The Hot and Cold on Tankless Water Heaters

Photo by Kevan Emmott

My neighbor installed a tankless water heater in his new house and loves to brag about how much money he's saving. 

Tankless water heaters, also known as instantaneous or demand water heaters, provide hot water only as needed; whereas traditional tank heaters electrically heat water at a consistent temperature to provide hot water on demand. A tankless heater uses a gas burner to heat the water, delivering a constant supply of hot water. As a result, you don't need to wait for a storage tank to fill up with enough hot water.

Think of it in this way: You don't leave your home furnace running while vacationing. You only keep the heating running when you need it. In the same way, you only use a tankless water heater when you need hot water.

The problem is ascertaining the exact payback, or return on inve stment, for the average tankless heater. Since my neighbor never paid energy costs in his new home to heat a standard water heater, he has no true standard of comparison. 

Different tankless manufactures claim a wide range of savings, anywhere from 50 percent to 80 percent. What many fail to figure in is the cost of exchanging out a tank heater for a tankless heater. 

Consider the following nine factors and you may find yourself ready to go tankless.

1. Conversion From Cold to Hot
This includes the energy costs to heat incoming cold water to the desired temperature. 

2. Standby Energy Costs
In the case of traditional tank heaters, standby cost is the cost of the energy to constantly keep the water hot. For a tankless water heater, standby cost is the minimal expense of energy when the tankless water heater is running idle.

3. Installation Costs
This is the cost to purchase and install the heater and its piping system. There also may be costs related to getting rid of the old water heater.

4. Annual Tank Costs 
The average cost of heating water using a traditional tank is $736 per year. 

5. Annual Tankless Costs
The average annual cost to run a tankless water heater is $360 per year. 

6. Percentage of Savings
Your annual savings using a tankless heater would be 50 percent, or $375, equal to the purchase cost of a mid-size tankless water heat. 

7. Installation Costs
Installation expenses for both style heaters are comparable. 

8. Tax Credits
You may potentially qualify for federal tax credits when you install a tankless heater. 

9. Longer Life
Tankless heaters last an average of 22 years, versus a tank system's 10-year lifespan. This difference in longevity means a potential long-term savings of $4,000.