How do tankless water heaters work? (Animation)

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Susan Meyer

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What makes a water heater tankless?

Tankless water heaters have grown in popularity over the past few years, primarily thanks to an energy-saving design that helps to reduce energy costs. But what is a tankless water heater, and how does it differ from a traditional water heater? 

Traditional hot water heaters store water in a tank, using natural gas, electricity, fuel oil or propane to keep water hot while not in use. A storage tank can be anywhere from 30 to 60 gallons, constantly being heated until called upon.

Tankless water heaters, on the other hand, only heat water when needed, providing an on-demand service of hot water. Whenever you open a hot water tap at home, cold water enters the tankless unit, and an electrical heater or gas burner heats the water as it passes through.

Skip to our animated graphic to see this process happen in real time. 

Advantages of tankless water heaters

One of the biggest advantages of tankless water heaters is the amount of energy you can save. Tankless water heaters save anywhere from 27 to 50 percent the fuel costs of tank-type heaters.[1] This is largely due to their “on-demand” style. Whether the heater is electric or natural gas, it only kicks into action when a hot water tap is turned. With less energy being used, you’ll save on costs each month.

In addition to being energy savers, tankless water heaters also tend to have a longer lifespan than their tank-type counterparts. Tankless units have a life expectancy of more than 20 years.[2]. Their parts are easily replaceable, too, extending their usage for several more years.

Tank-type heaters typically only last about 10 to 15 years before needing to be replaced. You may be able to repair a minor issue without too much trouble, but traditional heaters often require more extensive changes, usually in the form of fully replacing the tank itself.

The compact design of tankless water heaters is another plus. Think of the bulkiness of a traditional water heater – it takes up a big chunk of space in a pantry, laundry room or bathroom. If the tank starts to leak, that could affect items in the room or even lead to mold and other foundational deterioration.

Tankless water heaters are much more compact. They easily mount on a wall and some can even be installed outside.[3] This space-saving design opens up room for you to move around more freely or put other things in the space.


Disadvantages of tankless water heaters

While the perks of tankless water heaters are enticing, there are a few disadvantages, too. Your initial cost will be more expensive than a traditional heater. The unit itself is often more expensive; a Consumer Reports test paid $570 to $600 for tank-style heaters, while tankless models cost up to $1,150.[4]

Water heater installation costs are also more expensive. You’ll want to use a certified plumber or electrician either way, though tankless installation can cost up to three times that of a traditional heater.[5] A gas-powered model may run you up to $3,000, and electrical can cost up to $1,000 to install. 

It’s also possible you’ll need additional equipment. A tankless heater may have different venting and gas-supply requirements, which could require modifying what you already have or purchasing new parts entirely.[4] Rewiring a house to accommodate a tankless water heater could add an additional $5,000 to the total costs.

If you use a gas water heater, you should also consider a hard water softener. Water contains minerals like calcium and magnesium. The higher the concentration of those minerals, the “harder” the water. This hardness varies by location, but if you have a lot of mineral buildup, it can quickly damage your water heater. Though a hard water softener is an additional cost, it works on every appliance in the house that uses water, like a dishwasher, washing machine, faucet or refrigerator tap.

The capacity of tankless water heaters can also be a disadvantage. While traditional storage tank water heaters can provide enough water for the whole home, you may need to buy a second tankless heater, depending on the size of the house.

What to consider before buying

Before you decide on a tankless or tank-type water heater, you’ll want to make a few considerations – while keeping energy bills in mind.

First, determine the necessary size for your household. For example, if you live with five other people, you’re probably using much more water than someone who lives alone. Water usage, plus the number of bathrooms in your home, plays a major part in the size of a traditional water heater, or the number of tankless heaters you’ll need to install. Heater output is measured in BTUs, or British Thermal Units. The maximum allowable output for residential gas heaters is 198,000 BTUs – if your home requires more than that, you’ll need a second unit.

