What is a tankless water heater?

A tankless water heater, also known as an on-demand or instantaneous water heater, is a highly efficient home appliance that heats water on demand, eliminating the need for a storage tank. Tankless water heaters run on electricity, natural gas, or propane. Since these systems can heat water without a storage tank, homeowners can save significant space in their homes.

How Does a tankless water heater Differ from a traditional water heater?

Traditional tank-based water heaters, also known as storage tank water heaters, have been the standard choice for many households for years. These units store and heat a large volume of water, typically between 30 and 80 gallons, in an insulated tank. The tank maintains water at a set temperature, usually around 120-140°F. Tank-based water heaters operate using various fuel sources, such as electricity, natural gas, propane, or even solar energy.

Traditional tank-based water heaters and tankless water heaters are different in several ways. The most obvious distinction is the presence of a storage tank in traditional water heaters, which occupies considerable space within a home. In contrast, tankless water heaters have a compact design, making them ideal for homes with limited space or for those seeking a more minimalist approach.

Another notable difference is the way in which the water is heated. Tank-based water heaters continually heat the water in the storage tank, even when hot water is not in use, leading to standby heat loss and increased energy consumption. On the other hand, tankless water heaters only heat water on demand, as it flows through the unit, significantly reducing energy waste and resulting in lower utility bills.

The efficiency of traditional tank-based water heaters may also decline over time, as sediment and mineral deposits accumulate at the bottom of the tank, hindering the heat transfer process. Tankless water heaters are less prone to this issue, as they do not store water for prolonged periods. However, they still require regular maintenance to prevent mineral buildup within the heat exchanger.

How does a tankless water heater work?

There are three fundamental components of a tankless water heater:

1. Heat Exchanger
2. Control System
3. Venting System

We explain a bit more about each component, below:

Heat Exchanger

The heat exchanger is the core of a tankless water heater.  The heat exchanger is responsible for transferring heat from the energy source (gas, propane, or electricity) to the water. In gas and propane models, a burner heats the heat exchanger, while electric models use heating elements. The heat exchanger is highly thermally conductive, relying on materials such as copper or stainless steel to maximize heat transfer efficiency. As water flows through the heat exchanger, it absorbs heat from the heated surface and quickly reaches the desired temperature.

Control System

A control system regulates the operation of a tankless water heater. The control system is designed to ensure that hot water is provided only when needed and at the correct temperature. When a hot water tap is opened, a flow sensor in the heater detects the water flow and sends a signal to the control system. The control system then activates the burner or heating elements and modulates their output based on the required temperature rise and flow rate. This modulating feature allows tankless water heaters to adjust their heating output to match the hot water demand, ensuring energy-efficient operation and a consistent water temperature.

Venting System

Another important aspect of the science behind tankless water heaters is their venting system, particularly for gas and propane models. Proper venting is essential for maintaining optimal combustion and ensuring safe operation. Tankless water heaters typically use either a direct vent or power vent system. Direct vent systems draw combustion air from outside the home and expel exhaust gases through a sealed vent pipe, while power vent systems rely on a fan or blower to push exhaust gases out through the vent pipe. These venting systems ensure that combustion byproducts are safely expelled from the home, preventing issues such as carbon monoxide build-up.

How long have tankless water heaters been around?

Tankless water heaters were invented a long time ago; the technology is tested and proven.  Historically, tankless systems were significantly more expensive than their traditional tank counterparts, but that has changed over the last few years. 

Edwin Ruud, an Englishman, first invented tankless water heaters In 1889. Ruud, a mechanical engineer who immigrated to the United States, developed the first gas-fired tankless water heater.

However, it wasn’t until the late 20th century that tankless water heaters began to gain popularity, particularly in Europe and Asia, where energy efficiency and space-saving measures were highly valued. In the United States, the adoption of tankless water heaters started to accelerate in the early 21st century, driven by advances in technology, increasing energy costs, growing consumer awareness of environmental issues, and a reduction in tankless water heater cost.

Today, tankless water heaters are a popular choice for homeowners and property owners worldwide, thanks to their energy efficiency, compact design, and ability to provide an endless supply of hot water on demand.

What are the main benefits of a tankless water heater?

