Tankless water heaters save energy by heating water only when you need it, rather than keeping a large tank of water hot all the time. Here’s how they do it:

• On-Demand Heating. Traditional water heaters constantly use energy to keep 40–80 gallons of water hot (“standby heat loss”). Tankless models heat water only as it flows through the unit, eliminating standby losses.
• No Heat Loss from Storage. With no storage tank, there’s no energy lost from the water cooling down while sitting unused. This is especially efficient for homes that don’t use hot water continuously.
• More Efficient Technology. Many models use modulating gas burners or electric coils, adjusting energy use based on the flow rate and temperature needed. Some high-efficiency units can reach efficiency ratings of 90% or higher (especially condensing models).
• Energy Savings. According to the U.S. Department of Energy, Tankless heaters can be 24%–34% more efficient for homes using less than 41 gallons of hot water daily. For higher usage (about 86 gallons/day), savings are about 8%–14%. 
• Smart Use Scenarios. Best for households with moderate or low hot water demand, or for point-of-use systems (like in bathrooms or kitchens). Multiple units can be installed near high-use areas to reduce heat loss from long pipe runs.
  

Electric Tankless Water Heaters

Electric tankless water heaters offer several advantages, especially for homes looking for energy efficiency, space savings, and lower maintenance. Best For homes with low to moderate hot water demands, already using electricity efficiently or with solar panels; or areas where natural gas isn’t available or preferred.

• Energy Efficiency. Heats water only when needed, reducing energy waste (no standby heat loss). Typically 99% efficient because all electricity is used for heating (no exhaust or venting losses).
• Compact Size. Wall-mounted and small—frees up floor space. Great for apartments, condos, or homes with limited utility room space. 
• Lower Maintenance. No anode rod to replace, unlike tank heaters. Fewer moving parts than gas tankless models, so less frequent servicing. No risk of sediment build-up in a tank. 
• Environmentally Friendly. No combustion = zero emissions. Can be powered by renewable electricity (solar, wind), making it cleaner than gas models. 
• Lower Installation Costs (in Some Cases). No need for gas lines or venting. Simpler to install if your home already has a robust electrical system. 
• Point-of-Use Flexibility. Can be installed close to sinks, showers, or appliances. Reduces lag time waiting for hot water. 
• Quiet Operation. No burners or exhaust fans = virtually silent operation.
  

❌ Cons:

• Limited flow rate – may struggle to supply multiple outlets at once
  
• May require electrical panel upgrade (high amperage needs)
  
• Higher operational cost in areas with expensive electricity
  
• Slower heating response than gas models
  

📉 Installation and Operating Cost Estimate

Assuming your current water heater is a typical large gas unit that costs ~$100/month to operate, a new tankless system would likely cost ~$60/month due to using more targeted energy and no standby losses. That is a monthly savings of ~$40 (or annual savings: ~$480). With these assumptions, the estimated payback period would be ~16.5 years for a low-end system ($7,950) or ~24.7 years for a high-end system ($11,850).

• Use low-flow fixtures (1.5 GPM or less) to improve performance and efficiency.
• Electrical Load: This setup adds significant demand. You likely need a 400A service panel or dual 200A panels.
• Install units close to point of use (ideally ≤ 10 feet from faucets/showers) to minimize lag and heat loss.
• Mount units vertically, with clear ventilation and easy access for service.
• Avoid freezing areas like exterior walls or unheated garages.
• Use PEX or copper piping and insulate pipes to reduce heat loss.
• Include flush valves or descaling ports for easier maintenance.
• Install each unit on its own dedicated 240V circuit with proper circuit breakers.
• Use copper wiring, follow NEC code, and route wiring cleanly through insulated walls.
• Ensure breakers are GFCI or AFCI protected if required by local code.
• Use Wi-Fi smart plugs or tankless water heater controllers to:
  • Monitor usage
  • Schedule off-peak operation 
  • Set temperature per zone
    

📈 Is It Worth It?

Electric tankless water heaters can be a great choice if you’re focused on long-term efficiency and reduced maintenance. They all you to have zoned control and fast hot water at multiple points. They are also great if you value electric-only systems, especially if you don’t have a gas hookup or your house is solar-ready.  However, they are not ideal if you want fast ROI purely in dollars or you’re not planning to stay in the home long-term. Here are some tips to shorten payback:

• Install fewer units (start with 3–4 targeting highest-use areas)
  
• Use low-flow fixtures to reduce load
  
• Pair with solar panels or smart thermostats to optimize energy use

🔥 Gas Tankless Water Heaters

For large households in areas with cheap natural gas, gas tankless water heaters might be a better option because of the lower operating costs, faster water heating and recovery times, and they often perform better in cold climates. However, they are more expensive upfront (unit and professional installation), require venting and gas line installation, are larger, require more maintenance (burners, vents, etc.), and emits CO₂ (not emissions-free).

Comparison: Gas vs Electric

• Region: Mid-Atlantic (cold winters, humid summers)
  
• Household Size: 6 people (high hot water demand)
  
• House Size: Large — likely has multiple bathrooms and appliances using hot water
  
• Current Energy Bill: $500/month (likely includes HVAC, water heating, and general electricity)
  

Key Considerations

1. Hot Water Demand. A family of 6 likely requires 10–15 gallons per minute (GPM) during peak usage. An electric tankless heater may struggle to keep up with simultaneous showers, laundry, and dishwashing unless you install multiple units. A gas tankless heater can handle higher GPM more easily, especially in colder incoming water conditions (common in winter in your region).
2. Climate Factor. In colder Mid-Atlantic winters, incoming groundwater can be very cold. Electric models may have a slower temperature rise in these conditions. Gas models are better at maintaining performance in cold climates.
3. Energy Source & Cost. If your $500/mo bill includes heating with electricity, switching water heating to natural gas could reduce your electric load and lower your monthly bill. Natural gas tends to be cheaper per BTU than electricity in most Mid-Atlantic states. 
4. Installation Complexity. If you already have a gas line and venting, a gas tankless system will be straightforward. If you don’t have gas: electric may be easier, but you may need an electrical panel upgrade (tankless units can require 120–150+ amps total).
   

