With the lure of a $300 tax credit during 2006 and 2007, tankless water heaters are a hot upgrade. According to the Gas Appliance Manufacturers Association, factory shipments of tankless water heaters jumped 30.3% during the first quarter of 2006 compared with the same period last year, and unit shipments were already up by nearly half (47.8%) in 2005 versus 2004.

“In the last three years, the market has exploded because people are learning that there's really no downside to tankless, and they understand the technology better,” says Jason Blackburn, northeast regional sales manager for Takagi.

The technology is simple. Bruce Cole, specialty resource manager for Rheem, explains that tankless water heaters move water through a series of heating coils when — and only when — the hot water valve is opened. This is in contrast to tank-style units that heat dozens of gallons of water and store it for later use. With the tankless approach, energy isn't wasted on heating water when it's not needed, and hot water doesn't run out.

Tankless water heaters are only the size of a small suitcase.
Tankless water heaters are only the size of a small suitcase.
Tankless water heaters are only the size of a small suitcase. Contrary to popular belief, tankless units sized properly for the home can run multiple hot water tasks at the same time. Cole says temperature rise is key to choosing the right model. Each unit can heat a specific number of gallons per minute (gpm) to its maximum temperature (120° F to 140° F). So, in regions where ground water temperature is quite low, the unit may only heat 2 gpm to 3 gpm to that level, compared with 6 gpm to 8 gpm where the ground water is already relatively warm. As such, someone who wants to run the dishwasher and shower simultaneously must determine how many gpm of hot water is necessary and size the system accordingly.

Blackburn says the tankless unit in his home saves $52 per month on the hot water portion of his gas bill. That amount can quickly return the investment for a unit, which can range from $800 to $1,000 before installation. Moreover, although tankless units cost more than tank-style systems, they also last longer. “Some customers may balk at the price and opt for a less expensive tank unit,” Blackburn says. “But the fact is tankless units are likely to last 20 years or more. In that time, the homeowner could pay to replace a tank water heater at least once.”