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Water heater technology has come a long way since they were introduced in late 1800s. Today, regulations, manufacturers, installers, and consumers are all driving the appearance of increasingly efficient water heaters on the market. In the world of gas water heaters, “tank” or “storage” type water heaters are pervasive in households and businesses across the U.S., however “tankless” or “on-demand” water heaters are increasingly becoming the water heater of choice due to energy savings, space savings, and a longer useful life.

Lately, some utility companies have started to lose interest in supporting on-demand water heaters with rebate programs due to the drawbacks of earlier generations of the technology. However, in light of recent studies, it would be wise for utility companies to take a second look at the current state of the technology.

Due to a number of convening forces, manufacturers have several incentives to focus on tankless water heaters from better public education to changing regulations. As the public becomes better educated on the benefits of the latest on-demand water heaters, how previous drawbacks have been addressed, approved upon, and tested, they will start to see a better value proposition for installing an on-demand unit. Other important factors are a market that increasingly values reliable energy savings and real estate savings, and the coming 2015 regulations specifically affecting larger water heaters.

Technological Advances in On-Demand Water Heaters

On-demand water heaters have gone through three major technological advances in the past few years:

  1. Non-condensing units: Consider this the first generation. These units use a heat exchanger to heat your water on-demand, and reach an Efficiency Factor (EF) of .82-.85, which translates to about $75-$80 in annual savings compared to a standard water heater. Some of the drawbacks of this generation are: hot exhaust, which means you have to install stainless steel venting (which is expensive…), and lower efficiency when you use lots of hot water in short draws (i.e. washing your hands).
  2. Condensing units: Consider this the second generation. These units use a second heat exchanger to take the heat from your exhaust to further heat the water, resulting in an EF of .92-.94, which means about $90-$100 in savings per year. The benefit of cooler exhaust is that these units can be vented using PVC (which is inexpensive), while the drawbacks included a higher unit cost and a lower efficiency from short draws.
  3. Condensing hybrid units: Consider this the third generation. These units incorporate a small – between 1 liter and 2-gallons – holding tank. This small holding tank keeps a reservoir of hot water, eliminating the drawback of lower efficiency from short draws, meaning these water heaters achieve an EF of .92-.96. This translates to about $120 in annual gas savings. A recent study by the Gas Technology Institute measured real life efficiency of condensing hybrid tankless water heaters and found the units consistently operated at 94% efficiency with little to no degradation due to short draws.

Hybrid Water Heaters & Real Estate Savings

Our customers consistently cite space savings as a key benefit of installing a tankless water heater. The Gas Technology Institute study mentioned above produced a similar finding; customers cited space savings as the second most attractive benefit of a tankless water heater, after the ability to use unlimited hot water.

Many analyses of payback for installing a tankless water heater ignore the economic value of space savings to the consumer. Given this is the second most cited benefit of the technology and looking at broad trends in the U.S. where there is only about 20 square feet of self-storage per household, not accounting for space savings disregards a major benefit of the technology.

Hybrid Water Heater Payback & Consumer ROI

We can do a simple payback calculation for installing a hybrid condensing on-demand water heater if we consider the annual savings and the incremental installation costs.

Annual Efficiency Savings
The incremental efficiency of hybrid condensing on-demand water heaters over conventional water heaters results in an average energy savings of approximately $120 per year.

Total Annual Savings
If the value of real estate is also taken into consideration, the total annual value to a consumer for a current generation tankless water heater is about $185 in savings.

Incremental Installation Cost
Our company’s incremental cost for installing a tankless water heater (the difference between installing a standard water heater and a tankless model) is approximately $1,800.

Payback
$185 in annual savings pays the additional installation investment back in less than ten years.

Also, on-demand water heaters have an estimated life of 20-30 years, which is 2-3 times as long as standard tank units. The higher cost of installing a tankless water heater is primarily due to the cost of retrofitting a property for the unit – usually vent work, gas line upsizing, and new plumbing to account for tank relocations. Once that retrofit is complete, the cost of replacing a properly installed tankless unit drops dramatically and incremental cost versus a conventional tank drops to around $600. As such, when taking into account the life-cycles of both technologies, the economics of modern tankless units make even more sense.

What’s The Verdict

With increasing efforts and numbers proving the value of hybrid condensing on-demand water heaters, homeowners should continue to consider this great new technology. Current generation tankless units have both environmental benefits due to reduced energy waste, ongoing energy savings, and real economic value from space savings benefits.

Utility companies should revisit the current technology and help homeowners overcome the upfront costs of installing on-demand units so they can reach their therm savings goals. Meanwhile, mainstream manufactures should continue to explore these new technologies to move the needle on efficiency, installation cost, and longevity of their product offerings.

For more info, read our TANKLESS WATER HEATER BUYER’S GUIDE or call us at:

(866) 574-2963