Does a tankless water heater pay over a tank water heater?

Two studies, two answers

Tankless payback can be very long. DOE's Energy Saver text, as copied in 2012 (second-hand; the live page did not load on 2026-10-18), says tankless units can be 24 to 34 percent more efficient at 41 gallons a day or less and 8 to 14 percent at about 86. A Minnesota field study (CEE, 2008 to 2010; natural-draft (fanless) tanks and the older Energy Factor rating, not New York or the current UEF rating) measured 37 percent less water heating energy and still found paybacks of 20 to 40 years for retrofits. The numbers on this page come from your inputs.

What the numbers cannot show

This page counts money, not comfort. None of the following is priced.

• Hot water took 20 to 30 seconds to arrive from a tankless unit in the Minnesota study, against a few seconds from a tank.
• A tankless unit needs a minimum flow to fire (0.4 to 0.6 gallons a minute there), so a barely open tap may not run it, and one unit may not cover a shower and a dishwasher at once (DOE, 2012 text, second-hand).
• A gas tankless unit needs an electric connection, so unlike a typical gas tank it does not run in a power cut.
• A tankless unit holds no store of hot water, and hard water scale is why it needs a yearly flush (only the upkeep amount here).
• Heat pump water heaters are a different question, covered on the Heat pump water heater page.

How this estimates

The heat you need is gallons a day times 365 times 8.33 pounds a gallon times a 65 F rise (120 F out, 55 F in). A tank loses a mostly fixed amount of heat each day, so its efficiency rises with use: your UEF counts as its value at 55 gallons a day, scaled from there and capped at 0.99. That scale was fitted once to DOE's minimum-UEF curves; it is a model choice, not a sourced fact. The tankless unit is taken at its UEF at any use; short draws are not priced apart, because the UEF test already includes many.

Fuel bought is that heat divided by the efficiency, times the price. A gas or propane tankless unit also uses fan power: 100 kWh a year (round; measured units used 30 to 250) at the electric rate less what its UEF already counts. The year 1 saving is the tank's fuel cost minus the tankless unit's.

The extra cost up front is the tankless price plus extra work, minus any rebate (never below zero), minus a new tank if yours needs replacing now. Each heater is bought again when it wears out, at the same price. Fuel and power prices grow at your rate; upkeep does not. The shared payback engine adds it up year by year with no discounting, and at year 15 credits each heater's unused life as a straight line on what was paid. A result inside $750 either way (what $50 a year of upkeep adds up to in 15 years) is a close call. The payback counts the tank you would not have to buy again; the second figure leaves it out.

Sources and date checked

The prices are New York values from this site's shared state prices (EIA based, as of 2026-10-08), not looked up again here. DOE's Energy Saver pages did not load on 2026-10-18, so its percentages are second-hand (a 2012 copy) and unverified. Upkeep, the electric tankless price and electrical work are round typical values. The federal credit for gas, propane and oil water heaters ended after 2025-12-31 (IRS); no utility rebate was verified. The table below lists every source and its status.

Not advice. This is a planning estimate at the inputs shown, not plumbing, gas, electrical, tax or financial advice. Get written quotes, ask your installer what venting, gas line and electrical work your home needs, and confirm any rebate before you count it. Your results will differ.