Tankless water heaters have no hot water storage (hence tankless), but can quickly raise water temperature by as much as 50 degrees F (~30 degrees C). They can do this with a flow rate ranging from 4 gallons per minute (GPM) to as much as 9 GPM. Tankless heaters are also much smaller than conventional water tank heaters, which can be a consideration for smaller homes where space is at a premium.

Depending on usage patterns, a tankless water heater can provide hot water much more efficiently than a regular tank heater. One manufacturer's information lists an annual operating cost (based on 2004 prices) of $166 for their tankless heater versus $210 for a conventional natural gas water heater, and propane and electric conventional heaters are even more expensive to operate.

Tankless water heaters can allow "endless showers." Since the water is being heated as it is needeed, there is no concern about running out of hot water, while a conventional tank heater has a capacity, after which the hot water runs out and water that has entered the heater tank needs to be heated

Tankless heaters may not be for everyone, however.

Supply water temperature can be a factor. Regions with cold winter ground temperatures may have incoming water that is 40-50 degrees F, which may not be able to be adequately heated for hot water needs. More temperate locations will likely be better for tankless water heater installations.

Tankless water heaters also have a much larger fuel supply requirement. In order to provide such a drastic temperature change, simple physics dictates that they need to use a lot of energy very quickly. Over the course of its life, the tankless heater doesn't use as much fuel as a conventional water heater, but when it uses fuel, it uses a lot of it very quickly. This can make retrofitting a tankless heater into an existing home difficult, because the gas line to the existing water heater may not be large enough to supply the needed gas for a tankless heater.

Are they right for you? As I'm increasingly fond of saying, it depends. A home for a larger family where multiple water uses (more than one shower at a time, washing clothes or dishes while showering, etc.) may put more demand on the system than it is able to supply hot water for. But a home for a single individual or a couple who are careful about not crossing their water use, they may be a way to have significant energy savings.