Are Tankless Water Heaters a Waste of Money?
The energy savings you’ll get from a tankless water heater are usually too low to justify the high purchase price
Although tankless water heaters are, on average, more efficient than traditional tank-style water heaters, they’re also more expensive — so expensive, in fact, that many potential customers wonder whether their high cost can ever be justified by likely energy savings.
Before you can decide whether to buy a tankless water heater, you’ll need to know how much energy you’ll save. Can you trust the information provided by tankless water heater manufacturers — for example, the estimate from Rinnai’s online calculator that you’ll save $178 per year?
Before I get around to answering that question in detail, suffice it to say: probably not.
Real-world answers from a monitoring study
To figure out the payback period for the incremental cost of a tankless water heater, it would be useful to know:
- The installed cost of a tankless water heater;
- The number of gallons of hot water used per day by the average American family;
- The in-use efficiency of a typical tank-type water heater and the in-use efficiency of a typical tankless water heater;
- The annual natural gas savings and the annual dollar savings attributable to switching from a tank-type to a tankless water heater.
To find the answers to all of these questions, a group of researchers in Minnesota undertook a monitoring study to measure the performance of tank-type and tankless water heaters in actual homes. The researchers concluded that most tankless water heaters will fall apart from old age before they save enough energy to justify their high cost.
The researchers — Dave Bohac, Ben Schoenbauer, and Martha Hewett of the Center for Energy and Environment in Minneapolis, along with Tom Butcher of Brookhaven National Laboratory and Mary Sue Lobenstein of Lobenstein Consulting — monitored water heaters in ten homes for over a year. Their data have been published in a report, “Actual Savings and Performance of Natural Gas Tankless Water Heaters”.
The ten families enrolled in the study were chosen based on household size. The number of people in these families matched the household size distribution shown in the census data for the Minnesota in 2000: two homes had 1 resident each, three homes had 2 residents, two homes had 3 residents, two homes had 4 residents, and one home had 5 residents.
A total of twenty-four water heaters were installed in the ten homes; each home got at least two water heaters. Eight homes got a tank-type water heater (an A.O. Smith GCV40 40-gallon natural gas water heater with atmospheric venting). In addition, each home got at least one natural gas tankless water heater. Ten tankless water heaters were tested; a variety of models were chosen from among those sold by five manufacturers (Bosch, Noritz, Rheem, Rinnai, and Takagi). The researchers did not test any electric tankless models.
Monitoring equipment for each test set-up included a dedicated gas meter, a dedicated water meter, and temperature sensors that measured the temperature of the incoming water as well as the temperature of the hot water. (The incoming water temperatures varied seasonally by about 30°F to 35°F.)
At each house, researchers adjusted gas and water valves to alternate between the tank-type water heater and the tankless water heater at monthly intervals. Only one water heater was used at a time. The changeover schedule was adjusted at each site so that every tested heater operated over the full seasonal spectrum of incoming water temperatures and outdoor air temperatures. An average of 363 days of useful data were collected from each home.
Installation costs are high
The study found that tankless water heaters cost more to install, and save less energy, than many energy experts claim. “From interviews with eight local contractors, installed costs for whole-house gas tankless water heaters as a retrofit were estimated from $2,000 to $5,000, with typical price range of $2,500 to $3,400. These costs are considerably higher than estimated by others. … For comparison, these same contractors estimated the installed cost of a conventional standard water heater to range from $900 to $1,300, with an average cost of about $1,100.”
Installing a tankless water heater in an existing home is significantly more complicated that swapping an existing tank-type heater for a new tank-type heater. In most cases, the tankless water heater will require a different method of venting — usually double-walled vent pipe through a side wall — as well as a larger gas line, reconfigured water piping, and in some cases the installation of a new 120-volt electrical receptacle.
