What's better -- tankless, on-demand water heaters or indirect-fired storage tanks? This question gets asked to us at least once a week. My answer: it depends.
Tankless, on-demand water heaters like those by Rinnai, Bosch, Takagi and many others, are a major improvement from the old-fashioned atmospheric domestic hot water tank. With a typical efficiency factor of .55, standard water heaters waste most of their energy while sitting unused, losing their heat through wimpy insulation, and an exhaust-pipe connected to the outside. Tankless, on-demand water heaters avoid these "standy-losses" by avoiding the whole process of storage altogether.
From a combustion-efficiency standpoint, gas-fired on-demand water heaters get a so-so grade. Most models usually come with efficiency-ratings between 81 and 85 percent. Not terrible, but not record-breaking, either.
(NOTE: If you're served by low-cost electricity, an electric on-demand water heater -- virtually 100 percent-efficient with no combustion whatsoever -- might be the way to go.)
Indirect-fired water heaters are insulated storage vessels that are heated indirectly, usually from a hot water boiler. Although they store hot water, they have no flue-pipe from which heat can escape.
The efficiency of indirect-fired water heaters depends chiefly on two factors -- the effectiveness of the tank's insulation, and the efficiency of the boiler it's connected to.
With a few cheap exceptions, most indirect-fired water heaters have two inch-thick polyurethane foam insulation. With two inches of insulation, most indirect-fired tanks have a standby-loss of around a half-degree per hour -- in most cases, a negligible loss.
Modern boiler efficiencies usually range in between 84 and 95 percent. If the indirect-fired storage tank is located near the boiler and the supply/return piping is insulated to minimize energy-losses, the efficiency of the water heater will be close to that of the boiler.
From an energy-efficiency standpoint, on-demand water heaters and indirect-fired storage tanks are, for all intents and purposes, fairly equal.
From an installation-cost standpoint, in most cases, the two options are close in price, depending on the size and quality of the equipment you select and the difficulty of the installation.
The final factor in deciding the better of the two options is life-expectancy.
Most on-demand water heater manufacturers offer a ten to twelve-year limited warranty. The practical life-expectancy of on-demand units is somewhere around 15 years, depending on water conditions and other factors.
The life expectancy of indirect-fired water heaters, on the other hand, can range widely depending on the material they're made from. Lower-end coated steel tanks can last anywhere from eight to twenty years, while higher-quality stainless-steel cylinders are covered by lifetime warranties.
I like both indirect-fired tanks and on-demand -- each one has their place. If you have a furnace and not a boiler, and use a fairly standard amount of hot water, an on-demand water heater is the way to go.
If you don't have a boiler, and have exceptionally large water-heating needs (more than a typical 40-gallon water heater can provide), a high-efficiency tank-type water heater such as A.O. Smith's Vertex would probably be better match for your lifestyle.
If you have a fairly modern boiler, a well-made, well-insulated indirect-fired storage tank would be the best choice. In addition to the long life-expectancy, it's always safer and requires less maintenace when you minimize your combustion-appliances -- one source of combustion is better than two.
So, what's better -- a tankless, on-demand water heater or an indirect-fired storage tank? It depends!