Recommendation

 A high-efficiency gas tankless water heater is the best option for our example household because it supports high demand (multiple simultaneous showers), has better performance in cold climates, has lower long-term operational cost (given likely gas access in your region), and has the potential to reduce electric bill. Consider using condensing models, such as Rinnai, Navien, Noritz, for 90%+ efficiency. Also, ensure proper sizing of unit, in the range of 9–11 GPM.

Estimated Energy Savings: Tankless vs. Traditional Water Heaters

Switching to a high-efficiency tankless water heater can offer notable energy and cost savings, especially in a large household like yours (6 people in a 3000 sq ft home).

🔥 Natural Gas Tankless vs. Traditional Gas Tank

⚡ Electric Tankless vs. Traditional Electric Tank

📉 Long-Term Savings Over 10 Years

🧠 Other Indirect Savings

• Longer lifespan: 15–20 years for tankless vs. 8–12 for tank
  
• No need for a large hot water storage tank = frees space
  
• Less maintenance (especially for electric tankless)
  
• Higher efficiency over time: Less sediment buildup
  

💰 Federal and State Rebates and Tax Credits

There are often federal rebates and tax credits available for tankless water heaters—especially energy-efficient models. By selecting one of these ENERGY STAR® certified tankless water heaters, you can enjoy energy savings and take advantage of available federal and state incentives.

Federal Tax Credit (U.S. – 2024/2025)

Under the Inflation Reduction Act, you may qualify for tax credit amount up to 30% of the cost, capped at $600 for eligible energy-efficient tankless water heaters. An additional 30% tax credit, up to $600, for an electric panel upgrade if required for the installation.(ENERGY STAR) To be eligible, your gas or  electric tankless units must meet ENERGY STAR® certification and be installed in your primary residence between January 1, 2023, and December 31, 2032. The credit applies to both new construction and retrofits. For more information, visit the ENERGY STAR Federal Tax Credits page.

• For example, if your qualifying tankless unit and installation costs are $2,000, then you could receive a $600 federal tax credit.
  

Additionally,  you may also be eligible for State or local utility rebates ($100–$500 depending on the utility) and energy efficiency incentive programs (through programs like DSIRE).

Virginia Rebates and Tax Credits

Virginia residents can take advantage of several rebates and tax credits in 2025 for installing energy-efficient tankless water heaters. Here’s a breakdown of the available programs:

🔥 Virginia Natural Gas Rebates (Natural Gas Tankless Water Heaters)

If you’re a Virginia Natural Gas customer, you may be eligible for the following rebates:(Virginia Natural Gas)

• $200 rebate: For installing a high-efficiency tankless water heater with a Uniform Energy Factor (UEF) of 0.93 or greater.
  
• $150 rebate: For installing a tankless water heater with a UEF between 0.87 and 0.929.(Virginia Natural Gas, Virginia Natural Gas)
  

Eligibility Criteria:

• Must be an active residential Virginia Natural Gas customer.
  
• Applies to existing homes (not valid for new construction).
  
• Equipment must be installed by a licensed contractor.
  
• Rebate applications must be postmarked within 45 days of installation or by May 31, 2025, whichever comes first.(Virginia Energy Sense)
  

For more details and to apply, visit the Virginia Natural Gas Rebates page.

🔥 Columbia Gas of Virginia Rebates (Natural Gas Tankless Water Heaters)

Columbia Gas of Virginia offers the following rebates:(Columbia Gas of Virginia)

• $250 rebate: For installing a tankless water heater with a UEF of 0.95 or higher.
  
• $150 rebate: For installing a tankless water heater with a UEF of 0.92 or higher.(Columbia Gas of Virginia)
  

For more information, visit the Columbia Gas of Virginia Rebates page.

⚡ Dominion Energy Rebates (Electric Heat Pump Water Heaters)

Dominion Energy offers rebates for ENERGY STAR® certified heat pump water heaters🙁domsavings.com)

• Up to $400 rebate: For eligible heat pump water heaters.
  

Eligibility Criteria:

• Must be a Dominion Energy Virginia residential customer.
  
• The heat pump water heater must replace an existing electric water heater.(Columbia Gas of Virginia, domsavings.com)
  
  

🔥Washington Gas

• $400 rebate: For ENERGY STAR® certified tankless water heaters. (wgsmartsavings.com)
  

For more details, visit the Dominion Energy Water Energy Rebates page.

🧾 How to Claim These Incentives

1. Select Eligible Equipment: Ensure the tankless water heater meets the required UEF ratings and is ENERGY STAR® certified.
   
2. Professional Installation: Hire a licensed contractor for installation.
   
3. Keep Documentation: Save all receipts, installation records, and product information.
   
4. Submit Applications:
   
   • For utility rebates, download and complete the appropriate rebate application forms from your utility provider’s website.
     
   • For federal tax credits, file IRS Form 5695 with your federal tax return.(Virginia Natural Gas, Virginia Energy Sense, A. O. Smith)
     
   • Virginia Natural Gas: Monitor their website for updates on the expanded rebate program.
     
   • Columbia Gas of Virginia: Download and submit the rebate application form within the specified timeframe.
   • Washington Gas: Visit their rebate page for application details.(Columbia Gas of Virginia, wgsmartsavings.com)