How Do Tankless Water Heaters Work?

Last Updated

How do tankless water heaters work? Tankless water heaters (on-demand water heaters) provide a constant supply of hot water without using a storage tank. They achieve this by heating the water as it passes through a pipe in the system. The water gets heated up by either an electric element or gas burner.

We have been dealing with water heating systems for quite some time now. In that time, we’ve researched and tested various systems, including tankless heaters.

History of Tankless Water Heaters

The concept for an on-demand water heater originated in Asia and Europe. In the early 1990s, energy prices in North America increased significantly.

This led to the innovation of a new energy-saving improvement of the traditional water heater. The rising awareness of ‘green technology’ at the time also played a part in its invention.

The new tankless water heating technology then migrated to the US and Canada. The earliest models were mostly designed for low-flow point-of-use applications only. 

Although they were not very sophisticated, they provided on-demand water heating. They also allowed people to reduce their water heating costs.

The current models are stylish and can cater to the water heating needs of an entire household. Larger models can also be used for industrial purposes.

How is it Different from a Traditional Water Heater?

The main difference between traditional water heaters and tankless water heaters is the absence of a water tank.

Traditional heaters work by heating the water in their reservoir. They can hold 30 to 50 gallons of water. They keep the water hot at all times, and it can be used for multiple applications around the house simultaneously. 

Once the water is depleted, the tank fills up again, and the heating element heats it, ready for use again. 

On the other hand, tankless water heaters don’t have a tank. The water is, therefore, heated up as it passes through the tank. This makes them more energy-efficient since hot water is provided on-demand.

On the downside, tankless water heaters cannot supply hot water in different areas simultaneously. So, this brings us to the question, how does a tankless water heater work?

How does a Tankless Water Heater Work?

How do tankless water heaters work

As we said earlier, tankless water heaters work by heating water as it passes through the system. Tankless heaters are categorized according to the fuel they use, the most common being gas and electric powered heaters.

The availability of gas and electricity in most homesteads makes it an On demand water heater.

Electric Tankless Water Heaters

When you turn on the faucet, flow sensors in the pipe detect the flow and activate the heater. Water then flows over electrically heated metal coils, which warm it up.

The water is then supplied to the outlet requiring hot water. When you turn off the faucet, the motion sensors detect the stop inflow of water and turn off the heater.

Gas Tankless Water Heaters

The principle behind the working of gas water heaters is similar to that of electric heaters. The only difference between the two is that the water passes over a heat exchanger instead of heated metal coils in gas heaters. 

A heat exchanger is a series of tubes that pass over a gas burner. Water gets heated up as it passes through the tubes.

Tankless Water Heaters Flow Rate.

The flow rate of a tankless heater is a measure of the number of gallons of water that the system can heat per minute as it flows to its point of use. It is measured in Gallons per Minute. Its size determines the GPM of a tankless heater. 

Before you go out shopping for a tankless heater, you should determine the ideal size for your house.

How to Size a Tankless Water Heater

How do tankless water heaters work

The size of traditional water heaters is calculated by family size. But, with an On demand water heater, we take a different approach. Since tankless heaters don’t have a reservoir, their size is calculated according to the desired water output.

Step 1: Calculate the Maximum GPM you’ll need

You can calculate the maximum GPM required in your house by adding up each tap and faucet flow rate in your home. You can find each fixture’s actual flow rates in your house by checking the owner’s manual. You can also search for the reference number online. 

If you don’t have the owner’s manual and can’t locate the reference number, you can use a generic GPM number for your fixture. Generic GPM numbers are available on the internet and can be located with a simple Google search.

GPM needed = sum of all hot water appliance’s GPM

Step 2: Determine the level of temperature rise you need

Now, consider how much you want the water warmed. Temperature rise is simply the degree to which you want underground water to reach your desired temperature. 

You can find the average temperature of underground water in your region using a ground temperature map. There are a wide variety of ground temperature maps available. Some maps list temperature ranges over large areas, while others are more specific. 

Once you find the average groundwater temperature in your region, subtract it from your desired hot water temperature. I.e.

