In recent years, about half of my remodeling customers have
chosen to replace their conventional water heaters with
on-demand — or "tankless" — models. Long popular in
Europe and Japan, on-demand water heaters first showed up here
during the 1970s energy crisis. Their use never became
widespread, however, because energy prices fell and early
models had reliability problems that made plumbers suspicious
of this technology. Today's fully electronic models are very
reliable, and with energy prices on the rise, they are
generating renewed interest.
What Customers Want
The main reason my customers choose to go tankless is because
it's a great way to pick up floor space in a remodel (see
Figure 1). They also want to reduce their energy consumption
and are willing to spend more up-front to do so. Other reasons
for installing on-demand heaters include the promise of never
again running out of hot water and the security of knowing the
equipment will last 20-plus years — much longer than
Figure 1.On this project, a conventional water
heater occupied prime real estate near the back of the house
(left). The author replaced it with a gas tankless model
— installed in the crawlspace — and expanded the
kitchen into what was formerly a utility porch
The key question for contractors is whether on-demand heaters
are better than conventional models. I think they are, but it's
important to understand the differences between the two types
of heaters. The purpose of this article is to explain how
tankless heaters work and how to install them on remodeling
To appreciate the differences between conventional and tankless
models, it helps to understand how each kind works.
Conventional water heater. A
conventional residential water heater — let's assume it's
gas — is built around a tank containing 40 to 75 gallons
of water. When the water inside falls below the thermostat's
set point, typically between 120°F and 140°F, the
burner comes on and heats the water.
If the unit is properly sized, there should be enough stored
hot water to provide a buffer against periods of heavy use. But
if demand is too high, the store of hot water is depleted and
the tap runs cold. The burner will eventually heat the incoming
cold water, but it will take a while because the burner is
quite small compared with the volume of water it has to
Also, because hot water must be stored 24 hours per day,
conventional heaters are prone to large standby losses (heat
escaping from the tank).
On-demand water heater. On-demand
heaters are smaller and more efficient than conventional units;
they have no tanks and don't store any water. Instead, they are
equipped with burners powerful enough to heat water almost
instantaneously as it flows through the unit.
On-demand models are available for use with natural gas,
propane, or electricity, but let's assume here we're talking
about gas. When a hot-water tap is opened, cold water flows
into the heater and passes through a control device that senses
the amount of flow. If the flow rate is sufficient, the
controls activate a burner that heats the water as it passes
through a heat exchanger (Figure 2). The moment the flow stops
or is interrupted, the burner turns off.
Figure 2.This on-demand gas heater (shown without
its cover) has sophisticated controls to regulate the burner
and combustion fan based on flow rate and incoming water
temperature. It has more in common with a high-efficiency
furnace than with a conventional water heater.
The burners in early tankless models had only two settings
— on and off — so the temperature of the output
water varied with flow. Most of today's models, by contrast,
are modulating: If the flow increases, the burner puts out more
heat. Water comes out at a consistent temperature that can be
set on the machine or with a remote wall-mounted
An Endless Supply of Hot
Manufacturers market on-demand heaters with the claim that
they're capable of providing an endless supply of hot water.
This is true — but only if the heater is sized to meet
peak demand, which is measured in gallons per minute
For example, a heater might be just large enough to provide an
endless supply of hot water to two showers. But if a third
person were to turn on a shower at the same time, demand would
exceed capacity and the temperature of the output water would
immediately fall. There are several ways of dealing with this:
stagger the showers, get a bigger heater, or buy a second
heater and wire it to kick in whenever the first heater needs
Calculating peak demand. To calculate
peak demand, add the flows of the appliances and fixtures that
are likely to run at the same time. Here are some typical flow
|Low-flow faucet|| ||0.5-1.5 gpm|
If the customer wants to shower and run the dishwasher
simultaneously, the heater must be capable of producing at
least 4.0 gpm — roughly the minimum required for
whole-house water heating.
If two people want to shower while the dishwasher is running,
the heater must produce 6.5 gpm at the desired temperature. The
2.5-gpm figure for showers assumes that the hot water coming
from the water heater is reduced to 104°F at the shower's
mixer valve. If the client likes it hotter, the shower will
account for more than 2.5 gpm of output.
Temperature rise. The volume of
water that an on-demand unit can heat is determined by the
temperature of the incoming and outgoing water. A heater can
produce more hot water when water comes in at 75°F (summer
in Florida) than it can when water comes in at 45°F (winter
in Wisconsin). Increasing the setpoint temperature of the
outgoing water has the same effect on capacity as lowering the
temperature of the incoming water.
Unless the customer wants to cut back on hot-water use in
winter, you will need to install a unit powerful enough to
produce the desired flow at that time of year. Heater
specifications usually include test data showing how many
gallons per minute a unit can heat for a given rise in
temperature (Figure 3). Most — but not all —
manufacturers list maximum output based on a temperature rise
Figure 3.The manufacturer's specs typically
include a graph showing how much hot water the unit can deliver
based on input temperature, output temperature, and flow rate.
