A Beginner’s Guide to Tankless Water Heaters

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A tankless water heater can provide you with a great way to save money on your energy bills while also helping the environment, all while taking up as little space in your home as possible. That's because this appliance heats your water on demand so you only need to use energy as needed rather than keeping a whole tankful of water warm at all times like a traditional water heater. However, there are some downsides to these units, and they may not be a practical option for all homes.

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How Tankless Water Heaters Work

Also known as instantaneous or on-demand water heaters, these appliances are square panels that are mounted to the wall and may be powered with electricity, natural gas, or propane. When hot water is turned on in the home, a flow sensor detects the cold water flowing through the device, turning on the heat exchanger. When the water flows through the heat exchanger, it is warmed to the desired temperature. Because water is only heated when it flows through the device, tankless units do not require a storage tank to hold the hot water until you're ready to use it.

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Pros and Cons of Tankless Water Heaters

While many homeowners prefer the energy savings of a tankless water heater over a conventional model, there are some downsides that may suggest that these devices aren't right for everyone. Consider some pros and cons of tankless water heaters vs. traditional water heaters.

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Some pros include:

  • Energy efficiency:​ Heating water on demand is more efficient than keeping a tankful of water hot all the time. In fact, the U.S. Department of Energy says tankless water heaters are up to 34 percent more efficient for households that use under 41 gallons of hot water per day and up to 14 percent more efficient for households that use up to 82 gallons of hot water every day.
  • Longevity:​ Whereas a standard hot water heater may last anywhere between 10 and 15 years, a tankless water heater can last well over 20 years, especially with proper maintenance. The parts in a tankless unit are also easily replaceable, letting you extend the life of the unit even longer.
  • Space savings:​ A standard water heater's tank can take up a whole closet worth of space, but a tankless water heater is typically only around 2 feet tall, 1.5 feet wide, and 9 inches deep, meaning electric units that do not require any venting can be installed under the stairs, under the sink, or in a pantry.
  • Unlimited supply:​ Anyone who has ever run out of hot water while showering can appreciate the fact that a tankless water heater can provide a seemingly endless supply of hot water without interruption.

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Some cons include:

  • Lower water pressure:​ A tankless water heater can only provide hot water at the same rate it heats it, typically at a rate of 2 to 5 gallons per minute (GPM), though some go up to 11 GPM. Since showerheads sold in the United States cannot use more than 2.5 GPM, this won't typically affect your shower unless you are using hot water somewhere else at the same time. If you use too much hot water at once, you might suffer from fluctuating water temperatures. To prevent this, you either need to get a larger water heater or install multiple units.
  • More expensive up front:​ While a tankless water heater costs less in the long run and lasts longer than a tank-style unit, a tankless heater and its installation will cost more. If you have to replace a water heater but you plan to sell your home within the next few years, a new tank-style water heater will save you money.
  • Power outages:​ All tankless water heaters, even those that use natural gas or propane, require electricity to run, so if your power goes out, you will not get hot water. If you live somewhere where power outages are a regular problem, you may be better off with a tank-style gas water heater, which typically does not need electrical power.

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Tankless Water Heater Options

A tankless water heater may be powered by natural gas, propane, or electricity. Those that rely on propane and natural gas can produce more hot water at a time. While gas and propane models cost less to run, the installation costs more than electric models, and electric models require less maintenance. Electric units are beneficial in that they do not require a ventilation system, so they can be installed just about anywhere. Unlike older products that use gas or propane, tankless water heaters that use combustible fuel do not use always-on pilot lights because these waste energy. They instead rely on an electronic ignition, which uses a spark to light the gas burner.

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Most natural gas and propane water heaters are noncondensing, but you may also choose to buy a condensing unit. Rather than allowing hot exhaust to be immediately vented like it is in a noncondensing unit, a condensing water heater redirects the hot exhaust back into the system to capture its heat and uses it to further heat the water before venting it. While noncondensing water heaters cost more in the short run, they are more energy efficient and are cheaper to install, so they are less expensive over time.

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Energy Efficiency Ratings

To compare water heater energy efficiency, look at each unit's energy factor. This indicates how efficient a device is based on how much hot water it produces per unit of fuel on a typical day, taking into account how much heat is lost in the process of heating, storing, and transporting the water. While a higher energy factor means the water heater is more efficient, it doesn't always mean the unit is less expensive to use since fuel sources also play a role.

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A standard gas tank-style water heater has an energy factor between .58 and .60, while electric models have an energy factor between .90 and .93. Noncondensing tankless water heaters have energy factors between .82 and .85, while condensing tankless water heaters can reach up to .94. Electric tankless water heaters can have an energy factor of .99.

