How Does a Tankless Water Heater Work? | What Is a Tankless Water Heater?

How Do Tankless Water Heaters Work?

what is a tankless water heater installation

For many homeowners, tankless water heaters, also referred to as on-demand water heaters, are a great option. When planning for a new purchase, you should have a full understanding of how they work and how they might save you money on utility bills, so let's get to it: how does a tankless water heater work? It's a reasonably uncomplicated process, but the results are powerful! Before we get into how they work, let's answer an important question:

What Is a Tankless Water Heater?

Traditionally, homeowners have installed tank water heaters, where stored water is heated. The water remains in the tank until occupants of the home need it. A tankless water heater is a solution that does not utilize a tank or stored water. It heats water only when needed, on-demand.

Despite the variations in fuel type, all tankless water heaters work in roughly the same manner. Keep in mind that most on-demand water heaters have about a 35-degree rise, meaning if you want 85-degree water, the source needs to be at least 50 degrees before passing through the water heater unit. If you are pulling water from a well in December and you live in the mountains, a tankless unit may not be able to deliver comfortable showering water. The technology is improving, and this is becoming less and less a concern.

How On-Demand Water Heaters Work in 3 Steps

Plainly stated:

  1. Coldwater goes in.
  2. The water is heated by coils (which are fueled by natural gas, propane, or electricity).
  3. Hot water comes out.
Infographic showing How Do Tankless Water Heaters Work

These units use high-powered burners to heat your water on demand. The water quickly runs through the heat exchanger and comes out of your shower or faucet piping hot. The benefit is in the fact that you won't be wasting energy on the standby heat loss that you experience with traditional water heaters. Regardless of what kind of fuel-type you install, you will want to calculate your flow rate to determine the specifications you require. So if you plan to run your dishwasher and shower all off the same heater, simultaneously, add their two flow rates together to get an idea.

Types of Tankless Water Heaters

  • Natural Gas - probably the most common fuel type.
  • Propane - keep in mind a lot of units can be modified with conversion kits. You can convert from natural gas to propane.
  • Electric - initially not very cost-effective for most homeowners, but times are changing.


According to Consumer Reports, the average home will save between about $70-80 (annually) by installing a gas on-demand water heater. Keep in mind that if this is the ideal setup for you, you're probably going to save a lot more than that. This will vary, depending on your habits, so keep that in mind as you make a purchasing decision. You could be the beneficiary of much more savings, or you might not benefit that much at all. For example, the demands of larger families tend to put a strain on tankless water heaters. In these cases where you have multiple loads of laundry, dishes, and frequent bathing, a traditional water heater may be more efficient.

tankless water heaters creating a hot shower on demand

Tankless Water Heater Venting

Whenever dealing with gas and fire within a home, you need a solution for venting. This is one of the significant advantages of installing a tankless unit, compared to a traditional tank. Traditional units must be vented through the roof, whereas on-demand water heaters give you the flexibility to vent through the wall, as well as the roof.

There are two basic types: direct vent and power vent. Direct pulls from the outside air, which allows you to put a tankless unit in tighter spaces. Power venting requires a larger area to allow enough air for combustion.

There is such thing as a condensing tankless water heater, which is much more efficient than their counterparts. The exhaust is cold enough that you can vent them with PVC pipe, as opposed to metal pipes that are more costly to install.


One strong consideration you need to make is how much electricity a tankless unit will require. This problem becomes bigger when you have cold groundwater. Your home may require multiple units or a high capacity unit. Check out our tankless vs. tank water heater comparison for more information.

Choose from Trusted Brands

If you want a tankless water heater that's built to last, go with a trusted name. At PlumbersStock, we carry reputable manufacturers, like Bradford White, Noritz, and Takagi. If you have any remaining questions about how on-demand water heaters work, or anything related to water heaters, please contact us.

Related Resources:
Installing a Tankless Water Heater
Tankless vs. Tank Water Heaters

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