Unlike conventional tank water heaters, tankless water heaters heat water only as it is used, or "on demand". Tankless units have a powerful burner or heating element that's activated by the flow of water when a hot water fixture is used. Free of the limitations of the tank, hot water can be produced in perpetuity. They're touted as water and energy savers, but as always, it depends on the situation. To choose the best water heater for your home, you'll need to consider your usage habits, your plumbing fixtures, and the limitations imposed by the house and its existing plumbing.
We're all familiar with standard tank water heaters, which work well but aren't all that efficient. No matter how great the tank's insulation is, the hot water inside will give up its heat over time - that's just how the universe works. The only way to keep that water hot is to regularly warm it up - a constant cycle that consumes energy and costs you money. Standby heat loss typically accounts for 10-20% of total annual water heating costs. In some homes with standard tank heaters, the energy consumed for heating water is even greater than that used for heating the home itself!
Tankless water heaters were designed to avoid the shortcomings of standard heaters, providing a more energy-efficient way to have a steady hot water supply. Utilizing powerful gas burners or electrical elements, they're able to rapidly heat water at the time of use, as opposed to storing (and perpetually reheating) it for eventual use. Heating water only when you need it makes sense, and eliminating standby heat loss almost always results in lower energy bills.
In addition to avoiding standby heat loss, tankless heaters are also smarter in how they use fuel (be it gas or electrical energy). By modulating their fuel use, these units use only what's needed to heat water at the flow rate actually being experienced. If you open up a sink faucet that's drawing 1gpm, less fuel is used to heat that water than would be used for a tub spout running at 5gpm. As a result, it's not uncommon to see fuel-use reductions of up to 50% compared to a tank heater.
There are two varieties of tankless water heaters: centrally-located whole house heaters, and point-of-use (POU) heaters for individual fixtures (or rooms). What you choose depends on the water habits of your household, and the demands of the fixtures involved - all of which we'll get into below. Some will opt to install point-of-use heaters to supplement a central unit, typically at fixtures that use a lot of hot water or are far away from the central water heater (resulting in long waits for hot water). Whole house heaters work best in smaller to average-sized homes, but multiple units can be installed to meet the demands of larger homes.
If you're leaning towards tankless, you'll need to determine the hot water needs of your household before you can start (seriously) looking at units. How much hot water will you need at peak demand (say when someone's showering, you're doing dishes, and there's a load in the wash)? And just how much will the incoming cold water need to be heated?
Figuring out hot water demand is fairly simple: list all of the fixtures that will be using hot water from the tankless heater, and add up their flow rates. How do you find out the flow rate? If you bought the fixture, you can check the documentation it came with or go online to find out. If you have no idea, use the following assumptions:
For older fixtures, use the larger of the figures; for new fixtures, use the smaller number. If you're at all unsure of the age of the fixture, always go with the higher flow rate to avoid purchasing an undersized unit that will be unable to meet your needs. For the greatest accuracy, you can time how long it takes a given fixture to fill a gallon jug.
You'll also need to ascertain the temperature of incoming water. While actual temperatures will of course vary, this rough guide should be enough to help you pick out an adequate unit. For greater accuracy, contact your water provider.
Once you know the incoming water temperature, you can calculate the temperature rise - how much the heater will need to heat the cold water. Most homes will be satisfied with 120°F water, and most units will heat up to 160°F. To calculate the temperature rise, simply subtract your incoming water temperature from the desired output temperature. For example, if your incoming water temperature is 50°F and you want 120°F hot water, the temperature rise would be 70°F.
Figuring out your home's hot water demand and the temperature rise required allows you to focus on tankless units that can actually meet your household's needs. A table or chart will be included on item listings, spec sheets, or even on the heater packaging itself indicating the maximum flow rate at various temperature rises. Your goal is to find a unit that provides the required flow rate (as determined above by adding up the flow rates of the fixtures to be used) at the necessary temperature rise. The greater the flow rate, the lower the temperature rise.
Let's look at an example:
Once you know the temperature rise and flow rate you need from your new water heater, you'll be able to decide whether an electric or gas-powered model will work best for you. For anything beyond small point-of-use heaters, it's likely that you'll need to upgrade either your electrical system or the gas supply line and water heater venting.
With electric tankless water heaters, the primary concerns are with the load they place on your home's electrical system, and the wire size required to power the unit safely and sufficiently. Electric units are fine for point of use, but are generally avoided for whole-house applications due to the cost of electrical upgrades that would likely be necessary.
Gas (and liquid propane) tankless water heaters are more powerful than electric, and are the type most commonly used as whole-house water heaters. But there are two things you must know before deciding to go with gas: is your gas supply large enough to power the unit, and how will you get rid of the dangerous exhaust the heater creates?
There's no anode rod to worry about replacing, nor is there a huge tank that needs to be flushed out, but tankless water heaters do require a bit of maintenance every now and then. The build-up of limescale (hard water deposits) in a tankless unit's heat exchanger can severely impact performance, and eventually break it. You'll need to delime/descale the heater regularly to ensure maximum performance, with the regularity totally dependent on the hardness of water in your area: it could be every 6 months, every year, or even every few years.
How will you know when to descale your water heater? Some newer units can detect scale and alert you when it's time to clean, making things incredibly easy. Models that don't have such fancy features should be inspected by a professional within a year of installation (or sooner, if you've noticed a decrease in performance). They'll be able to tell you how much scale has built up, and what your maintenance schedule should be.
The actual descaling procedure is usually outlined in the water heater documentation, and may vary between models. Depending on the severity of the buildup, the process can take from 45 minutes to over an hour. A pump, some valves, fittings and a bucket are the typical tools required. It may seem a bit pricey (mostly due to the pump), but if you're confident in your skills and understanding of the descaling procedure, doing it yourself is the way to go: consider how one or two maintenance appointments with a plumber will already equal the cost of the kit!