On-demand, or tankless water heaters, heat water directly without the use of a storage tank.

Tankless water heaters avoid the standby heat losses associated with storage water heaters, which saves energy and money.

When a hot water tap is turned on, cold water travels through a pipe into the unit and a gas burner or an electric element heats the water. As a result, tankless water heaters deliver a constant supply of hot water. You don't need to wait for a storage tank to fill up with enough hot water. However, a tankless water heater's output limits flow rate.

For homes that use 41 gallons or less of hot water daily, on-demand water heaters can be 24%–34% more energy efficient than conventional storage tank water heaters. They can be 8%–14% more energy efficient for homes that use a lot of hot water—around 86 gallons per day. You can achieve even greater energy savings of 27%–50% if you install an on-demand water heater at each hot water outlet.

Tankless water heaters cost more than conventional storage water heaters. However, you may find that a tankless water heater may have lower operating and energy costs, which could offset its higher purchase price.

Proper installation and maintenance of your on-demand water heater can optimize its energy efficiency. Proper installation depends on many factors including fuel type, climate, local building code requirements, and safety issues, especially concerning the combustion of gas-fired water heaters. Therefore, it's best to have a qualified contractor like GreenHomes America install your on-demand water heater.

Most tankless water heaters have a life expectancy of more than 20 years. They also have easily replaceable parts that extend their life by many more years. In contrast, storage water heaters last 10–15 years.

To review these water heating options, click any of the following technologies: Solar Water Heaters, High Efficiency Gas Storage Water Heaters, Indirect Water Heaters and Geothermal Water Heaters.