The Partnership for Advancing Technology in Housing (PATH) is a HUD-funded program whose goal, in part, is improving the energy efficiency of houses. So when PATH decided to build its first concept home to showcase its mission, it picked the best building technologies available, including insulated concrete forms, metal roofing, and spray foam insulation. For hot water needs, PATH rejected a traditional heater in favor of an on-demand tankless system.

According to the Office of Energy Efficiency and Renewable Energy at the U.S. Department of Energy (DOE), water heating is the third-largest expense in most homes, after conditioning the interior and operating major appliances. Because this accounts for 14 percent to 25 percent of the home's expenses, more building professionals are exploring alternatives to traditional hot water tanks. Their focus is squarely on tankless.

Unlike a traditional tank, which heats a reservoir of water 24 hours a day, an on-demand unit activates only as needed. When a hot water faucet is turned on, for example, cold water travels through a pipe into the unit, where a gas burner or electric element then heats the water. Louisville, Ky.-based manufacturer GE Consumer & Industrial estimates that a tankless device trims water heating costs by as much as 25 percent annually, compared with a standard 40-gallon tank. “Those savings are a result of eliminating standby losses—the energy lost from warmed water sitting in a tank,” the company explains.

The benefits of tankless heaters extend beyond the pocketbook, however. They can deliver a continuous supply of water at a preset temperature, and manufacturers say a properly sized unit will supply hot water to multiple sources simultaneously. DOE reports that typical on-demand units provide hot water at a rate of 2 gallons to 5 gallons per minute, with gas-fired heaters producing higher flow rates than electric units. A traditional tank may run out of hot water, but a tankless unit, if pushed past its limit, will deliver hot water at the preset temperature (albeit at a reduced flow rate).

A tankless unit also offers a design benefit to architects hoping to maximize space in a mechanical room. Such systems are often no bigger than a small suitcase and are usually installed on an inside wall or on the outside of the house.

tanks a lot Tankless has become popular in recent years thanks, in part, to the green building movement and the push toward energy efficiency. In fact, Bob Hitchner, director of tankless sales in the Montgomery, Ala., office of Rheem Manufacturing Co., says the industry sold roughly 327,000 units in 2007—a 29 percent increase over the previous year. “A few years ago people viewed tankless as experimental, even though it's a proven technology that has been around awhile,” he says. “But we have gone beyond the experimental stage now.”

Hitchner says wider acceptance of tankless products is directly related to recent enhancements that have made the technology more palpable. Although tankless technology dates to the 1950s, “the big improvement came in the early '90s with electronic controls,” he explains. “Before, the units were mechanically driven based on the movement of the water.” Now, electronics read the temperature and flow of the water and calculate how fast and how high to heat it. The improvement, he adds, has led to a much more reliable product.

Architects seem to agree. Heidi Richardson, principal of Richardson Architects in Mill Valley, Calif., says she specs tankless water heaters “almost exclusively” because “they work really well, and they lower energy bills.” Michael Rosner Blatt, principal of Los Angeles-based Fung + Blatt Architects, is also a fan. “We've been using tankless exclusively for the last five years,” he acknowledges. “We also have one in our house.” He says today's consumers seem to be better educated about the technology, noting that “a lot of clients ask us about it up front” and that “no one [now using it] has called back to complain.”

A new generation of tankless units with added features could propel tankless to even greater acceptance. Rheem, for example, recently unveiled a 7.4-gallons-per-minute direct vent gas unit that draws makeup combustion air directly from outside rather than from inside the house, leading to better indoor air quality. Fountain Valley, Calif.-based Noritz America Corp. introduced the 531 series of compact units for apartments, condos, and townhouses. West Hatfield, Mass.-based Stiebel Eltron has upgraded its whole-house Tempra electric line with advanced microprocessor controls that eliminate water temperature deviations. And Peachtree City, Ga.-based Rinnai America Corp. has an LS Series that features a commercial-grade heat exchanger, enabling architects to specify the products for domestic hot water alone or for hot water and space heating. Other worthy offerings include products from Takagi Industrial Co. USA in Irvine, Calif.; Bosch USA in Farmington Hills, Mich.; GE; and Monitor Products in Princeton, N.J.

less is more? While a tankless heater may seem like a no-brainer, specing one requires consideration of a host of issues. Rheem, which claims to be the only manufacturer offering traditional and tankless units, recently launched as a tool for professionals interested in going tankless. “Being water heater-agnostic makes [us] a credible resource to help professionals sort out the claims and counterclaims about tank and tankless water heaters,” Hitchner said in a release announcing the site.