Water heating accounts for 20% or more of an average household’s annual energy expenditures. The yearly operating costs for conventional gas or electric storage tank water heaters average $300 or $550, respectively. Storage tank type water heaters raise and maintain the water temperature to the temperature setting on the tank (usually between 120 -140° F. Even if no hot water is drawn from the tank (and cold water enters the tank), the heater will operate periodically to maintain the water temperature. This is due to "standby losses": the heat conducted and radiated from the walls of the tank and in gas fired water heaters through the flue pipe. These standby losses represent 10% to 20% of a household’s annual water heating costs. One way to reduce this expenditure is to use a tankless or demand water heater.
Tankless water heaters are common in Japan and Europe. They began appearing in the United States about 25 years ago. Unlike "conventional" tank water heaters, tank-less water heaters heat water only as it is used, or on demand. A tank-less unit has a heating device that is activated by the flow of water when a hot water valve is opened. Once activated, the heater delivers a constant supply of hot water. The output of the heater, however, limits the rate of the heated water flow.