Energy Savings

According to the Department of Energy, tankless water heaters can be 24-34% more energy-efficient than traditional storage tank water heaters for homes that use less than 41 gallons per day.  For larger homes, tankless water heaters can be 8-14% more efficient.  These utility savings can be quite significant over the lifespan of the system, helping to offset the higher upfront tankless water heater cost compared to storage tank water heaters.

Space Savings

Without a storage tank, tankless water heaters require less space than traditional water heaters.   Traditional tank water heaters are large, bulky, and usually require dedicated space in the basement or garage of a home.  Tankless water heaters require a significantly smaller footprint on the home.  They can simply be wall-mounted, freeing up valuable floor square footage in your house.

Longer Lifespan

Tankless water heaters typically last 20-30 years, while traditional storage tank water heaters last 10-15 years. This longer lifespan can offset the higher initial tankless water heater installation cost, particularly for homeowners who intend to remain in their homes for a long time.

Easier to repair

Traditional tank water heaters are difficult to repair, especially if the tank cracks or ruptures.  In these scenarios, you often need to replace the whole unit.   However, with tankless water heaters, it is easier to simply replace individual components that are worn out.

Environmental impact

Tankless water heaters reduce energy consumption by heating water only when needed, which minimizes standby heat loss. This leads to lower greenhouse gas emissions and a smaller carbon footprint. Additionally, the longer lifespan of these systems as compared to traditional water heaters reduces waste generation and conserves resources.

Continuous Hot Water

Traditional water heaters heat a finite supply of water stored in the tank.  Once that water runs out, it will take awhile to resupply the home with hot water (something we all have experienced at some point).  Tankless water heaters, however, heat water on demand.  Therefore, tankless water heaters provide a continuous supply of hot water, ensuring you never run out. 

May increase the value of your home

According to a study by Zillow, homes that had tankless water heaters sold 43 days faster than expected and for a sale price of 4.0% more than expected.  The resale value of your home is something to consider when weighing the upfront tankless water heater cost.

What are the drawbacks of a tankless water heater?

There are several considerations to weigh when evaluating an upgrade to a tankless water heater:

• Higher upfront cost:  As we will discuss later in this article, tankless water heaters have a higher upfront installation cost than storage tank water heaters.   You should balance this initial upfront cost against the longer-term energy and repair savings of tankless water heaters vs. traditional water heaters.  If you are only looking to remain in your home for a short duration of time, the investment in tankless system may not make sense for you.
• Complex installation: Tankless water heater installation may require upgrades to your home in order for the system to work.  You may need a plumber to reroute gas lines or add ventilation systems, which adds to the overall cost.
• Inconsistent water temperature: One of the most common complaints around tankless water heaters is that they can struggle to maintain consistent water temperature.  This usually occurs when multiple hot water sources are used simultaneously. Make sure to have your contractor size your water heater appropriately to mitigate this risk.

What Factors Affect Tankless Water Heater Installation Cost?

Heater Type

Tankless water heater cost varies based on whether it’s electric or gas-powered. Electric models are typically less expensive upfront but may have higher energy costs, while gas models are more expensive but offer lower energy costs. More detail below:

Electric Tankless Water Heaters

These models use electricity to heat water. They typically cost between $800 and $1200 upfront, with installation costs ranging from $900 to $2,500. Electric tankless water heaters have lower installation costs because they do not require venting or gas lines, but they may have higher operating costs due to the price of electricity.

Gas Tankless Water Heaters

These models use natural gas or propane to heat water and have become increasingly popular due to their ability to deliver a high volume of hot water.  They are more expensive upfront, with costs ranging from $1,000 to $1,400, and installation costs ranging from $1,500 to $3,500. Gas tankless water heaters require proper venting and gas lines, increasing installation costs.  However, they tend to have lower operating costs due to the lower price of natural gas or propane compared to electricity. 

