Tankless Water Heaters: Will Going Green Get Your Wallet in Hot Water?

A tankless water heater may be right for you, especially if you are concerned more about energy use than the overall cost. It provides, you might say, green hot water.

The concept of the tankless heater is simple. Water is heated as it is used, not preheated and stored in a tank, constantly losing heat and needing to be reheated. Tankless heaters can be small, for use at a single station like the kitchen sink, or they can be sized to supply your entire house. They are around 20 percent more energy efficient than tank heaters, a sizeable sum when you figure that traditional hot-water tanks account for about 30 percent of your home's energy cost.

Tankless Hot-water System Considerations:

Cost. The cost can make your blood run cold. A full-house unit will be more than twice the price of a tank-type heater, and special needs for wiring, piping venting and possibly water softeners can quadruple installation cost. A tank water heater could be in the range of $600 to buy and install; a tankless one might be $2000. And they can go much higher.

Gas or electric? Gas has more heating capacity, thus will be faster. If you need to go electric, you might need to rewire because of the huge short-term amperage they require. If you go gas, you might need to increase the size of the gas piping, again because they require a high, short-term supply. Gas also will have to be vented.

Instant. Even with tankless heaters, you have a delay getting hot water. A few seconds is needed to bring the water to its target temperature, and you still have to wait for cold water to be pushed out of the pipes.

Durability. Tankless water heaters are said to last twice as long as tank heaters, around 20 years. But they are subject to scale buildup and need regular maintenance. If you have hard water, you might need to install a water softener.

Credit? An Energy Star rating could qualify you for a federal tax credit of up to $1,500 in 2010. You may also be eligible for local rebates or credits.

Payoff. While there are considerable energy savings from tankless heaters, the return on your sizeable investment may not be a large as you had hoped. Manufacturers will tell you your energy savings will make up the extra cost within a few years, but a Consumer Reports study indicated a more realistic payoff time may be longer than the 20-year life expectancy of the heater.

To accurately weigh the cost-benefit arguments of a tankless hot-water heater, you need to talk to experts in your area who can evaluate your needs and possible installation problems. If you are planning to switch to a tankless system when your current heater dies, you should plan ahead. Because of installation issues, you could be a week or two without hot water if you don't.