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Costs and benefits of tankless hot water

Last updated 11/8/2019

costs and benefits of on demand hot water

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.

How much does a tankless water heater cost?

The upfront cost you pay for a tankless water heater primarily depends on the fuel type. As a rough guide, gas-powered hot water systems typically cost two to three times as much as electric options. For an electric whole-house tankless water heater, you can expect to pay up to $1,000 for the equipment and installation. For a gas-powered whole-house tankless water heater, you can expect to pay up to $3,000 for the equipment and installation. As far as the equipment costs are concerned, electric units typically cost about $600, and gas units usually cost around $1,100.

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Factors that determine your tankless water heater cost

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.

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

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, or if you need to hire a home contractor to upgrade your gas lines, 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.

Point-of-use vs. whole-house

Another way to think about sizes of tankless water heaters is whether the equipment is a “point-of-use” model or a “whole-house” model. Point-of-use means that the unit is installed near to where it provides hot water, like at a shower or under a sink, while whole-house systems provide hot water to your entire property. Point-of-use systems are more often powered by electricity. For some large properties with high hot water usage, point-of-use setups can better protect against hot water shortages.

Tankless water heater rebates and incentives

home energy rebate

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.

Financial benefits of tankless water heaters

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.

Calculating your payback period with tankless hot water

payback period

How long does it take for a tankless hot water system to pay for itself? While you’ll start saving money on fuel costs immediately after install, the relatively higher upfront cost of tankless water heaters compared to storage tank systems means that it will take a number of years to “break even” on your investment. According to a study by Consumer Reports, the payback period for tankless water heaters can range from 12 years to 27.5 years, with electric models on the lower end of the spectrum and gas models on the upper end. The actual payback period you’ll see will depend on several factors, including your climate and water use patterns.

Environmental impact of tankless water heaters

environmental impacts

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.

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