On Demand Water Heater

Highlights

‘On-Demand’ and 'Flash' are different names for ‘Tankless’ heaters that can reduce your hot water heating costs by 50%, plus you get endless hot water that doesn't run out like the conventional tank system. Heating the water in your house accounts for about 11% of your annual energy costs. (The average US household cost for hot water is between $200 and $400 per year, depending on the number of residents) This cost is usually hidden in your bills, because homes rarely if ever have separate utility meters on hot water systems, so the electric or gas company rolls the usage in with your totals for each month. The savings with a Tankless system are about $100 to $200 per year or between a third and half of your cost. The only downside is that going Tankless initially costs more than the old 'Tank’ system. While Tankless residential units have been coming down in price, the installation cost is typically what surprises most homeowners.

Complete unit and installation on a gas Tankless on-demand water heater costs about $2,000 more than a conventional water heater. The Tankless unit itself costs between $800 and $1,000. The price range is based on the manufacturer and the unit size in gallons per minute to meet the demand. The demand is typically based on the number of full bathrooms, laundry capacity, and the number of residents taking showers at any one time. Installation labor costs for Tankless systems range from $800 to $2,000 with $1,400 as the average. This installation labor varies widely, because of the different location situations of the flue and the gas supply in homes. Installation is also expensive because the units sometimes need a bigger gas supply than a conventional water heater, and they need to run their own exhaust flue to the exterior. There is also a limit on how many bends you can put in the flue and the total distance it can run horizontally or vertically. Flues can be sidewall vented to the exterior rather than running all of the way up to the roof, provided that you have the setbacks from window door openings, and furnace intakes that might be required in your county. Definitely get a free estimate on the installation before buying a Tankless unit.

The combined cost for the unit hardware and labor can run from $1,600 all of the way up to $3,000 depending on the home, with the average at about $2,400. By comparison, a traditional ‘tank’ system is less than half of the cost at $550 for the unit and $450 for installation. So, consider the $1,000 as a ‘sunk cost’ that you can deduct against the cost to go Tankless, because you would have had to spend it anyway at the time of replacement.

Naturally, the other advantages of Tankless include the longer life expectancy of the system and the annual savings of $120 per year on average. Some manufacturers claim a full 50% savings on water heating, and with water heating costs for families of four or five running over $400 a year, the savings could increase dramatically.

Given the 30% tax credit on the cost of the Tankless hardware unit and the installation, the credit back on $2,400 is $720, bringing your out of pocket cost down to $1,680. Remember – to factor in the sunk cost of $700 ($1,000 on a traditional tank installation with the same 30% tax credit factor) and your added cost to go green and save is closer to $980. Also factor in that the Tankless systems can last 15 or longer vs. 10 years for a traditional tank system. So, there is added savings in that you would not need to re-purchase another tank after a decade. If you were to factor in half of the additional tank unit and installation cost for 5 years there would be an additional ‘tank re-purchase’ offset of about $500. This brings the out of pocket cost to $480.

On the low side, the whole cost of the unit and installation for a $1,600 Tankless system would have a tax credit of $480, bringing the net to $1,280. After subtracting the $700 ‘sunk cost’ of the traditional tank, the added cost drops to $580. Then subtract out the ‘tank re-purchase’ offset cost for five years, at $500, and it brings the out of pocket down to $80. For the purposes of this Return On Investment calculation, we have followed our conservative approach to select the high side of added cost and used $450. With an estimated minimum of $120 in annual savings, the payback comes in under 4 years.

More Detail: The increase for Tankless installation is due to the fact that they typically need to be vented to the outside with stainless steel pipe, because the exhaust air gets so hot as a byproduct of flash heating the water. Since many utility rooms have exhaust for laundry heaters, there is typically an outside wall or window well or some relatively easy means to exhaust to the outside, but this installation component is a major variable in the payback for any specific home. As a repeat reminder - Definitely get a free estimate on the installation before buying a Tankless unit.

Once a Tankless hot water system is installed, you start savings money every day, and the other advantage is that that Tankless units take up a fraction of the space since they are about the size of a piece of carry on luggage and mount directly on the wall. PLUS, since Tankless water heaters do not actually store water, they are not as susceptible to corrosion and last 15 or more years rather than just about ten years like the old style 'Tank' Systems.

In the big picture of green home remodeling, the old concept of keeping a tank heated up to 140 degrees all day everyday is rather inefficient given home use is often concentrated in morning and evenings, rather than the middle of the day. Basically, we may like to eat pasta, but it doesn't mean we should leave a pot of hot water boiling on the stove all day. You may not have seen a Tankless water heater in the home of a friend or neighbor, but the demand is on the rise given the savings, longer lifespan, and convenience of never running out of hot water. As well, the Europeans and Asians have used these systems for years, and improved the technology along the way. The ROI Calculation is based on a system that produces 7 gallons of hot water a minute - enough for two showers and an appliance such as a dishwasher or clothes washer to run simultaneously. If you are already considering replacing your hot water tank as part of your home remodeling and maintenance, then you'll save even more because you can put the money towards the Tankless ‘On Demand’ system.

Tax Credits

The American Recovery and Reinvestment Act (ARRA) provides you with a 30% Tax Credit for Tankless Water Heaters that are put into service by the end of 2010. This tax credit item is only for existing homes, not new construction, that is your primary residence and it includes the cost of materials and installation.

3 KEY POINTS -

1. The tax credit cap is $1,500 on collective home improvement elements other than Geo-Thermal 'Ground Source' Heat Pumps, Solar Hot Water Heating, Solar Photovoltaic, and Fuel Cell systems - which each have no cap and are eligible through 2016.
2. The tax credits for exterior 'weatherization' improvements like windows, doors and insulation do not include the cost of installation!
3. If you reach the $1,500 cap in 2009, you are not eligible for additional tax credits in 2010.

Choose a Tankless Water Heater that meets these criteria to get the Tax Credit; and check products carefully, because in many cases an ENERGY STAR certification does not necessarily meet the tax credit requirements below:
• In this case, All ENERGY STAR Tankless Water Heaters will be eligible for the tax credit.

On Demand ‘Tankless’ or ‘Flash’ heaters use about half the energy and are less than half the size of a conventional tank. The upper photo illustrates that the box only comes up to half of the height of the tank behind it, and the unit gets conveniently mounted on the wall. The ‘Flash’ heating element often requires a stainless steel exhaust pipe, so make sure that you or your installer thoroughly reviews the specifications.

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If you are considering radiant heat, or if you already have it, you may want to look into an On Demand ‘Tankless’ system to save money on heating the water. The manufacturers typically provide good details on the installation.