How does a tankless water heater work?

Tankless water heaters have been in use for decades. Learn how they use less energy than systems with tanks.
Tankless water heaters have been in use around the world for decades and are commonly referred to as point-of-contact water heaters. Tankless water heaters have been popular in other parts of the world because confined spaces and extremely high energy prices forced other areas to think of a solution when it came to heating their water.

As we start hearing more and more about them here in the U.S. it's good to have a basic knowledge of how they work. And if you're in need of a new water heater or are looking for ways to save energy, you should ask yourself if tankless is right for you.

Hot water on demand

A traditional water heater with a tank is based on the simple concept of storing hot water. An insulated tank fills with water and gas fire or electricity heats the water to the temperature set on the thermostat. This means tank water heaters are working to keep the water warm all the time.

That's not the case with tankless water heaters. In fact, they are very compact units, and there is no means to store hot water at all — hence the term tankless. Instead, water enters the heating system only when it's being demanded. So, say you're off to take a shower. Once you turn on the hot water (assuming you're not one to take cold showers), the water enters the heating system and travels through a winding coil of heating elements. This process instantly heats the water to the desired temperature and sends it to its destination.

And, there's a huge difference in the performance between tankless and tank systems. The supply of hot water stored in a tank water heater eventually will run out. With a tank system, cool water replaces the outgoing hot water, and unfortunately the heating element cannot heat the water fast enough to keep up with the demand. But as water flows through a tankless system, there is a continuous stream of hot water. So, your supply of hot water will never run out.

From compact to more compact

Tankless water heaters take up a fraction of the space of their tank-based counterparts. A traditional tank can take up to 16 square feet of valuable floor space; a tankless water heater is about the size of a carry-on suitcase, and can be installed virtually anywhere.

For the large majority of homes, only one tankless unit is required. But, there also are point-of-use tankless water heaters that can be put to use in areas of higher demand, like a kitchen or laundry room. These are even more compact in size and are designed to fit in spaces like under the sink.

You can save with tankless

Source: U.S. Department of Energy
Installing a tankless water heater will cost more up front than a tank system. But, the money saved from operating a tankless water heater will cover the difference in the long run.

See this explainer on how installing a tankless water heater could save you money.

Tankless water heaters last up to twice as long as a traditional tank heater. And because the tankless system doesn't continuously maintain the temperature of a large storage tank of water, a lot less gas or electricity is needed to operate it. Depending on your local gas and electric rates, a tankless system could save you between $100 and $300 per year over a traditional gas tank system. Also, more often than not, federal, state and local governments as well as utility companies offer tax credits or incentives toward installing tankless systems.

When it comes time to choose and install a tankless unit, it is best to hire a professional installer. They'll help you determine the size of the tankless unit you'll need, whether you'll want gas or electric, and whether any of your current utilities will need to be upgraded.

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