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When comparing hot water heaters, there are few things you need to keep an eye out. First of all, you need to check two important rating before you make your purchase. One of them is the energy factor (EF) and the other one is first-hour recovery (for storage tank heaters) or the flow rate (for tankless).  
EF rating is the efficiency rating of your unit. Hence, understanding the EF rating is pretty easy - the higher the number, the more efficient the unit. Also, this helps interpreting the recovery time for the whole system. The higher the EF number, the more hot water you will receive in the first hour after you open the spigot. These changes when you are dealing with a tankless water heater. In the case of tankless water heater, you have to keep in mind that the lower groundwater temperature can cut the heater's flow rate by half. Therefore, when shopping for one, you have to make sure that the flow rate of the system is what you need based on the incoming winter water temperature.

Tankless water heater, also known as instant water heaters are systems that heat water on demand, whenever needed. Instead of having a 40 to 50 gallon of hot water ready 24 hours a day, tankless water heating units only heat water whenever it’s needed. Hence there is no energy lost for keeping water hot all day long, even if it’s not being used. Instant hot water heaters come with a flow sensor that detects when the faucet is open. Once the sensor detects incoming cold water, it opens the valve for the gas valve and the burner fires up. Tankless hot water heaters have a specific temperature measuring unit that measures the temperature of the incoming water and calculates how quickly the water should flow past the burners. For example, if the incoming water temperature is 68 degrees F (usually summer), the heater will provide the maximum flow rate. But if the water is cold, as in 35 degrees, the heater will pull back the flow rate to almost 50 percent. You need to check with your local utility provider to find out the water temperature. The average price to get an instant water heater installed is about $1200, plus about $200 for a stainless vent.
-Nothing beats a tankless heater for putting out lots of hot water—it never runs out.
-A tankless heater saves about 30 to 50 percent in energy costs over a conventional gas heater (minimum EF of .82 vs. .54 for conventional).
-A tankless heater usually a size of a suitcase, hence it can be virtually installed anywhere and won’t take up a lot of your valuable space.
-With tankless heaters, there's a lag time of three to eight seconds to fire up the burners and heat the water to the set temperature.
-Installation can be a major project.
-Tankless heaters must be flushed annually with special chemicals to remove scale and maintain energy efficiency. You can easily do it yourself or hire a plumber (about $125).

What do you need to look for when buying-
You have to make sure to get the model with the highest EF and the best flow rate.
Can you do it yourself?
You can install it yourself—if you can run a new gas line, follow the venting installation instructions to the letter (and to your local code), install an electrical outlet, and reconfigure the water pipes. It's a big job.
So is this system the one you need?
If you want an endless supply of hot water for long showers or to fill a gazillion-gallon spa, this heater's for you. Just be aware that you may not be able to run several showers at the same time in winter. The payback on a professionally installed tankless heater is 16 to 22 years, or six years if you install it yourself.

These water heaters are a combination of the electric storage-tank water heaters and a heat pump. The heat pump extracts the air from the surrounding and aids in the heating of the water. As a result, most of the hybrid electric water heater used about 60% less energy when compared to normal storage-tank electric hot water heaters. The conventional heating coils come on only when the heat pump can no longer satisfy the demand.  Although they cost more than electric-only water heaters, they are fairly similar to install and also pay back Hybrid heat pump water heaters cost about $1,200 – $1,400 at home centers, but prices are dropping. On a short time.
Electric hybrid heat pump units have the lowest operating cost compared to any of the electric hot water heaters on the market, especially when they are used in warm climate. On top of that, they also qualify for rebates and tax incentives.
The heater needs almost 1,000 cu ft of air surrounding it; hence you cannot install it in a closet.
Just like a heat pump air conditioner, hybrid electric heat pump water heater will need cleaning of air filter regularly, so as to maintain the efficiency of the unit.
The heat pump is taller (and wider in some cases) than your existing electric heater. Make sure the unit will fit.
Some heaters are “side-piped” to eliminate the possibility of heat pump damage caused by leaking pipes. On those models, you'll have to reconfigure the water pipes.
Can you install it yourself?
If you can reconfigure the water pipes and connect the wiring, you can install this yourself. But pay close attention: These units are gigantic and heavy (about 200 lbs. empty). Get some help!
Is this unit right for you?
If you live in a warmer climate and heat water with electricity, an electric hybrid heat pump will save you the most money over a conventional heater. In colder climates, it'll still save money during the summer when you're not paying to heat the surrounding air. The higher your electric rates and the warmer the year-round climate, the faster the payback. In many cases, the payback can be as little as four years.

The only thing similar between a conventional hot water heater and a condensing gas water heater is that they both have tanks, but that is the only similarity you shall find. The idea behind these units is that instead of sending hot exhaust gas out of the flue, it blows it through the coil which is located at the bottom of the tank. The water that flows in collects most of the heat energy and gets heated up. This is the reason why condensing gas water heaters are so efficient (about 96 percent thermal efficiency). Although these units are storage tank units and there will be some energy lost in the "stand by", the increased efficiency highly empowers it. At the moment condensing gas water heaters cost about $1200 on average.
Like conventional heaters, condensing gas heaters have a tank. But that's where the similarity ends. Instead of sending hot exhaust gases out the flue, which wastes energy, this heater blows them through a coil at the bottom of the tank. Incoming cold water flows around the coil and collects most of the heat. That's why condensing gas water heaters are so efficient (up to 96 percent thermal efficiency). Even though it's a storage tank design with “standby loss,” the increased efficiency more than offsets that loss. Condensing gas water heaters cost about $2,000 (from online sources like pexsupply.com—home centers don't sell this style right now). But by mid-2011, manufacturers will begin introducing lower-priced models (about $1,200) at home centers.
A condensing gas heater is the most energy-efficient, gas-fired tank-style water heater on the market.
“First-hour” recovery rate is incredible—you'll never run out of hot water.
It requires gas line and venting reconfiguration.
There's no “real-world” experience on tank life or repair costs.
Can you install it yourself?
If you know how to reconfigure gas pipe, install new venting and add a 110-volt receptacle, you can install this heater.
Is this system right for you?
If you're replacing an existing gas water heater and need lots of hot water for long or multiple showers and tub fills, and want a high flow rate in summer and winter, this may be the way to go. It requires the least amount of repiping and has a faster payback.

Most of the storage-tank water heaters are basically steel cylinders that have a cold water inlet pipe, which brings the cold water in. The water then gets heated inside the tank and is then carried out through the hot water pipe. Another pipe that protrudes out of the tank has the temperature and pressure relied valve, which opens in case either of them exceed the preset level. On top of that, you will also find a drain valve that is located near the bottom of the tank, and a control unit which is located on the tank to control the temperature of the water. In gas models, there is an option for controlling the pilot light.
Gas is the fuel of choice if you already have natural-gas service or can run a gas line to your home economically. Gas models cost more than electrics. But on the basis of national-average fuel costs, a gas water heater will cost you about half as much to run as a comparable electric model. Thus, a gas heater might amortize the up-front difference in cost in as little as a year. While you'll also find oil-fired storage heaters, they're relatively expensive, because they include the tank and an oil burner. That's why homes with oil heat typically use an electric water heater.
-Lowest upfront cost.
-Easiest to install.
-No fans or pumps to burn out. Proven reliable over decades of use.
-Less efficient; more expensive to run.
Is it for you?
If you need an immediate replacement, you don't plan to stay in your home for years or you just don't use a lot of hot water, a conventional unit may be your most cost effective option.