With water heaters being one of the top users of energy in your home, it is important to choose a high efficiency unit.

Recently, some contractors have been recommending the new “tankless” water heaters, sometimes called on-demand water heaters, as a cost-effective alternative to heating water.

So, what exactly is a tankless water heater? A tankless water heater is a small device that usually can be mounted on a wall. It produces hot water on demand, as water passes over coils. The sales pitch that you will hear is that you will save money on your electric bill, and you will gain space in your home, doing away with the need of a storage tank.

Here are the facts about a tankless water heater that you haven’t heard. According to results of a test conducted by the Tennessee Valley Authority (TVA), a tankless water heater will save a consumer about $30.00 per year on an average electric bill and a tankless water heater is only “on-demand” if it is mounted close to the faucet where it is installed. The reason is most tankless water heaters need a flow rate of 0.5 gallons per minute (gpm) to .075 gpm to power up, but some as high as 2 gpm, so they won’t heat water unless you turn the water on high. As the incoming water temperature drops, during colder weather, or as the volume of water flowing through the unit increases the temperature of the heated water will decrease. Also, TVA determined that the heavy current demand from the water heater caused blinking and dimming of the household lights that was obvious to those conducting the test.

Here is why your $30.00 annual savings will not pay off. A tankless water heater requires 120 amps. Many homes already have a 200 amp breaker box, but most likely the home already needs the full capacity of the 200-amp breaker box. So, in most cases you will need to upgrade your current electrical system to handle the additional 120 amps, which could cost up to $1500.00. That’s not the end of it, the typical home requires a 15 KVA transformer which would likely have to be upgraded to a 25 KVA transformer, just to handle the additional demand. A whole-house tankless water heater has four 7000-watt elements for a total electrical load of 28,000 watts. A conventional tank water heater that uses two 4500-watt elements only requires a 30-amp circuit breaker. A problem in this area is lime build up on water heater elements. The problem is worse with a tankless water heater element. Some manufacturers will not honor a warranty on elements unless a water filtration system is installed ahead of the unit, adding more cost to the equation. So, when you add up the additional cost against the potential savings and consider the dimming of lights, is a tankless water heater really a cost-effective alternative?

According to the Partnership for Advancing Technology in Housing (PATH), supported by Housing and Urban Development (HUD), further testing is needed to determine if tankless water heaters can match the performance of tank-type water heaters. Since tankless water heaters are so new, it will likely be difficult to find a technician to repair one if a problem occurs.

These reasons are why a conventional tank water heater is still your best choice. The secret to saving energy with a conventional tank water heater is to find one with a high energy factor rating (EF). For example, the best new electric water heaters have a (EF) rating of .95. The new higher efficient electric water heaters have nearly 4 inches of foam insulation keeping in the heat, as opposed to older fiberglass insulated tanks that have a (EF) rating was only .80. There are also inexpensive retrofit measures you can take to help the efficiency of your water heater such as a tank wrapping, a heat trap, timed and reduced temperature setback, and low flow showerheads. These inexpensive retrofit measures are well-established and proven successful methods of reducing water-heating energy consumption.

So when you are shopping for a new electric water heater, don’t fall for the sales pitch of the “tankless” or on-demand water heaters and look for a conventional tank water heater with the highest energy factor rating. The 40 and 50-gallon Marathon water heaters or one similar is fine. As long as you find a newer water heater with a .90 (EF) rating or higher, you will always enjoy hot water.