In theory, I’m a big fan of tankless water heater technology. I even brought one back from Hong Kong in a large suitcase many years ago. It’s still cranking out the hot water in my processing facility. When it came time to replace my 20 year-old hand-me-down tank water heater in my home I thought, “Finally I can get a tankless water heater.” However, the technician in me insisted on research that ended up getting more involved than I had imagined. I went way beyond company literature or Consumer Reports and spoke with engineers at three different manufacturers. What I found is that a tankless is not always the best choice and it depends a great deal on your individual usage, climate, installation location, noise concerns, length of venting and energy source. (Please note the discussion below is limited to gas-fired units.)
Some of the first things to look at are cost, efficiency and climate.
- Cost. The cost of a tankless is about the same as a high-quality tank heater, ignoring installation. Gas tankless units run much hotter, often three times the BTU output of a tank unit and therefore require Category III stainless vent. It is very expensive. In my application, the vent would have cost as much as the tankless water heater. It can certainly be less in other applications with shorter runs. But it is a considerable cost even with short vent runs. Keep in mind if you are replacing a tank water heater, you will need to replace the entire venting system.
- Efficiency. Tank water heaters are getting more efficient. If you buy a 10- or 12-year warranty tank heater, they have more insulation and more efficient combustion chambers (in some cases) and often two diode rods (more on those later). In some cases the energy savings can be as low as 8% with a tankless. So compared to efficient tank units you may only save about $50 or less in energy costs per year. That’s a good thing for sure. However, it may cost you more when you calculate the cost of venting and higher maintenance on a tankless unit. In my case, it would have taken close to 30 years to pay for the added cost of the tankless in energy savings, when considering my installation and venting costs.
- Climate. One engineer working for a popular brand of both tankless and tank heaters attempted to talk me out of a tankless due to my northern Michigan location. In the end that info played a role in my decision. If you live in a cold climate and power failures are an issue in your area, keep in mind that the heat exchangers can crack in a matter of hours due to frigid air dropping in the vent on short vent installations. That’s a very expensive repair. This is not an issue with tank water heaters, but I’ll spare you the physics lecture. This was an issue for me because we often travel for four weeks at a time in the winter and we often leave our home available to friends. I love ’em, but I can’t entrust them to properly drain the plumbing lines.
In the end, I went with a tank heater in my application. It was the most cost-effective and greenest in my opinion. Had just a few of my factors been different, I could have easily gone with a tankless. Whatever you decide, don’t let anyone tell you that either is better unless they know all the particulars of your application. And remember, in the end the greenest and most cost-effective thing you can often do is take better care of what you have. If you have a tank heater, most people don’t know that 90% of failures are from the tank rotting out and leaking. That can easily be prevented by changing your anode rod every 2-5 years. The anode rod hangs down inside the water tank and is coated with a material that dissolves over time and prevents the water from rotting out the tank (Another reason why people say “Don’t drink or cook with water from the hot tap). It can be removed and inspected easily by a homeowner with a good wrench. You can get 20 plus years out of tank if you replace them, much less if you don’t. I bought a spare anode rod and hung it next to the water heater with tag saying “Install in year 2010.”
With a tankless, follow maintenance procedures and keep in mind, depending on the mineral content and quality of your water, you may need to flush your unit’s heat exchanger annually. It is also advised to install a sediment filter on your incoming water line.
I hope this helps. Because I built, wired and plumbed my own home I may have a bit above average understanding of these issues, but I’m no expert by any means. So do the research on your application and consult plumbers with experience in both applications.
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Addendum February 2, 2011
Please note that I posted this article in 2007. Since that time many companies have come out with tankless water heaters that have PVC venting. That changes the cost consideration with regards to venting. I’m still an owner of both tank and tankless water heaters (home and business) and while I’m happy with both, I remain convinced that neither is supperior in all applications. So do your research and choose what works best for you.
Timothy
Timothy Fitzgerald Young 
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