It’s also a good idea to calculate the flow rate of your shower head. Water flow rates are measured in gallons per minute (GPM). All shower heads installed after 1992 must have a flow rate no higher than 2.5 GPM, though other appliances have varying rates.[6] To determine the flow rate of any appliance in your house, time how many seconds it takes to fill up a bucket to one quart. Divide that number by 15 and you’ve got your GPM flow rate.

Another factor to consider is the temperature rise of your home. Different areas have different groundwater temperatures. Unsurprisingly, the closer you are to the equator, the higher the groundwater temperature.[7] Higher groundwater temperature means it takes fewer BTUs to raise the water temperature. For example, southern Texas only needs 400 BTUs per gallon to increase the water temperature to 120 degrees, while Minnesota requires 650 BTUs per gallon.

The climate of your area can determine what level of energy efficiency you want, as well as the fuel for your heater. If you live in a southern state, you’re less likely to experience frozen pipes, so installing an electrical tankless heater outside might make sense. Electrical heaters are also more eco-friendly than gas-burning ones. However, if you already have a gas line, it could be costly to change fuel types. Knowing your current setup can save a lot of headaches for any future decisions. 

Finally, determine the warranty of the heater. They can last anywhere from one to 10 years, and your choice may depend on the route you take. Electric models, for example, cost about as much to repair as it would to simply install a new unit.


Making the decision between electric and gas

Choosing between a traditional and tankless system is only one decision. You’ll also have to decide between gas or electric options.

Non-condensing gas tankless water heaters have more complicated installations because they need a complex venting system to provide adequate air flow. More often than not, the existing venting ducts and gas lines are incompatible; installing the proper modifications adds a significant cost to an installation or repair. Gas heaters require more maintenance throughout their life than electric heaters do. You’ll have to factor in routine checkups, flushing of minerals and cleaning the inlet screen to remove debris.

At the moment, fuel prices are cheaper than electricity. Despite the higher costs of installation, the costs of actually using a gas heater are lower. Gas heaters can deliver more hot water, too – more than eight GPMs, while electric heaters usually top out around that number. For households with several people in it, that makes a big difference. Electric tankless heaters are easier and cheaper to install. You probably won’t need to undergo any in-depth home modifications, and the resulting heater is more efficient. Electric heaters consistently score in the 95 to 99 percent efficiency range.[8] Electric tankless heaters are more compact, too, typically a third the size of gas heaters. These smaller appliances require less maintenance, though you should flush them out annually to remove mineral source buildup. And because of the simplicity of their design, electric heaters usually outlast their gas counterparts – often exceeding their expected 20-year lifespan.

How do tankless water heaters work?

As the name suggests, tankless water heaters don’t need a storage tank to function. Whenever a hot water tap is turned on, cold water runs through a pipe to the unit. A gas burner or electrical element then heats the water. This leads to a constant, “on-demand” supply of hot water.

A tankless hot water heater will usually provide hot water at a rate of two to five GPMs, with gas-fired heaters producing higher flows than electric ones..[2]

Since the hot water needs of your household may surpass the supply of a tankless heater, it could make sense to install multiple heaters to handle simultaneous demands for hot water. 

The type of water heater you choose is ultimately up to you. Whichever route you go, be sure to consult a professional before performing any installations or repairs yourself. Homeowners insurance provides coverage for certain scenarios if your new water heater ends up busted. Review your policy before making any changes and consider switching your home insurance if you’re suddenly hit with an increase in premiums.

  1. Tankless Water Heater: What You Need to Know Before You Buy. This Old House

  2. Tankless or Demand-Type Water Heaters. U.S. Department of Energy

  3. Tankless Water Heater Buyer’s Guide: What You Need to Know. Water Heater Leaking Info

  4. Tankless Water Heaters vs. Storage Tank Water Heaters. Consumer Reports

  5. Tankless Water Heater Pros and Cons to Help You Decide If It’s Worth The Cost. Angi

  6. Shower Head GPM - What It Means & Why It’s Important To You. Waterpik

  7. Average groundwater temperatures. CDN

  8. PickHvac Cooling and Heating Guide. Pick Hvac