On-demand water heaters, or tankless water heaters, heat water directly and only when needed. Traditional tank-based water heaters come as complete units with storage tanks for holding excess hot water, while tankless heaters warm water as it moves through pipes. Tankless water heaters may provide some advantages, according to the United States Department of Energy, including using less energy and lowering expenses.
Tankless water heaters, like traditional water heating systems, rely on an external source of energy to work. They operate using electricity, gas and even solar energy. Their cost and energy-saving benefits come from the lack of energy used to constantly heat storage tanks. This translates to energy savings ranging from 8 to more than 30 percent in homes that use over 40 gallons of hot water daily, notes the U.S. Department of Energy. Like traditional water heaters, however, several factors affect the efficiency of on-demand systems.
In general, tankless heaters that operate on gas instead of electricity typically have a higher flow rate, which increases their energy efficiency. Gas-powered units that have continually burning pilot lights, however, may consume more energy. Efficiency also varies among models, and depends on unit size, fuel source and fuel availability.
In addition to the unit, installation determines energy consumption and in turn, savings. Interested homeowners should get several quotes from installers and search for qualified plumbers and contractors to perform the installation.