It's important to note that energy ratings on electric water heaters can be misleading because while electricity converts to heat very efficiently, producing electric power and transporting it to homes is highly inefficient when the power is produced with conventional sources, like coal-burning power plants. Much of this inefficiency does not apply if the electricity comes from renewable sources, such as solar, wind, or hydro power plants.

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Tankless Water Heater Cost Considerations

Tankless water heaters have a higher upfront cost than traditional water heaters. While a gas tankless water heater will typically cost between $1,000 and $2,000, a standard gas water heater will be between $400 and $800. Similarly, an electric hot water heater will run between $300 and $700, but an electric tankless water heater can be anywhere from $800 to $1,500.

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The cost of installation for tankless water heaters is also more expensive, with the average installation cost running $2,500 to $4,500. Gas tankless water heaters typically cost more to install since they often require installing a larger gas line. Installation of a conventional water heater will typically cost between $700 and $2,000.

Between the purchase and installation, a new tankless water heater will cost anywhere from $3,300 to $6,000, and a standard water heater will be anywhere from $1,000 to $2,800. Keep in mind that programs operating on local, state, and national levels sometimes offer rebates to encourage consumers to purchase these more eco-friendly water heaters, reducing the upfront cost.

The high efficiency of tankless water heaters means the average family can save around $100 per year on energy costs. Plus, a tankless water heater can have double the life span of a conventional model, and most tankless units even have a warranty that lasts twice as long as a standard water heater. All of this means that a tankless model is very likely to end up being less expensive in the long run.

Choosing the Right Specs

It's important to purchase a properly sized water heater to avoid wasting energy by heating up more water than necessary while still ensuring you have enough hot water. To find the right size for your home, do a web search for your hot water appliances (including showerheads and faucets) and then determine the highest amount of hot water you would realistically use at one time, measured in GPM. For example, while you may be likely to take a shower while washing your laundry, you would probably not have all of your showers and sink faucets running at the same time as your washing machine.

The maximum amount you would use at once should be equal to the flow rate of your new tankless water heater. If it's higher than the available models, you'll need to buy multiple water heaters or reduce your water use by switching to low-flow appliances.

For gas models, the higher GPM means the more BTU it will produce. For example, a Rinnai 5.6 GPM model will use 120,000 BTU, while an 11 GPM model needs 199,000 BTU.

When companies advertise GPM on a tankless water heater, this is for a standard temperature rise of 70 degrees Fahrenheit. The temperature rise is how much the unit will heat the water, and most homes have cold water at around 50 degrees and want hot water set at 120 degrees. The standard is measured at 70 degrees. If your cold water is colder than 50 degrees or you want to wash laundry or dishes at a hotter temperature, you'll need to adjust your temperature rise to be higher. You can account for an additional 10 degrees of temperature rise by lowering one GPM from the system's specs. In other words, if a model says it can provide up to 7.4 GPM, that means that if you want a temperature rise of 90 degrees, you can expect it to provide 5.4 GPM at that temperature.

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The Installation Process

Installing a tankless water heater is not something you can DIY and will require a plumber, especially if you need to increase the size of the gas line to the heater. Many municipalities even require a professional to install water heaters since they know the relevant building codes related to carbon monoxide, venting, and more. A professional can also help advise you on the right unit to buy based on your setup.

If your water heater is gas-powered, then the first step of installation may involve installing larger gas lines in order to properly power the device since many tankless water heaters require a 1-inch-wide gas line rather than the 1/2-inch-wide line commonly used for tank water heaters.

For both gas and electric models, the rest of the installation process is essentially the same. The old water heater needs to be drained, disconnected, and removed. The new water heater then needs to be mounted before it can be connected to the water, electrical, and gas systems as needed. A pressure release valve will then need to be installed so the system can be purged for maintenance. If the unit is gas-powered, it will also need to be vented per manufacturer instructions, but if it is electric, no ventilation is needed.

Maintenance and Repairs

Yearly maintenance is essential to extending the life span of a tankless water heater and maximizing its efficiency. A professional maintenance visit will cost between $45 and $130 and will involve flushing the unit to eliminate mineral buildup and cleaning the water filter and the air filter in a unit that uses gas or propane.

While standard water heaters often have to be replaced when the tank starts corroding or leaking, tankless water heaters have easily replaceable parts. That means they can be repaired for years without needing to be replaced, especially if the problem is caught early, which is another benefit of performing regular maintenance. If you notice any issues with your tankless water heater, turn it off and call a plumber as soon as possible.

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