Heater size

Flow rate, measured in gallons per minute (GPM), determines the size of your tankless water heater. Higher GPM units can provide more hot water at once but are also more expensive. Generally, the higher the flow right, the higher the upfront tankless water heater cost. Point-of-use tankless water heaters may also be an option for more narrow applications.

correctly Sizing your tankless water heater

To select the right size tankless water heater, your contractor will consider the flow rate (measured in gallons per minute, or GPM) and temperature rise needed to meet your household’s hot water demands. Your contractor will determine the GPM by adding up the flow rates of all fixtures that may be used simultaneously (e.g., showerheads, faucets, washing machines). Calculate the temperature rise by subtracting the incoming water temperature from the desired output temperature (usually around 120°F). Choose a model with a flow rate and temperature rise that match your needs.

point-of-use tankless water heaters vs. Whole House Water Heaters

Point-of-use tankless water heaters are compact units designed to provide hot water for a single fixture (e.g., a bathroom sink or kitchen faucet). They are installed close to the point of use, allowing for faster hot water delivery and reduced energy loss in pipes. Whole-house tankless water heaters are larger units that supply hot water to multiple fixtures throughout a home. They require a higher flow rate and temperature rise to meet the demands of an entire household. The choice between point-of-use and whole-house models depends on the specific hot water needs of your home.

heater efficiency

Energy Factor (EF) and Uniform Energy Factor (UEF) ratings measure the efficiency of tankless water heaters. They represent the amount of hot water produced per unit of fuel consumed. A higher EF or UEF rating indicates greater energy efficiency. These ratings help homeowners compare different models and make informed decisions about their energy consumption and potential savings. Tankless water heaters with higher EF or UEF ratings are generally more expensive to install.

installation complexity

The complexity of your home’s current setup will affect installation costs. For example, installation will be more expensive if your home lacks proper gas lines or venting. The type of water heater that you install will impact the overall tankless water heater cost. For instance, electric-powered systems may require electrical panel upgrades, while gas powered may require gas line modifications.

venting requirements

Gas tankless water heaters require proper venting to safely remove combustion byproducts. This may involve installing new venting systems or upgrading existing ones, which can add to the cost. Electric tankless water heaters do not require venting, reducing installation costs.

gas line installation

If you’re installing a gas tankless water heater and your home doesn’t have a gas line or needs an upgrade, this can significantly increase installation costs.

Electrical Upgrades

Electric tankless water heaters may require electrical system upgrades, such as adding a new electrical panel or increasing the amperage. This can increase installation costs.

water softener installation

Hard water, which contains high levels of minerals like calcium and magnesium, can cause scale buildup inside tankless water heaters. This buildup reduces the unit’s efficiency, increases energy consumption, and may lead to premature failure. Installing a water softener can help prevent scale buildup and protect your tankless water heater from deterioration.

local labor rates

Labor costs for installation can vary depending on your location. Urban areas tend to have higher labor rates than rural areas. Seasonality may also play a factor in labor rate. For instance, winters often create additional demand for gas line installation, and thus prices may be higher during peak season.

incentives and rebates

Some federal, state, or local incentives and rebates may be available to offset the cost of a tankless water heater. Be sure to research available programs in your area.

Tankless Water Heater operating and maintenance costs

Operating costs for tankless water heaters vary based on energy source and usage patterns. Here are some general estimates:

Operating Costs

• Electric tankless water heaters: The annual operating cost for electric models can range from $100 to $250 per year. This varies based on the price of electricity in your area and your hot water usage.
• Gas tankless water heaters: Gas models typically have lower annual operating costs, ranging from $200 to $400 per year. This is due to the lower price of natural gas or propane compared to electricity.

maintenance costs

Ongoing maintenance of your tankless water heater is very important to ensure longevity and efficiency. We recommend servicing your tankless water heater at least annually.

• Annual inspection: It’s a good idea to have your tankless water heater inspected annually to ensure it’s functioning correctly and to address any issues. The cost for an annual inspection can range from $50 to $150.
• Descaling: Over time, minerals in the water can build up inside your tankless water heater, affecting its efficiency. Descaling involves removing these mineral deposits, and the cost can range from $100 to $200.

As mentioned earlier, installing a water softener can reduce mineral deposits. This will extend the life of your tankless water heater and potentially reduce ongoing maintenance costs.

What are the differences between electric and gas power tankless water heaters?

The two most common tankless fuel sources are electricity and natural gas.  For the purposes of this guide, we will ignore propane-powered models as they tend to be less common. 