EF ratings are less than measured efficiency
Among the data gathered by the researchers for each water heater were the following:
- The temperature of the incoming cold water;
- The temperature of the hot water leaving the heater;
- The number of gallons water flowing through the water heater;
- The amount of natural gas burned by the water heater.
Using these data, it was a simple matter to calculate the actual efficiency of each water heater. The researchers’ efficiency calculations included standby losses but not distribution system losses. The researchers reported, “Across all sites and water heaters, the measured annual efficiency averaged 16% less than the DOEUnited States Department of Energy. EF” — that is, 16% less than the Energy Factor calculated in a laboratory according to a standard established by the U.S. Department of Energy.
The tank-type water heater used in the study (A.O. Smith GCV-40) has an EF rating of 0.60, but its monitored efficiency was only 49% (11 percentage points lower than the EF).
The non-condensing tankless water heaters had EF ratings that ranged from 0.82 to 0.83, but the monitored efficiency of these units ranged from 69% to 78% (about 9 percentage points lower than the EF ratings).
The condensing tankless water heaters had EF ratings that ranged from 0.89 to 0.95, but the monitored efficiency of these units ranged from 62% to 89% (about 17 percentage points lower than the EF ratings).
In their report, the researchers noted two major factors responsible for these low efficiencies. The first factor is that the hot-water draw schedule used in the EF laboratory testing procedure is unrealistic. The test procedure requires six draws of over 10 gallons each at one hour intervals followed by a 19-hour period of inactivity. In the real world, however, only 3% of actual hot-water draws are greater than 10 gallons. In a real home, there are a great many low-volume draws rather than a few high-volume draws.
The second factor is that the EF laboratory testing procedure requires a daily draw of 64.3 gallons, which is higher than the amount of hot water used by average families. In this study, the average daily hot water use per house was 41 gallons.
Tankless water heaters use a significant amount of electricity
Unlike old-fashioned atmospherically vented tank-type gas water heaters, tankless water heaters use a fair amount of electricity. The measured standby electricity use averaged 5 watts; during operation, these tankless gas water heaters consumed between 50 and 80 watts of electricity. If there is any need for the units’ freeze-protection heater to turn on, electricity consumption rises to between 120 watts and 182 watts.
According to the researchers report, “Electricity consumption … accounts for about 5% to 18% of operating costs for tankless water heaters.”
Calculating simple payback
The researchers calculated the simple payback period for the incremental costs of these tankless water heaters. To make the calculation, they assumed that the incremental cost of installing a non-condensing tankless water heater ranged from $1,500 to $2,500. Using these figures, the simple payback period for non-condensing tankless water heaters ranged from 21 to 35 years.
The researchers assumed that the incremental cost of installing a condensing water heater ranged from $2,500 to $3,500. The payback period for condensing tankless heaters (not including the Navien CR-240A, an outlier with dismal performance) ranged from 27 to 38 years.
The Navien CR-240A was in a category by itself. Equipped with a very poorly insulated 0.5-gallon buffer tank, this water heater proved to be an energy hog. The Navien CR-240A (a condensing unit) had energy savings of only $49 per year; assuming that it had an incremental cost of $2,500 to $3,500, the payback period for this unit ranged from 51 to 71 years.
In general, the condensing tankless units weren’t worth the upcharge in cost compared to the non-condensing tankless units. The researchers noted, “On average, switching from a non-condensing tankless water heater to a condensing tankless water heater only increased savings by 3%, which is small compared to the 9% average difference in Energy Factor ratings.”
Should I buy one?
Tankless water heaters have at least two drawbacks: they are expensive and mechanically complicated. They also have at least two virtues: they are compact and can provide “endless” quantities of hot water. For some applications, these benefits are desirable enough to tip the balance in their favor.
As long as you realize that you'll never save enough energy to justify the high purchase price, you may want to buy a tankless water heater for its performance specifications and compact size.
Last week’s blog: “Energy Modeling Isn’t Very Accurate.”
- John Eisenschenk
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