This graph is typical of 185,000-Btu gas models.
Electric models. The average
household uses more hot water than a single electric on-demand
heater can heat. Most electric models produce less than 2.5
gpm; the largest I know of requires three 40-amp breakers and
produces less than 4 gpm in cold weather.
Electric models are best suited to point-of-use applications
(installing individual heaters in rooms where hot water is
used). I wish I could install point-of-use electric heaters on
my jobs, but where I work, the energy code makes it illegal to
replace gas water heaters (even inefficient ones) with electric
models. Conventional electric and tankless electric models can
be extremely efficient, but because electricity is so much more
expensive than gas in most areas, they are still more expensive
Running Hot and Cold
One problem with on-demand gas heaters is that "slugs" of cold
water can get sandwiched between sections of hot water in the
supply line. There are two ways this can happen.
Ignition lag. Before the burner can
switch on, a control device must first measure the volume and
temperature of the incoming flow. As a result, a certain amount
of water passes through unheated. We have installed a number of
Takagi heaters, and their manual says it takes three seconds
for the burner to ignite. (The glitch is not confined to
Takagi; all gas-fired models have similar lags.) Once on, the
burner produces a steady flow of hot water, but if you turn the
tap off and then back on again, more cold water passes through
before the burner reignites.
Most homeowners don't even notice the slug of cold water, but
some do. A remodeler I know installed a tankless heater for a
client who liked to wash the counter with very hot water. She'd
wet the sponge, turn off the water, and clean. When it was time
to rinse, she'd turn on the water and rewet the sponge. Every
time she did this, some cold water entered the hot-water line.
Frustrated, she finally got the plumber to install a small
conventional heater (10-gallon electric) between the on-demand
unit and the sink. This approach worked but reduced the
efficiency of the system.
Minimum flow. A second problem with
gas on-demand models is that they won't switch on if the flow
is too low. The cutoff is usually around .7 gpm (Figure 4); the
exact level varies by model. Customers have complained that
when they turn the water down to shave, it goes cold because
the burner won't come back on. Also, if there is just enough
flow to keep the heater going, flushing a toilet or opening a
cold-water tap may cause the burner to shut off by temporarily
Figure 4.On-demand gas heaters will not switch on
and deliver hot water if the flow rate is too low. The cutoff
point is arouns .7 gpm, which is roughly the rate at which
water is flowingthrough this faucet.
The default output temperature for most tankless models is
around 120°F. Many people adjust this up, which increases
the supply of warm water (by mixing it with cold). This works
fine for most uses but makes it easier to accidentally switch
off the burner during periods of low flow.
An on-demand heater can be installed where the old water
heater used to be, but the existing gas and water lines may be
too small. Don't expect to use the old flue.
Electrical needs. The new unit will
require 115-volt electricity to power an internal computer
board, electronic ignition, and a venting fan for the flue
(Figure 5). If the power goes out, the household will have no
hot water. Although I haven't done it myself, I have heard of
people installing battery backup units (the kind used for
computers) to prevent the heater from suddenly turning off
while someone is showering.
Figure 5.Like any gas water heater, this tankless
unit (left) is connected to a gas line, water lines, a flue,
and a temperature/pressure-relief valve. But it's also tied to
a 115-volt power line and a wall-mounted temperature
controller. With a fan-induced draft, combustion gases must be
vented through costly Type III stainless-steel flue (right).
Flue joints must be gasketed or caulked with an approved
Bigger gas and water lines. One
reason on-demand models heat so quickly is that they hold only
about 1/3 gallon of water. (The other reason, of course, is
that they put out an enormous amount of heat.) A conventional
40-gallon heater produces about 40,000 Btu, while an equivalent
tankless model might put out 200,000 Btu — and thus
requires a 3/4-inch gas line. Most tankless heaters require
3/4-inch water lines, but some need 1-inch lines. Undersizing
either line can cause malfunctions.
Before installing an on-demand unit, check to see that the gas
line into the home is big enough to power the heater and
furnace at the same time. Having to replace gas and water lines
adds cost, but if you're relocating the heater (as often
happens in remodels), you'll be doing it anyway.
More expensive flue. Conventional
water heaters use inexpensive B-vent flue. On-demand models
typically require 4-inch Type III stainless-steel flue pipe
— which costs about $16 per foot. Stainless steel is
necessary because tankless models have a fan-induced draft,
which can leave acidic combustion products in the flue when the
burner turns off.
Locating the Heater
As a remodeler, the thing I like most about on-demand heaters
is that they are small — typically 24 inches by 18 inches
by 9 inches — and will fit in places conventional heaters
won't. Since basements are not common in this area, water
heaters have traditionally been housed in a closet or attached
garage. Changing over to a tankless model allows us to put this
space to better use (Figure 6).