Types of Natural Gas-powered tankless water heaters

There are three types of Gas water heaters, each with their own pros and cons:

Non-condensing tankless systems

These are the most common type of gas-powered tankless water heaters. They utilize a single heat exchanger, which heats the water as it flows through the unit. The exhaust gases produced during combustion are expelled through a venting system, typically at high temperatures of around 300°F or more. Due to these high exhaust temperatures, non-condensing units require specialized venting materials, such as stainless steel, which can withstand the heat. This can lead to increased installation costs, as stainless steel venting is more expensive than other options like PVC or CPVC.

Condensing tankless systems

These systems are designed to capture and utilize the heat from exhaust gases before they are vented out. These units feature a secondary heat exchanger, which extracts additional heat from the exhaust gases and transfers it back to the water. As a result, the exhaust gases are much cooler, usually around 100°F, allowing for the use of less expensive venting materials, such as PVC or CPVC. This can lead to lower installation costs compared to non-condensing systems. Additionally, condensing tankless systems are more energy-efficient, as they make better use of the heat generated during combustion.

Outdoor tankless water heater systems

Outdoor water heater systems are specifically designed to eliminate the need for indoor venting. These units are typically equipped with freeze protection features to prevent damage during cold weather. Outdoor tankless systems are generally less expensive than their indoor counterparts given that there is no need for venting. However, outdoor installation may not be suitable for all climates or homes, and certain precautions must be taken to ensure the unit is protected from the elements and potential security risks.

Pros and Cons of Electric vs. Gas

There are several considerations homeowners should be aware of when deciding between gas powered and electric tankless water heaters.  The main differences between the two are flow rates, venting requirements, and upfront installation costs.

Gas powered

Pros:

• Higher hot water capacity: Often provide higher flow rates, making them more suitable for households with greater hot water demands.
• Lower operating cost: Gas units utilize natural gas as their fuel source, which may be more economical than electricity in some areas.

Cons:

• Upfront installation cost:  These heaters need proper venting for combustion gases, which can increase installation complexity and costs.
• Gas line expense: In addition to the cost of the water heater installation, installation may require installing or modifying gas lines which can increase cost.

Electric

Pros:

• Lower installation cost: Easier and generally less expensive installation, as they don’t require venting or gas line upgrades
• Compact size: Electric tankless water heaters are usually smaller and lighter, making them suitable for tight spaces or situations where installation flexibility is essential.

Cons:

• Lower flow rates: Electric models generally have lower flow rates compared to gas-powered units, which may not be sufficient for households with high hot water demands.
• Energy cost: In some regions, electricity rates can be higher than natural gas or propane, resulting in increased operating costs.

Importance of Proper design, Installation, and Maintenance

Tankless water heaters may not perform up to your expectation if not sized and installed correctly.  The last thing anyone wants is to have their hard earned money and effort go to waste! Here are a few things issues that may arise due to improper sizing or installation or maintenance, and how to minimize the likelihood of these issues impacting your tankless water heater

Delayed hot water

Tankless water heaters provide hot water on demand, but there is still a short wait for the heated water to reach the fixture. It can take some time for the hot water to displace the residual cold water that is sitting in the pipes. Installing a hot water recirculation system can help minimize this wait time.

Not achieving energy efficiency potential

Tankless water heaters are generally more energy-efficient than storage tank models. However, usage patterns and proper sizing can have a dramatic impact on efficiency. A poorly sized or underutilized tankless water heater may not provide the expected energy savings.

Mineral Build-up

Tankless water heaters require regular maintenance to ensure optimal performance and longevity. Tasks include descaling the unit to remove mineral buildup, cleaning or replacing the air filter, and inspecting the unit for leaks or corrosion.

Insufficient amount of hot water

Tankless water heaters can provide a continuous supply of hot water, but their output is limited by the unit’s flow rate and temperature rise capabilities. If multiple fixtures are used simultaneously, the hot water supply may be insufficient to meet the demand, resulting in decreased water temperature or flow rate.  It is of vital importance to ensure that the tankless water heater is sized correctly.

malfunction in cold climates

Tankless water heaters can be used in cold climates, but certain precautions must be taken to prevent freezing and ensure proper performance. This may include insulating pipes, draining water from the unit during extended periods of freezing temperatures, and choosing a model with a built-in freeze protection feature.  If you live in a cold climate, make sure to ask your contractor about the precautions that they will take to minimize performance issues in the winter.

We recommend working with licensed, well reputed contractors to help with installation and maintenance of your tankless water heater to minimize ongoing issues.

