Return on Investment (ROI) on Tankless Water Heaters

There are a lot of tankless water heater manufactures claiming a wide range of savings on your next water heating bill. A quick search on the web will show you a percent reduction of up 80%.

However the question still exists: how much would you really save on your water heating bill using a tankless water heater?

Most importantly what is the payback or ROI of the average tankless water heater and how does it compare to a traditional tank hot water system? Let us try to answer these questions.

Annual costs associated with water heaters of any type are divided into 3 categories:

1. Energy costs to heat the water from its incoming temperature to the desired temperature.1
2. Standby energy costs: in the case of traditional tank heaters, standby cost is the cost of the energy to keep the water hot in the tank all day. For a tankless water heater standby cost is the cost of energy when the tankless water heater is running idle (minimal).
3. Installation costs: This is the cost to install the heater and all its piping system

So let us examine these costs for both traditional tank heaters and tankless water heaters in detail.

Average Annual Traditional Tank Heater Costs

• Annual hot water demand: 87 gallons / day  x  335 days / year = 29,145 gallons/ year2
• Power to heat up 1 gallon of water from 57 oF  to 110 oF according to the multi-housing laundry association is 0.2 kWh
• The annual power requirement of heating the water from 57 oF  to 110 oF for an American household is: 29,145 gallons/ year x 0.2 kWh/ gallon = 5,900 kWh/ year
• The cost of 5,900 kWh: 5,900 kWh/ year x  $0.11/ kWh = $649/ year3
• The cost to keep one gallon of water hot is $0.003
• So, the cost to keep 21,145 gallons of water hot (standby): 21,945 gallons/ year x $0.003/ gallon = $87

So the total annual cost of heating water using a traditional tank system is $649 + $85 or  $736.

Average annual tankless water heater costs

• Average energy to heat water to 110 oF is 6.2 kW
• Average daily usage is 1.5 hours4
• Daily power needed to heat the water to 110F is: 1.5 hours x 6.2 kW = 9.3 kWh
• Annual costs to heat water using a tankless water heater is: 9.5 kWh/ day x 335 days/ year x $0.11/kWh = $343
• Average annual idle cost for a tankless water heater: $17

So the total cost of heating water using a tankless water heater is $343 + $17 or $360.

What do these numbers mean?

1. The percent annual savings using a tankless water heater over a traditional tank system is 50% or $375
2. This amount ($375) is equal to the cost of an average mid-size tankless water heater. Please note: Installation costs were found to be comparable for both tank and tankless systems, ~$150.
3. In addition there is the potential for tax credits for any tankless water heater. (Please visit http://www.energy.gov/taxbreaks.htm for more information )
4. Given the longer life of a tankless water heater at 22 years versus a tank system 10 years there is the potential of saving over $4,000 over the long term. 

Notes:

1. The incoming water temperature from which the Department of Energy (DOE) calculations are made, has been established at 57F. In many parts of the U.S. one does not normally experience inlet temperatures this cost year round however, we used 57F as our inlet temperature. 110 oF is the average household hot water operating temperature. This translates to 53 degrees of temperature rise for both tank and tankless water heating systems
2. According to the U.S. Department of Energy (July 2006) the average American household consumes 87 gallons of hot water per day
3. Average cost of electricity for the United States at the time of writing, is $0.11 kWh, as per the DOE.
4. Based on a DOE report July 2006.

Disclaimer: The information on the system, product or material presented herein is provided for informational purposes only. Please ensure that you consult a qualified technician prior to installing a tankless water heater or any suggestions put forward by e-Smart Living.There are no warranties, either expressed or implied, regarding the accuracy or completeness of this information