Click photo to enlarge
NICK HOPPER, manager of Moran Supply in Oakland, carries a tankless water heater through the company's warehouse.
TANKLESS water heaters have been churning out hot water for homes in Japan and European countries for decades.

Now, American homeowners are starting to look at them as a way tosave energy and space. Unlike a standard water heater using a tank that keeps a large amount of water hot 24 hours a day, the much smaller, rectangular-shaped tankless model produces hot water only when needed.

Replacing a standard model with a tankless one can result in energy cost savings and free up space in a home, advocates point out. Tankless models also have a longer operating life than standard models.

But they cost more. A tankless model for a medium-sized house can exceed $3,000 when installation costs are included, compared with $1,200 to buy and install a tank-type water heater.

Another advantage is that a tankless water heater doesn't run out of hot water. While that may seem like a blessing, it could lead to higher water and energy bills if you start taking longer showers.

Consumers who buy a tankless water heater get up to a $300 federal tax rebate for buying one. But these appliances are not on PG&E's list for energy-efficiency rebates.

Despite the higher prices and drawbacks, demand is growing for tankless water heaters in the Bay Area.

"In 2006, it's become one of the hottest things we've done. We've done a lot of requests," said Steve Bergendahl, plumbing services manager for L.J. Kruse Co., a Berkeley-based plumbing contractor. "In Oakland and Berkeley, they've got small bungalows with the water heater in the kitchen. They want to recoup space, and they want to save energy. You can do that with (the tankless water heater) out of the house and mounted on the outside wall."

Natural gas-fired heaters are the most common type of tankless water heater in the Bay Area. But other models use electricity, which of course would be the choice for an all-electric home. However, using electricity for heating water typically costs about three times that of natural gas, according to the California Energy Commission. Other types of tankless water heaters use propane, which is usually a

TANKSIBusiness 8heating source used in rural areas that don't have natural gas.

Kevin Bennett, owner of Bennett Plumbing in San Mateo, is such a believer in tankless water heaters that he doesn't deal with standard ones.

"In the last year, I would say business has doubled. I was doing one a month and now average two a month, sometimes two a week," he said. "It's highly efficient."

Still, tankless water heaters aren't for everyone. There are now energy-efficient tank-type models that help save on energy bills. Figuring out whether a tankless water heater is cost-effective when replacing an older-model water heater requires some number-crunching.

About 25 percent of each energy dollar goes toward paying for hot water in a home using an older-model standard hot water heater, according to the California Energy Commission.

PG&E residential customers in the Bay Area spent an average of $115.17 a month to pay for electricity and natural gas over a 12-month period ending in April 2006.

A medium-sized Takagi tankless water heater that can serve the needs of a house with two to three bathrooms costs about $125 a year to run, or about half the cost of a tank-type water heater, said Shogo Togami, West Coast regional manager for Takagi, a Japanese-based manufacturer of tankless water heaters.

While a medium Takagi tankless water heater retails for about $1,400, installation costs typically add another $1,200 to $1,700, he said.

An energy-efficient standard water heater for a two- to three-bathroom home typically costs about $1,200 to buy and install, according to Bergendahl of L.J. Kruse Co.

It may not make financial sense for a single person living in a small place to consider a tankless water heater, Bergendahl said. The energy cost savings needed to offset the upfront costs are more likely to come from a family in a larger house that uses more hot water, he said.

When considering what size to buy, consumers need to think about the maximum amount of hot water they use on a daily basis. 

For example, a two-bathroom house requires a unit that can provide 6.9 gallons of hot water per minute, Bennett said.

"That will easily work for two showers at the same time plus the kitchen sink. It will not work for two showers and the laundry. The washing machine takes an enormous amount of hot water very fast," he said.

For homes with bigger hot water needs, larger units are available.

"If you have three or four showers, you might want to get a bigger unit. As long as it's sized accordingly, it will never run out of hot water," Togami said.

A lot of retrofitting work is required to install a tankless water heater in a home. Sometimes it involves putting in a larger gas line. Also, it can involve special vents if the unit is installed inside the house instead of outside.

That's why it usually takes two days to install a tankless water heater, compared with a half-day for a standard model, Bergendahl said.

When looking for a new water heater, be it tankless or standard, the California Energy Commission advises consumers to check out Energy Guide information about the product.

The information is required by law to be displayed on a large yellow sticker attached to water heaters and other appliances. The Energy Guide information will provide the estimated yearly operating costs based on the product's "energy factor." The higher the energy factor, the lower the operating costs.

People who buy tankless water heaters may qualify for up to a $300 energy federal tax credit through Dec. 31, 2007. The rebate also applies to energy-efficient standard water heaters that meet certain criteria established by the U.S. Department of Energy.

But if you're looking to get some money from PG&E's ratepayer-rebate program for energy-efficient products, you're out of luck. At least for now.

"Standard water heaters over time have become more efficient," said PG&E spokesman Paul Moreno. The utility does offer a $30 rebate for energy-efficient standard water heaters but currently no rebates for tankless water heaters.

"From time to time, we re-examine these issues. There are many ways to provide energy efficiency, and we encourage that," Moreno said. "But when it comes to rebate programs, there is only so much money available, and we have to pick and choose the ones that are most efficient."

Business Writer Eve Mitchell can be reached at (510) 208-6474 or emitchell@angnewspapers.com.

Going tankless?

- Consumers should visit http://www.consumerenergycenter.org/home/appliances/waterheaters.html, a Web site designed by the California Energy Commission that provides the pros and cons on tankless water heaters.

- Also, the U.S. Department of Energy has a Web site that provides information about tankless water heaters. Go to http://www.eere.energy.gov/consumer/ and then type in "tankless water heaters" in the search box to get to the site.