ECOShift

To understand what an on-demand or tankless hot water heater is valuable to understand the basics of a tank based hot water heater for comparison.

The key difference between the 2 types of systems is that a tankless heater, as the name would imply, doesn't have an actual hot water storage tank.  When hot water is needed within the home an "instantaneous", or "tankless" hot water heater will heat the water "on-demand" as it is needed.  To do this tankless hot water heaters have very high BTU (British Thermal Unit) ratings (~150,000-2000,000 BTU) and use a lot of energy at the instant it is needed to heat the water very quickly.  A tank based water heater, by comparison, uses energy constantly to keep water in the tank at a specific temperature (or within a range) whether you are using hot water or not.  The instantaneous energy required to heat the water in a tank based unit, from a BTU standpoint, is much less (~40,000BTU) than that of a tankless unit. 

Efficiency

The term used to define efficiency of hot water heaters is "energy factor" (EF).  Essentially the EF is a measure of how much of the energy used (gas, electric, propane etc.) gets turned into usable hot water. The Energy Factor (EF) looks at things like heat loss through the walls of the tank, up the flue and in the combustion system. The higher the EF rating, the more efficient the heater. 

Tankless hot water heaters typically have higher efficiency ratings than a conventional tank based hot water heater as they don't have losses through the walls of the tank (standby losses).  EF ratings for tankless heaters are generally in the range of 0.78 to 0.85.  Meaning that 78% - 85% of the energy used goes directly to heating the water.  Current conventional tank based gas hot water heaters have an EF in the range of 0.58 - 0.67 although there are some very high (ultra-efficient) tank heaters that have EF ratings above 0.85 but use different technologies to achieve this.  Conventional electric tank water heaters have very high EF ratings (0.90 to 0.95) compared to 0.99 for electric tankless water heaters.  Note, however, that electricity is generally much more expensive than natural gas and as such even though these units may have a higher efficiency rating doesn't mean they will cost less to operate.

Below are just a few benefits and drawbacks (or considerations) associated with a tankless system. It's not a full comprehensive look but give you some things to think about.

Benefits:

• A properly sized tankless hot water heater essentially never runs out of hot water like a tank based heater does as it heats water on demand continuously.  This, however, should not be an excuse to take excessively long showers :-)
• Tankless take up less space than a tank based system and can be mounted on the wall to free up floor space as well.
• Tankless systems do have typically higher EF ratings than conventional tank based systems
• A Tankless system will save even more in homes where the occupants are not present for longer periods through-out the year (i.e.  vacations, business travel etc.)  This would also be true for a tank based water heater if you are diligent and remember to turn it off before you go away.

Drawbacks/Considerations:

• Make sure the tankless hot water system is sized appropriately to meet the flow demand in your home.  You may find that some systems are unable to provide the hot water demand of your family at higher flow rates (i.e. 2 simultaneous showers).
• Depending on your flow needs it might be necessary to install larger gas lines to the tankless hot water heater from your gas service which may be challenging and/or costly. 
• An electric tankless heater may work well for point of use water heating if challenges with gas exist as you don't need gas lines or venting.
• Tankless hot water heaters are typically 2-3 times the cost of a tank based hot water heater and may have higher installation costs depending on gas line needs.