Tankless Water Heater Brands

When considering the purchase of a tankless water heater, it’s crucial to explore the various brands available on the market to find the best fit for your needs. There are numerous reputable manufacturers offering a wide range of tankless water heater models, each with its own unique features, benefits, and price points. Some of the most prominent brands in the industry include Rinnai, Navien, Rheem, Noritz, and Stiebel Eltron, among others.

Rinnai

Rinnai is a Japanese company known for producing high-quality, reliable tankless water heaters with advanced technology. Their units offer high energy efficiency, a wide range of flow rates, and an extensive selection of both gas and electric models. Rinnai‘s products are recognized for their exceptional performance and longevity, making them a popular choice among homeowners and industry professionals alike.

Navien

Navien, a South Korean company, specializes in condensing tankless water heaters that boast impressive energy efficiency ratings. Their gas-powered units are designed to minimize heat loss, reduce energy consumption, and lower greenhouse gas emissions. Navien’s tankless water heaters also feature built-in recirculation systems, which help to reduce water waste by delivering hot water more quickly to the point of use. This brand is ideal for homeowners who prioritize energy efficiency and sustainability.

Rheem

Rheem, a well-established American company, offers a comprehensive lineup of tankless water heaters that cater to various needs and budgets. Their product range includes both gas and electric models, with options for condensing and non-condensing systems. Rheem is known for its commitment to innovation, quality, and customer support, making it a trusted choice for many homeowners.

Noritz

Noritz, another leading Japanese brand, specializes in gas-powered tankless water heaters. These units are designed for durability and high performance, with features such as dual heat exchangers and smart controls that allow for precise temperature adjustments. Noritz’s tankless water heaters are also compatible with a wide range of venting materials, providing flexibility in installation.

Stiebel Eltron

Stiebel Eltron, a German manufacturer with a long history in the industry, focuses on electric tankless water heaters. The company is known for its compact design, ease of installation, and energy efficiency. Stiebel Eltron’s tankless water heaters are ideal for homeowners seeking a reliable electric option that delivers consistent hot water while minimizing energy costs.

We recommend seeking input from an experienced plumber to figure out the best brand option for your home.

rebates and incentives

You may be able to access several rebates and incentives tied to upgrading to a more energy efficient tankless water heater. When looking for rebates and incentives, consider the following resources:

• Federal tax credits: The U.S. government offers tax credits for energy-efficient home improvements, including tankless water heaters. Check the ENERGY STAR website for information on available tax credits. In particular, the Inflation Reduction Act passed in 2022 has several rebates for tankless
• State and local rebates: Many states and local governments offer rebates for energy-efficient home improvements. Visit your state’s energy office website or the Database of State Incentives for Renewables and Efficiency (DSIRE) to find available programs.
• Utility company incentives: Some utility companies offer incentives, such as rebates or discounted rates, for customers who install energy-efficient appliances like tankless water heaters. Contact your utility company to learn about any programs they may offer.

Is The Cost Of A Tankless Water Heater Worth It For You?

When determining whether a tankless water heater is worth the investment, consider the following factors:

• Initial cost: Tankless water heaters have a higher upfront cost than traditional storage tank water heaters. However, the increased efficiency and longer lifespan can offset this cost over time.
• Space savings: If space is limited in your home, a tankless water heater can free up valuable floor space by being wall-mounted.
• Hot water needs: Assess your family’s hot water usage patterns. If you frequently need hot water for multiple tasks simultaneously, a tankless water heater might struggle to keep up. In this case, a larger unit or multiple units may be necessary, increasing the cost.

Conclusion

The cost of a tankless water heater depends on various factors, including the type of heater, its size, the complexity of the installation, local labor rates, permits, and fees. Remember to factor in the ongoing operating and maintenance costs when considering your overall investment.

Also, keep in mind the rebates and incentives available from federal, state, and local governments, as well as utility companies, which can help offset the initial cost of a tankless water heater.

When weighing the pros and cons of tankless water heaters, take into account your household’s hot water usage patterns and whether the benefits of energy savings, space savings, and a continuous supply of hot water outweigh the higher upfront costs and potential challenges with installation and temperature consistency.

Finally, make sure to do your research, compare different brands and models, and call The Otter Guys for help to ensure you make the best decision for your home!