Tank vs. Tankless Water Heating
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As Toggles says, tankless water heating heats the water as it flows through. There is no standing storage tank holding 40, 50, 60, 70 gallons of heated water. Hot water does not exist until a faucet is turned on and the heating unit activates. The idea is that standby heat losses are eliminated, and one heats only as much water as is needed at any point in time, for whatever is the task at hand.
Tankless is offered in both electric and gas. Various sizes are available to fit the usage needs. Small units for single usage points such as a bathroom or kitchen sink, and much larger capacity units to handle an entire household. Gas tankless is more popular. People seem to be afraid of the power requirements of electric units, although gas units need a hefty gas supply as well. Whole-house gas units typically need a 3/4" gas line or larger, may have a 200,000 BTU or larger gas burner, and special venting requirements. Whole-house electric units require a 120 amp to 160 amp circuit, but of course no venting is needed so they can be installed anywhere they'll fit (under a sink, between wall studs, in a closet).
You see, being as the water is heated on-the-fly as it flows through, a large energy input is needed. A flow of 2 gallons-per-minute or more must be *instantly* heated from input temperature (50°F to 70°F or whatever) to the target usage/output temperature (110°F, 120°F, 130°F, etc.). One BTU (British Thermal Unit) is roughly the amount of heat needed to raise the temperature of 1 pound of water by 1°F. Thus, a specific amount of energy is needed to heat a specific amount of water from a specific starting temperature to a specific target temperature. A tank unit does this slowly over a period of time with a smaller heat input, and stores the heated water in an insulated tank for later use. Tankless does it instantly with a much larger instantaneous heat input. But the end result *technically* is the same amount of energy needed in either case.
Modern tankless water heaters throttle their power usage (either gas or electric) to maintain the set temperature according to the input water temperature and the flow rate. They don't always run at full output. Even so, electric utilities typically don't like tankless because of the demand factor. If *everybody* had electric tankless, and *everybody* ran hot water at the same time, utilities couldn't supply enough instantaneous power to carry them all.
Tank capacity is limited because the cold water flowing into the tank to replace the hot water flowing out must also be heated to maintain the target tank temperature, and the energy input isn't enough to recover immediately. Run the hot water long enough, to fill a bathtub and a toploader (or two or three!) at the same time, or several successive showers, etc., and the tank will be depleated.
Tankless never runs out. Hot water is created as long as there is a water and energy flow (gas or electric).
There are many detractors to the technology, who see tankless as an attempt to fix a problem that doesn't exist. The units are more expensive than a tank water heater both for purchase and install, and have the hefty energy requirement. A common detracting point is that standby losses are actually very minimal, due to tank units nowadays being insulated very well. Electric tank water heaters are nearly 100% efficient. The heating elements are submerged IN the water tank so ALL the energy consumed goes into the water. Electric tankless is likewise efficient. Gas tank and tankless both are a little less fundamentally efficient due to some of the heat being vented. A point is often made about gas pilots light constantly using energy ... but a counterpoint is that some of the pilot energy IS going into the water.
The trick to saving energy with tankless is to
use it intelligently and efficiently, and actively. By actively, I mean being conscious of hot water use. When there's a 50 gallon tank filled and waiting, one doesn't need much conscious thought in regards to hot water. Turn the tap and heated water comes out. You've *already* paid for what you've used. But on the other hand, suppose you only need 1/4 of a gallon of hot water for the task. There's a 50 gallon tank of it ALREADY HEATED. Seems a waste.
With tankless, hot water doesn't exist in advance. It's only created when a tap is turned on and the unit senses water flow. So *think* about whether you really need hot water, and how much, for the task at hand. If you only need 1/4 of a gallon, then 1/4 of a gallon is what's made (true, that doesn't include some water flow and energy use while the unit is ramping up to power, but that's still much less than 50 gallons!).
Another aspect is that since tankless creates the hot water on-the-fly, and never runs out, the water only needs to be heated to the specific temperature needed for the task, and NO HOTTER. A tank heater gets reserve capacity by heating to a higher temperature than what's actually needed. Many people may keep their water heater set at 140°F, but NOBODY could stand under a 140°F stream of water in a shower! Thus, some cold water is mixed in at the point of use, which effectively increases the tank capacity. But you're still keeping 50 gallons of water heated to 140°F 24/7. This is akin to floorboarding your car's accelerator and using the brake to maintain 30 MPH. With tankless, set the temperature to precisely what's needed, run ONLY the hot tap when showering, and you're not overheating the water needlessly. No brake needed to slow down a speeding engine. Of course, most people wouldn't bother with constantly resetting their tankless heater for various hot water tasks (showering/baths, dishes, clothes). Many tankless units, however, have remote controls for adjusting the temperature from the kitchen sink or the bathroom.
Personally, my tankless is electric. Requires a 120 amp circuit (four 7,200 watt elements). I keep it set at 102°F to 105°F for "normal" use which is my preferred showering temperature. It's installed in a broom closet in my utility room, so is EASILY accessible for raising the temperature for specific tasks. I ran my whirlpool bath a couple days ago, set it at 112°F. I checked the digital readout, and it reported running at 37% to 40% capacity (10,656 to 11,520 watts) with an input temp of 71°F and a flow rate of about 2 GPM. That sounds like a lot, but it was ONLY for the duration of filling the tub, and that was the only hot water I used for the entire day, and I rarely use the tub. 103°F at 1.2 GPM for a shower would be considerably less power needed.
As Toggles says, apologies for the logorrhea.
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