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How do tankless water heaters work?

The best way to explain how tankless water heaters work is to first explain how conventional (tank) water heaters work.

Conventional water heaters are made with a tank that stores and heat water slowly. When the water temperature has reached the set point (usually between 120 and 140 deg F), the thermostat turns off the unit. This process lasts about 90 minutes.  During the course of the day, the conventional water heater will turn on and off to maintain the temperature of the water hot; either because someone opened the hot water faucet or because the stored water cooled down. Thus, the conventional water heater wastes energy heating water that probably no one will make use of.

A Tankless water heater is also a water heater, but without a tank and is exclusively activated by flow.  This type of system provides basically four advantages over the conventional water heater.

1. Having no tank, the dimensions are significantly reduced, which saves a big amount of space.

2. Tankless water heaters remain in the state of standby (sleeping state) while the hot water faucets remain closed, consuming no energy ; and immediately wake up to start heating the water as soon as the hot water faucets are activated (opened). Water passing through the tankless water heater comes out hot immediately. To achieve that, this type of water heaters have from one up to four more powerful heating elements than those  of a tank water heater.
This system offers instant hot water. If for any reason you need to disconnect you tank water heater, you will need to wait until the stored water gets hot before you can enjoy a hot shower. That is no problem with the tankless water heater. Right after you connect your unit and open the hot water tab, you will have hot water coming out.

3. A Tankless water heater heats only the water that circulates inside them. For this reason, the hot water is endless. You will enjoy unlimited hot water. All members of your family can take a shower one after the other, you can fill the bathtub or Jacuzzi, and wash your clothes, and you will never run out of hot water.

4. The more logical reason to install a tankless water heater to replace the conventional one is the energy savings that the tankless system provides. Since tankless water heaters consume energy only while hot water is being used, the water heating expenses are reduce in up to 60%. In the majority of the cases the cost of the tankless water heater is amortized with the electricity savings of one year.