how to install my $1500 unit, and I could only get sufficient water flow if I ran 2 faucets at the same time

10/6/2017 9:11:43 PM

Great, informative article. We are looking into replacing our old standard hot water heater and the info given here about tankless water heaters is important and relevant. Thank you!

10/6/2017 5:39:45 PM

I've used a propane-powered tankless heater for 15 years now, and I bought it used. I'd guess it's about 30 years old. I'm really happy with it because it's not at all electrical (no computers) which is a big plus with an off-grid system. However, we are also on 100% rainwater, so from the comments about flushing lines (which I've never done), longevity may be problematic with harder water. Also, we have propane for our oven/stove and our household generator, so the additional cost of a propane line was negligible. If you're building a house I'd definitely recommend looking at tankless heaters, although perhaps they are not cost-efficient for renovations.

10/6/2017 5:10:43 PM

This article like others I have read does not mention the only oil fired on demand unit in North America, the Oil Miser by Toyotomi( a Japanese manufacturer with its USA division located in Brookfield, CT. The unit can exhaust through the wall or a traditional chimney.It is rated at 88% efficiency and supplies about 3.5 gpm with the incoming water temperature at 50 F. There is no longer wait period for the hot water to arrive at the outlets(faucet, etc) than there was for the old 60 gallon oil fired tank heater it replaced(which was 40 years old and still functioning without leaks). The flow rate is the only limitation- the tub cannot be filled at the full flow rate. The only other downside is that it uses a proprietary oil nozzle.

10/6/2017 12:45:15 PM

This would be great if they allowed them in mobile homes!

10/6/2017 10:53:10 AM

I have a natural gas Rinnai tank less hot water heater and love it. I think it's the best brand on the market - been used all over Europe for a long time. Contrary to what the article said about other brands, the Rinnai reduces flow, not temperature, if water demand exceeds the amount that can be heated to the set temperature. This has never happened to me. The only compensatory change I've made to my hot water system is to install a small thermostatically controlled supplemental 120V electric water heater under my kitchen sink for convenience to provide hot water more quickly because there is where small volumes are used often and sporadically to wash hands, rinse dishes etc. It runs only until it receives hot water from my Rinnai. My Rinnai is installed in the basement and is vented through the basement wall - a very simple job. What I also like about the Rinnai is that the temperature setting can easily be adjusted at the unit with up and down buttons from 98 to 145 degrees F. It also displays the flow rate when running in gal per minute.

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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