Are Tankless Water Heaters Worth the Money?

Tankless water heaters provide hot water only when needed and are sometimes referred to as instantaneous or on-demand water heaters. The more common traditional style has a water storage tank of various sizes and shapes used to store pre-heated water. These water heaters provide hot water at a preset temperature when needed without storage, thereby eliminating the need for storage tanks.

These on-demand tankless water heaters are heated either by electricity, natural gas, or propane. The gas models were found to be 22 percent more efficient than electric models. This finding equates to about 100 dollars in annual utility savings, based on an average home’s use of 77 gallons of hot water per day.

Small (2 to 8 gallon) mini-tank electric water heaters can be installed near the point of use (either in line with the tankless heater or on a separate line, depending on the requirements). This leverages on the strong points of both types of heaters. The mini-tank heaters can deliver instant hot water for washing hands and shaving, while using less energy on standby compared to a 40 gallon heater.

Do Tankless Hot Water Heaters Really Save Money?

Tankless hot water heaters come with a variety of promises, including that they’ll save you money through lower energy consumption. While they do use less energy than tanked water heaters and therefore reduce your monthly utility bills, other costs associated with the units mean they’ll actually cost you more money in the long run compared to traditional tanked units.

Will installing a tankless hot water heater save you money? Yes, but…

Our love of hot water accounts for 30 percent of a home’s utility bills, according to Consumer Reports. And the U.S. Department of Energy reports that a tankless hot water heater is 24 to 34 percent more efficient than a tanked unit. Consumer reports states that on average, a homeowner can expect to save $70 to $80 annually on their utility bills when they swap out their tanked water heater for a tanked unit.

…You’ll have to fork over considerable cash up front

The cost of tankless water heaters vary greatly but they all cost significantly more than tanked water heaters. Consumer Reports states you can expect to pay between $800 to $1150, but some tankless water heaters cost as much as $1,500. On the flip side, tanked units are generally in the $400 to $500 range.

Unless you’re putting a tankless unit in new construction, there will be a considerable amount of work required to retrofit your gas and water lines for the tankless water heater’s installation. This extra work means on average, you’ll spend approximately $1,200 to have a tankless water heater installed, compared to $300 for a tanked unit, according to Consumer Reports.

Let’s look at the numbers

Assume that you get a tankless water heater on the low end of the price scale and you’d be looking at approximately $2,000 for the purchase and installation. That’s $1,300 more than if you had purchased a moderately-priced tanked unit and paid for it to be installed.

Even if you were to save $80 per year on utility costs, it would take you 16.25 years to recoup the cost, and 18.5 years if you saved $70 annually on utility costs.

The average lifespan of a tankless hot water heater is approximately 20 years. So it’s quite a gamble on whether or not you’ll actually save money, and if you do, it’s marginal at best.

Other options to cut hot water heating costs. There are many more cost-effective ways to cut your water heating costs.

Tankless Water Heaters – The Pros and Cons

  • Install a water heater timer. You can set it to go on and off according to your hot water usage needs. For example, it can be set turn off the hot water heater one hour before you go to bed and then turn on two hours before you’ll need hot water in the morning. In addition to reducing your energy consumption, it will also extend the life of your hot water heater because it’s not constantly running.
  • Lower the temperature setting on your hot water heater. For every 10 degrees F you reduce the temperature on the hot water heater, you’ll reduce your hot water energy costs 3 to 5 percent.
  • Insulate your hot water heater with an insulation blanket. By insulating it with insulation that has a rating of at least R-24, you can reduce your energy costs by up to 9 percent.

Tankless systems have two primary types:

  • Point-of-Use – these systems are small and heat water for only one or two places. One example is installed near the kitchen sink for its use only. Their small size allows them to be placed inside a cabinet, closet, or under a sink.
  • Whole-House Use – these systems are designed to provide hot water for an entire home and are typically located in an attached garage or utility room. This type has a longer lag time than a point-of-use system. Lag time is the time it takes the hot water to travel from the heater to the faucet. In large homes, the lag time can be minutes.

Hot Water: Advantages of a Non-Tank System

As with any home appliance there are pros and cons with these types of water heaters. The following are some of the advantages of a tankless system.

  • Energy Savings – although the initial installation is more expensive than a traditional water heater, this type of hot water heater saves energy and reduces utility bills over the long-term. This is opposed to the waste of energy needed to keep the water hot in a tank; thereby, increasing utility bills even when no one is at home.
  • Continuous Hot Water – a tankless water heater provides an unlimited amount of hot water, since it heats the water as it passes through the heater. This is opposed to a storage tank system that requires waiting for more water to be heated, when it runs out of hot water.
  • Size – most require less physical space than a traditional system. Often these systems are mounted on a wall and do not take up floor space. Systems with water storage-tanks take up much more space, especially those with large tanks – 50 gallons and above.
  •  Less Risk of Water Damage – storage-tanks eventually leak or rupture at some point, requiring the need of metal pan to collect leakage if in an interior closet or attic space. While the only risk of water damage with these new type of system is from pipe or pipe-fitting failure.
  •  Life Expectancy – storage-tank systems typically last about 12 years, while a tankless systems life expectancy is 20 years.

Energy Efficient: However, There are Disadvantages

The following are some of the disadvantages of tankless systems.

  • Lag Time – this type of water heater only provides hot water on-demand, causing a start-up delay of hot water at the faucet. Although this is also an advantage, homeowners should not expect instant hot water when the faucet is opened. However, this disadvantage also present with storage-tank systems.
  •  Irregular Use – when a hot water faucet is turned on and off repeatedly, there are periods of hot and cold water. This is caused by a one-to-three second delay when water starts flowing and the heater’s flow detector turns on the gas or electric heating elements. This is not a problem during continuous use.
  •  Installation Cost – cost of replacing a storage-tank can be expensive. Whole-house tankless water heaters typically cost $800 to $1,150, compared with $300 to $480 for the regular storage-tank types. Tankless models need electrical outlets for their fan and electronics, upgraded gas pipes, and a new ventilation system. This can bring an additional average installation costs to $1,200, compared with $300 for storage-tank models.
  • Sources of Heat – storage-tank systems can use solar energy, geothermal energy, natural gas, propane, electricity, and ground-coupled heat exchanger energy. However, the non-tank system can only use natural gas, propane, or electricity.

A tankless water heater system has its pros and cons, just like a storage-tank system. Anyone considering replacing their current hot water heater must review the positives and negatives of both types. If the major reason for switching to a non-tank system is to save energy, then this is best option. The best time to install a tankless model is when a home is being constructed or during home remodeling efforts. You can also read my review about electric water heaters here.