Figure 6.The author gained valuable floor space in
this house (left) by scrapping a conventional water heater
located in a niche next to the cimney and replacing it with an
on-demand model installed outside. Designed for use in warm
climates, outdoor units (bottom) have an electric heating
element that protects them from the occasional
It's possible to vent the heater through the roof, but venting
through a sidewall minimizes the flue run and frees up
additional space where the flue used to be. We frequently
remove masonry chimneys that can't meet seismic code and, with
no need for a vertical flue, pick up space on both floors of
the house. If you consider what it costs to add square footage
during a remodel, spending more for a tankless heater may be
the least expensive way to go.
Combustion-air requirements. On-demand heaters
burn gas quickly, so don't install them in enclosed spaces
without providing an adequate supply of combustion air. The
manual will tell you how much you need. One way to deal with
this complication is to use a direct-vent model; combustion air
is piped directly to these units from outdoors. We have
installed a number of tankless heaters in crawlspaces, which is
legal provided the access door is large enough to enter the
area and service the unit (Figure 7).
The house was too close to the property
line for the author to install this heater outside, so he put
it in an accessible crawlspace (left), ran the flue into a
joist bay, elbowed 90 degrees, and vented through a grille in
the outside wall (right).
Outdoor installation. The area where I work has
a very mild climate — it never freezes. For this reason,
it's common to install on-demand heaters outdoors on the side
of the house. This frees up interior space and eliminates the
cost of installing a flue. Units designed for outdoor use have
an internal electric heating element that prevents freezing,
allowing outside installations in climates cooler than ours.
But if the power goes out, the heater can freeze and be
Also be aware that the heating element protects only the
heater — the water lines must be insulated and may
require heat tape or a conditioned chase.
Clearances. As with any heating
appliance, certain minimum clearances are required around the
unit and between the flue and flammable materials. The rules
are straightforward and can be found in the installation
manual. Clearances apply indoors and out. For example, the flue
outlet for a side-vented unit needs to be some minimum distance
from doors, operable windows, and intake vents.
Setback rules can be an issue, too. There have been instances
where we were unable to install the heater on the side of the
house because we were too close to the property line.
Cost to Install
When ballparking jobs, I carry a few hundred dollars in
material for a conventional water heater and $1,000 or more for
an on-demand model capable of providing water for an entire
house. Depending on what you buy, you could easily spend $1,600
for the unit.
Installation labor and the cost for gas lines and flue are
extra. If it's a remodel and we're changing the location of the
heater, my plumber might charge $2,500 in material and labor to
install a tankless model. This is about $1,000 more than it
would cost to do the same installation with a new conventional
In new construction, the cost would be less.
Efficiency and Cost to
Every new water heater comes with an Energy Guide label that
shows its estimated annual fuel cost. The estimate is based on
a specified fuel price and a set of assumptions about water
temperature (intake and output), hot-water usage, and other
variables. One assumption is that the homeowner uses 64 gallons
of hot water per day.
Because there are so many assumptions involved, it's hard to
gauge how closely the Energy Guide estimate will match your
specific installation. But we do know that the cost to operate
a water heater is likely to be much higher than the tag says.
For example, whereas the label on a tankless model I installed
last fall listed gas costs at 91 cents per therm, my most
recent utility bill pegged them at $1.58 per therm (Figure 8).
I consider this an argument in favor of on-demand models,
because they use fuel more efficiently than conventional
Figure 8.Every new water heater comes with an
Energy Guide label that shows the estimated annual cost to
operate it. But with current fuel prices rising so rapidly, the
labels become out-of-date almost instantly.
Water-heater efficiency is rated by energy factor, or EF. This
number is calculated by dividing the energy delivered as hot
water by the amount of energy consumed to produce the hot
water. If no energy was lost and it all came out as hot water,
the heater would have an EF of 1. Most conventional gas water
heaters have an EF of around .59. On-demand gas heaters are
typically rated between .81 and .85, making them on average
about 40 percent more efficient than conventional models.
Payback period. If you know the EF
and the local cost of natural gas (or propane), you can perform
the same calculation used on the Energy Guide label and come up
with an approximate yearly cost based on current fuel prices.
And once you know the annual operating cost, you can determine
the payback period for installing a more efficient water
To find the cost savings achieved by switching from a
conventional gas heater (EF .59) to an on-demand model (EF.82),
use the following method.
.41045 x cost per therm of gas x 365 / EF =
yearly cost to operate with gas
Example 1, conventional model:
.41045 x $1.58 per therm x 365 /.59 = $401.20
Example 2, on-demand model:
.41045 x $1.58 per therm x 365 / .82 = $288.67
Yearly cost savings: $112.53
To calculate payback, I'd use the $1,000 difference my
plumber quoted for installing a tankless model vs. a
conventional model in a new location in an existing home. Then
I'd divide the added installation cost ($1,000) by the annual
savings in operating costs achieved by going tankless, as
$1,000 / ($401.20 - $288.67) = 8.9
The payback period will be shorter if energy prices continue
to rise or if the homeowner uses more than 64 gallons per day.
It will be significantly shorter if the homeowner is switching
from a conventional electric model.David Grubbis a remodeling contractor in Berkeley,