Is a tankless hot water heater worth it for you?

The cost of a new on-demand hot water system will vary based on a variety of factors, including the fuel type, system size, and any additional wiring/piping upgrades you might need. While the upfront cost may look large in comparison to traditional tanked water heating options, the long-term savings associated with installing tankless hot water can often more than justify an installation.

The total cost of installation for a tankless hot water system depends on a number of factors, from the type of fuel you use to the size and quality of your equipment.

Fuel type

There are two options when it comes to fueling a tankless hot water system: gas or electricity. Typically, gas-powered units cost two to three times as much as electric units, but that difference varies based on many other factors.

One factor to keep in mind is the price of fuel. Technically, you will pay slightly more to power your tankless hot water heater with electricity compared to natural gas, but it's likely that regardless of the fuel type you go with, you'll pay a similar amount for fuel throughout the lifetime of the system, as the differences in fuel costs are small. However, with an electric unit, you can pair it with a solar panel system to heat your water with free electricity from the sun, further increasing your long-term water heating savings. One added wrinkle: the price of natural gas is expected to increase faster than the price of electricity, meaning that electric units will only become more economically advantageous over time.

System size

Another important factor that helps determine the cost of a tankless water heater is the system size, which refers to the volume of hot water the unit produces. The best way to compare system sizes between on-demand water heaters is by looking at their gallon-per-minute rating, or GPM. In general, the higher the GPM, the higher your equipment costs will be. The gallons per minute you require depends on how many appliances you need to run at a given time. For example, if you have one bathroom in your house, it is recommended that your tankless water heater produces 6-7 GPM. For two bathrooms, 8-9 GPM, and for 3 or more bathrooms, 9-11 GPM. 

GPM is a measure of the amount of heated water that a tankless hot water setup is capable of producing, measured in gallons. Manufacturers provide tankless water heaters with a GPM rating that you can usually find on the packaging, but that is a best-case scenario number that shouldn't be taken without context. Specifically, your local climate patterns and the desired temperature of heated water have large impacts on the actual GPM. Learn more about how to determine which tankless water heater is right for you based on the true GPM you'll see in our equipment comparison piece.

Installation complexity and additional upgrades

Tankless water heater installation costs can range from $800-$3,500 on average. Additional installation costs can increase your upfront price. For example, if you need an electrician to rewire your home systems to support an energy-hungry electric unit, you may have to pay up to $100 per hour. If you need to hire a home contractor to upgrade your gas lines (which can cost as much as $750), your upfront price will include more than just the price of water heater equipment and basic installation. Be sure to consult with a professional installer before moving forward with a new tankless water heater solution to understand the full price you'll pay, and if you'll need to account for additional services.

Unfortunately, the federal tax credit for residential energy efficiency measures (which included gas-powered tankless water heaters) expired in 2016. However, certain states and utilities offer their own rebate and incentive programs for on-demand hot water upgrades.

For example, the Mass Save program in Massachusetts offers a rebate of up to $700 for the installation of an ENERGY STAR-certified tankless gas water heater of a certain efficiency requirement. For a complete list of rebates and incentives available in your area for various energy efficiency upgrades, browse DSIRE’s database of programs.

According to the Department of Energy, on-demand water heaters can be anywhere from 8 percent to 50 percent more efficient than traditional storage tank water heaters, depending mainly on your water use patterns and system type (point-of-use vs. whole-house). This is because, unlike tank storage systems, not much water is ever heated and left unused. The most efficient way to use on-demand hot water is with separate point-of-use systems at every hot water faucet in your home, but that type of setup can be very expensive upfront.

Regardless of exactly how efficient your specific system is, you can always save money on water heating with a tankless system. According to the Department of Energy, tankless water heaters typically save homeowners around $100 per year on energy costs when compared to storage tank water heaters. Check out our article on the pros and cons of tankless water heaters to learn more about how tankless water heaters can affect more than just your finances.

Calculating your payback period with tankless hot water

In addition to the financial benefits of installing an on-demand water heater, there are positive environmental impacts of upgrading your property's hot water system to consider.

Tankless water heaters are more efficient than traditional tanked systems, meaning that you'll use less fuel to heat your water. This translates to less power generated at power plants from fossil fuels like coal, natural gas, and oil, which helps lower the amount of greenhouse gas emissions and other pollutants entering the atmosphere.

You can decrease your carbon footprint even further by switching all of your energy use, including your tankless hot water system, from fossil fuel-generated to solar electricity. Installing solar panels on your roof makes it possible to power your electric water heater (and the rest of your home) with free, zero-emissions electricity. 

And as solar costs fall across the country, the average homeowner in the U.S. breaks even on their solar investment by year eight. Pairing your home water heating system with locally generated solar electricity is a cost-effective way to heat your home water supply while reducing your reliance on fossil fuels.