MN Energy Smart

Tankless Water Heaters Carry Long Payback, Study Finds

There’s no question that a standard tank water heater is inefficient. Gallons of water are kept continuously hot even if it’s only used a few times a day. So, is purchasing a “tankless” or “on-demand” water heater the right solution for your business or home?

You might want to do some number-crunching first.

A two-year field monitoring project by the Center for Energy of Environment, with funding from the Minnesota Office of Energy Security, found that using natural gas tankless water heaters in Minnesota homes reduced water-heating energy use by an average 37%. Despite that significant energy savings, however, it can take 20 to 40 years or more for home owners to receive a return on a tankless water heater investment.

The problem? The high upfront cost of purchase and installation.

The project’s researchers conducted interviews with local contractors who provided estimates that tankless water heaters cost anywhere from $2,000 to $5,000 to install, compared with a typical $900 to $1,300 for a standard tank water heater. Considering many homeowners only spend $150 to $250 a year on water-heating with a standard tank water heater, tankless heaters often only provide savings of $50 to $100 a year.

You can read the full project report here.

“These paybacks are too long for (tankless water heaters) to make sense from an economic standpoint with current energy costs,” the CEE report notes.

The report notes that tankless water heaters are purported to have much longer life spans than the 10 to 20 years that tank water heaters typically have. However, since tankless heaters are still a relatively new technology, there’s not enough real-world experience to support or refute that claim.

The report also notes problems that homeowners have had with tankless systems. They found that it took longer for water to get hot with the tankless system, along with some other maintenance issues. However, the majority of the homeowners interviewed for the project by CEE were very happy with their tankless water heaters. Moving to a tankless heater did not impact the amount of water used in the homes.

The CEE report concludes that tankless water heaters do indeed produce sizable energy savings, but the high cost makes them prohibitive for most people. Utility rebates, it says, could help some. “Even with these positives of tankless water heaters the low cost of natural gas and the high installed cost of (tankless water heaters) limits their feasibility.”


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