Tankless water heaters (also called on-demand water heaters) save a lot of energy by heating the water as it flows through the device instead of storing water and keeping it heated all the time.
According to the U.S. Department of Energy, “Water heating accounts for about 18% of your home’s energy use and is…typically the second largest energy expense in any home.” It’s well worth it to find significant ways to reduce the amount of energy you use to heat your water.
Installing a natural gas or electric tankless water heater is one way to do it. Here’s what you need to know about this option.
What is a Tankless Water Heater? And How Does It Work?
A tankless water heater, as the name implies, does not have a tank filled with heated water. Instead, it’s a device with a heat exchanger inside that quickly heats the water as it runs through.
Tom Redding, Capital’s lead plumber, says they’re a great option. “The cost to install one is a little higher but the overall savings on a tankless will pay for itself because you’re not constantly heating a 60-gallon tank of water. If you have teenagers, they’ll have an endless supply of hot water.”
According to a 2019 Consumer Reports study, whole-house tankless water heaters “are designed to produce a target amount of hot water—3 to 4 gallons a minute.” They found that all brands of natural gas heaters hit that mark, performing about the same. So did all brands of electric heaters.
Tankless water heaters can be installed at the point of use—right where water flows to the shower, sink, dishwasher, or washing machine—to deliver hot water immediately. They can also be installed centrally, where they heat water that can then flow to various locations in your home. Central tankless water heaters are the most common type we install in residential settings.
How Tankless Water Heaters are Installed & Operated
It’s not the simplest process in the world to switch to a tankless system from a storage tank system. That’s because it takes a plumbing retrofit. Your plumber may also need to change your ventilation capacity and gas supply lines. In addition, because tankless models draw more power, you may need to upgrade the electric service to your house to ensure that your tankless system works correctly.
Tom explains why switching from a storage tank system to an on-demand tankless water heater is a full-day job. Your installer will:
- Drain and remove the existing storage tank heater.
- Reroute piping from a low point near the floor to accommodate the tankless unit, which hangs four or five feet higher.
- Restructure intake and exhaust air by hanging venting and penetrating the structure through a wall or the ceiling—and potentially the roof.
- Reroute the electrical inlet to accommodate the new height of the unit.
- Change the gas shutoffs.
In addition, they may need to:
- Run new electrical to the unit.
- Drill a condensation drain.
It’s a lot. Once you’ve made the switch, though, it will be much simpler to install a tankless replacement down the road. And when it’s in place, a tankless water heater is simple to operate by using the settings on the panel of the device, which allows you to set the temperature and even control the amount of gas or electricity it’s using.
Pros and Cons of Tankless Water Heaters
Tankless water heaters provide endless hot water for users. That’s definitely a perk. In addition, they’re more energy efficient.
But there’s more to consider. Here’s a roundup of pros and cons to help you make a decision.
Pros
They’re more efficient. Because they’re not constantly heating a giant tank of water, tankless systems won’t generate standby heating costs. The Department of Energy says tankless water heaters can be between 8% and 34% more energy efficient, depending on your household’s hot water use.
Long-term cost savings. Tankless water heaters are more efficient and may be able to lower your energy bills over time.
Endless hot water. You can’t run out of hot water because they heat it as it flows through the device. No more cold shocks in the middle of a shower!
They last longer. Tankless water heaters last about 20 years. Conventional tank storage systems last between 8 and 12 years.
They’re smaller. Most units are roughly 2 feet by 1 foot. Because they take up less (or no) floorspace, they’re less intrusive. It’s nice to have something that can fit in a cabinet and that won’t hog an entire closet or corner of the garage.
Cons
Higher cost upfront. Tankless water heaters cost more to purchase and install than conventional storage tank water heaters.
It might outlast its warranty. Because the devices last so long, they may be out of warranty by the time they need to be serviced.
Uneven performance on hot water delivery. Some models may not be able to deliver hot water to multiple appliances at the same time. In addition, water flow might be reduced if you’re trying to run hot water to more than one location at a time, especially on electric models. Installing more than one system in different areas of the home can solve this problem but may be cost prohibitive.
It takes an adjustment. A tankless system operates differently from a conventional one. As the consumer, you have to learn how to calculate your desired flow rate so you don’t create inconvenience for your household or overload the system.
Natural Gas vs. Electric Tankless Water Heaters
The two most common types of tankless water heaters are natural gas and electric. (Gas models can also be powered by propane.)
As you might guess from Tom’s rundown above, natural gas tankless water heaters can be expensive to install. But they heat water more quickly than electric heaters and consumers report that they can handle sending heated water to multiple locations at the same time.
Electric tankless water heaters are simpler to install and the equipment is less expensive than gas heaters. They also make less noise than a gas heater and are smaller and better for the environment. People with fewer hot water needs report being satisfied with the product, though households with higher hot water needs say the water output can’t keep up when they run multiple hot water appliances at a time—such as a shower and the dishwasher.
Electric models save more money over the long-term than natural gas models. But it’s worth noting that the current difference in cost between natural gas and electricity means that electric models—though more efficient—cost more to operate annually.
Based on the fact that a couple of brands of electric heaters were not able to pump out enough hot water to meet a high-use test standard, Consumer Reports concluded that “electric models may be better suited to areas with warmer groundwater, such as the South.”
Tom confirms that Capital plumbers install very few electric tankless water heaters. “We don’t recommend electric on-demand water heaters because the groundwater here is too cold,” he says. “You would need up to two whole systems in your home to make it work.”
How Long Until a Tankless Water Heater Pays For Itself?
It takes some time before a tankless system pays off. Consumer Reports calculated that the switch from a gas-powered tank system to a gas-powered tankless system takes more than 20 years to pay off. The switch from a tank system to an electric tankless water heater system, on the other hand, can take much less time, as little as 12 years.
But whether you go with natural gas or electric, the cost of replacing the unit is much less than your initial installation costs.
Overall, Tom says, “It’s a good, long-term investment. Going with a tankless is just a lot more energy efficient.”
Sources
How a Hybrid Water Heater Works, howstuffworks.com (Accessed 8/20/25)
How Does A Tankless Water Heater Work?, forbes.com (Accessed 8/21/25)
Tankless or Demand-Type Water Heaters, energy.gov (Accessed 8/20/25)
Tankless Water Heaters (2024 Guide), thisoldhouse.com (Accessed 8/20/25)
Tankless Water Heaters vs. Storage Tank Water Heaters, consumerreports.org, January 25, 2019 (Accessed 8/20/25)
Tankless Water Heating, Wikipedia (Accessed 8/20/25)
Water Heating, energy.gov (Accessed 8/20/25)