Temperature rise = desired hot water temperature – incoming groundwater temperature.

Step 3: Determine your Power Source

The most commonly available tankless water heaters run on either gas or electricity. There is no easy answer to which one is best, so it all comes down to your circumstances and preference.

Electric tankless water heaters are suitable for small homes with minimal water demands. They are also perfect for use in areas with slightly warmer underground water (or incoming water). 

On the other hand, tankless gas water heaters are better suited for large homes with a lot of water demand. They also come in handy in areas where the incoming water is frigid.

Factors to Consider when Determining Power Source


Is your home already connected to a natural gas or electricity line? Does the connection suffer regular downtime? You should pick a tankless heater powered by the most reliable power source.


Electricity and gas prices vary from place to place. You should pick the most affordable option based on where you’re located.


If you don’t need much hot water, then an electric-power tankless heater is good for you. But, if you require large volumes of hot water in a short time, then you should go for a gas-powered heater.

Advantages of going Tankless

How do tankless water heaters work

1. Instant Hot Water

After the short stream of cold water comes out after you open the faucet, you get a steady stream of hot water almost instantly. 

2. Longer Lifespan

Tankless heaters have a considerably longer lifespan than standard water heaters. A high-quality standard water heater has a lifespan of about ten years. 

On the other hand, tankless water heaters can last more than two decades. Installing a high-quality tankless heater can save you from needing a replacement every few years. 

3. Lower Monthly Heating Costs

Although installing a tankless heater can be quite expensive, it’s very efficient. Tankless heaters provide up to 22% more energy efficiency than standard heaters. Therefore, you stand to save hundreds of dollars on electricity and gas bills. This is especially helpful if your home has a lot of hot water requirements. 

4. You get to save on space

Tankless heaters are much smaller than traditional storage models. They are typically mounted on a wall in the basement. If you have a small home, tankless heaters might be the best way to go.

5. You get Special Financing and Tax Breaks

Since tankless heaters are very energy efficient, they qualify for federal tax credits. The tax credits help offset the steep installation costs. 

Since December 2016, the federal government has been offering a 10% tax credit on the overall cost of buying and installing a tankless heater. Energy star-certified traditional heaters also qualify for the tax credit.

6. They Eliminate ‘Standby Loss’

This is probably their most significant selling point. Traditional heaters re-heat water repeatedly to keep it hot. This raises energy costs every time they do it. Standby costs can increase your energy bills tremendously. 

Tankless heaters, on the other hand, only heat water when an outlet is open. This saves on heating costs.

7. You’ll never run out of Hot Water

If you live in a home with heavy water usage, you’ll eventually run out of water. For example, if you have three or four people taking a shower simultaneously, the storage tank will eventually run out of water.

On the other hand, Tankless heaters give everyone an equal opportunity to use hot water for as long as they want.

8. They are Available as both Gas and Electric-Powered Models

Depending on your home’s infrastructure, you can opt for either an electric or gas-powered tankless heater model. This eliminates the need for costly house alterations since you can choose whichever heater suits you best.

9. They offer Longer Warranties

Tankless heaters generally have more extended warranties due to their long lifespans. Therefore, if it gets damaged, you don’t have to foot the bill for a replacement or pay for repairs.

Some warranties run up to 20 years, which is the lifespan of a tankless heater.

10. They are Ideal for Small Homes with Minimal Hot Water Requirements

If you have a small home, then a tankless heater is the best option for your hot water needs. These heaters provide hot water at all times while eliminating standby loss.

Disadvantages of going Tankless

How do tankless water heaters work

1. Inconsistent Temperatures

One of the most significant drawbacks of tankless heaters is their inconsistent water temperature. This issue arises from their inability to send hot water to multiple outlets simultaneously.

Also, sometimes the heater does not turn on when a faucet is silently open. For example, when rinsing a toothbrush or shaving.

2. Higher Initial Cost

Their longer lifespans, along with their superior efficiency, make them quite expensive to install. The average cost of installing a traditional heater is about $500 while installing a tankless heater starts at about $1000.

