Are electric tankless hot water heaters as efficient as they claim?

Tankless water heaters are more efficient than tank water heaters because tank water heaters are continually losing heat energy through the tank walls.

The better you insulate your electric hot water tank (for example, by wrapping it in a thick tank insulation blanket), the lower the relative benefit of switching to a tankless heater. I suspect that most of the claims of improved efficiency by tankless hot water heater salespeople assume that the electric hot water tank being compared to the tankless heater doesn't have an insulating blanket. Add the blanket (and a heat trap in the hot water pipe coming out the top of the tank) and you will probably find the benefit is far smaller.

If you pay different rates for your electricity based on the time of day it's used, electric tankless hot water heaters can actually be more expensive to operate than tank heaters, because people tend to shower at times of day when electricity is most expensive. And if you don't pay for time-of-use, you will someday soon - utilities all over the world are increasingly switching to time-of-use billing, where the rate is highest from around 8am to 6pm and lowest from around 11pm to 5am. In fact I've read that in Japan, where electric tankless water heaters were very popular, the government is actually providing financial incentives to get people to switch to storage electric hot water tanks - ones that warm the water hotter when power is cheapest, and then blend in whatever percentage cold water is required, at any given time, to provide the right output temperature.

My advice is to stay away from tankless electric water heaters. If they seem like a good deal today, they won't tomorrow. They may save you money in the short term, but the sudden spike in demand they cause for your utility, at a time when power is often the most expensive to buy on the spot market or produce at your local power plant, are going to motivate most utilities to push you in the other direction - that of heating your hot water when power is cheap, and using it at your convenience.

Of course, since only about 33% of the original heat from a coal or natural gas power plant reaches your electricity meter as electricity, any electric heat is inherently inefficient compared to a natural gas hot water heater, if the electricity is generated from fossil fuels. Something to consider if you are partly motivated by a desire to cut your CO2 output.

There are two advantages to tankless water heat:

1) It's much smaller than one with water storage.

2) It requires zero energy when hot water is not in demand.

The fact that they require so much power is because it heats the water much faster than one with water storage. The total energy used for heating the water, however, is the same over time as a storage heater. The heater with water storage will lose energy gradually as heat escapes from the tank, but with a well-insulated tank it won't be very noticeable.

Long story short, salesmen/manufacturers get a little too excited about their tankless water heaters.

Venting is very important to gas fired tankless water heaters. If these products are not vented properly, many bad things can happen. The least of these is the unit may fail very soon in its life span due to condensate being allowed to enter the product. At the very worse, Carbon Monoxide Poisoning could occur. "Shortcuts" should never be taken in regards to the venting system on this or any other piece of equipment that burns gas, oil, wood or other products. All manufacturers' instructions should be followed and you should always make sure that your heater is vented properly.