They also attract a higher labor cost during installation. In some cases, you might also have to install a new gas line.

3. Limited Hot Water Supply 

Tankless heaters can provide a steady supply of hot water for one or two people. However, they are not equipped to handle the heating requirements of multiple outlets.

On the other hand, traditional heaters store hot water, making them better equipped to serve multiple users.

4. You might require Additional Equipment

For starters, you’ll need a water softener to maintain the efficiency of the heater. Water softeners prevent the heating coils from being coated by a layer of minerals built up over time.

Water softeners are usually bulky, and in most cases, they take up more space than the heater itself. You also have to install flow sensors on your water outlets.

5. Additional Maintenance is required 

You’ll have to flush the system to prevent mineral buildup at least annually. You might also have to install a water softener. These costs are pretty huge and might even outweigh the energy savings benefits provided by the tankless heater.

How to install a Tankless Heater

Although they work the same, electric and tankless gas heaters have different installation requirements. To give you the full picture, we’ll break this section into two, so you have a clear idea of what you’ll need regardless of your choice.

How do tankless water heaters work

Electric Tankless Heater Installation

Electrical Service Requirements

Not every home can be fitted with a whole house tankless heater. This is because the amp draw of the heating system is too high. Therefore, you might need to upgrade your electrical service panel. You can do this by using bigger wires and installing circuit breakers with larger capacities.

Most tankless heating systems require at least 240V of power, but some smaller models can run on 120V. You can check the size of your home’s electrical service on the label in your electrical panel.

Water Pressure Requirements

Most electric tankless heaters work at a pressure range between 30 and 150 psi. If your water pressure is above 150 psi, you’ll need to install a reducing valve to reduce the water pressure.


  • Turn off all involved circuit breakers.
  • Shut the main water supply.
  • Remove all screws securing the front cover of the unit and take off the cover.
  • Mount the tankless heater on a wall with the screws and anchors provided with the package.
  • Establish the cold and hot water connections. The cold water connection is usually on the right side, while the hot water connection is usually on the left side. You should use a ¾ stainless steel flex pipe in combination with flex tape. Alternatively, you can use copper or PEX tubing (one rated for higher temperature applications)
  • When soldering, remember to flush the pipes before connecting them to the unit. The excess heat might damage the heater.
  • Open several outlets simultaneously to purge any air in the piping and heck for any leaks.
  • Make the electrical connections, with the electric panel on one side and the electric heater on the other. You should refer to the wiring diagram in the manual to ensure that all connections are safe.
  • Double-check all connections
  • Reattach the unit’s front cover.
  • Turn the circuit breakers on.
  • Your heater should now be turned on. You can now configure it to your preference. Open a water outlet and wait for the temperature to stabilize. If the temperature is not right, you can go back to the unit and reconfigure it to match your ideal water temperature.

Gas Tankless Heater Installation

Gas Requirements

Before installing the tankless heater, you should check with your gas company for the proper sizing of your gas main. This is because tankless heaters require more gas than immense residential furnaces.


  • Measure and cut your copper pipe.
  • Burr and polish the copper pipe, then apply flux and fitting.
  • Dry fit the pipes to ensure a tight fit.
  • Drill holes for the expansion anchors and pipe in place.
  • Heat the ends of the pipes and solder them together.
  • Install your gas piping with a dirt leg and shut-off valve at the water heater.
  • Install the vent piping. When doing this, ensure that the outlet is far away from any doors, windows, and ventilation air intake hoods.
  • Run water through the heater before powering it up.


Tankless heaters provide an efficient and eco-friendly heating solution to homes and industries around the world. You stand to gain a lot from using a tankless heating system than a traditional heating system.

For all your tankless water heater needs, contact us. If you have any questions or remarks, don’t hesitate, kindly reach out, we will assist to satisfaction.

The H2Home Lab team is dedicated to helping you find the best solutions to your specific water needs, as well as provide troubleshooting tips and guides for water filtration, heating, softening and plumbing. We hope you will find the info you need on our site from any one of our buying guides or subject matter articles.

Leave a Comment