Tankless or heat pump water heater? What to know before you switch
Updated · KeystoneProGuide editorial team
What is the difference between tankless and heat pump water heaters?
They save energy in different ways. A gas tankless heater has no storage tank: ENERGY STAR says it heats water only when a hot tap opens, which eliminates the energy lost keeping a tank hot. A heat pump water heater, also sold as a hybrid electric water heater, keeps a tank, and ENERGY STAR's installation advice is mostly about the room it sits in. A standard tank heater, in ENERGY STAR's comparison, keeps a tank full of hot water at all times.
How does a gas tankless heater work?
ENERGY STAR describes the sequence: when a hot water tap is turned on, cold water is drawn into the heater, a flow sensor lights the gas burner, the burner heats a heat exchanger, and the water leaves at the set temperature. Combustion gases go out through a dedicated, sealed vent.
Certified models add a second heat exchanger that pulls more heat from the exhaust, cooling it until it condenses. ENERGY STAR says that makes them use 9 percent less energy than a conventional gas tankless heater, and that these condensing units need venting through a vertical PVC pipe and a drain for the condensate.
Where does a heat pump water heater fit?
In a space that stays mild and roomy. ENERGY STAR says heat pump models should be installed in interior spaces that stay between 40 and 90 degrees year-round, with 1,000 cubic feet of air space around the heater. They run less efficiently in colder spaces and can cool the space they are in, so it suggests a room with spare heat, such as a furnace room. In colder months, with colder water coming in, they may temporarily switch to standard electric heating to keep up, which raises energy use for that period. In hot, humid weather the reverse helps: the unit can cool and dehumidify its space.
What does ENERGY STAR say they save?
For a heat pump model replacing a standard electric heater, ENERGY STAR says a household of four can save more than $330 a year on electric bills and more than $3,530 over the unit's life, and that the higher purchase price pays back in two years for that household. Larger families using more hot water save more, by its account.
For gas tankless, ENERGY STAR's published figure is the 9 percent advantage of certified condensing models over conventional tankless ones. It does not give a dollar saving against a gas tank on the pages read for this guide.
What do they cost installed?
More than a standard tank, by HomeGuide's published ranges, installed and before rebates:
| Type | Installed cost | Unit only |
|---|---|---|
| Standard tank, 40 to 50 gallons | $600 to $3,100 | $400 to $2,100 |
| Tankless | $1,400 to $5,600 | $600 to $2,600 |
| Hybrid heat pump | $2,000 to $4,600 | $1,500 to $3,000 |
HomeGuide also says that like-for-like replacements are typically cheaper than retrofits that need plumbing or electrical changes. For comparison, Angi's general range for a water heater installation is $800 to $2,000. ENERGY STAR's Rebate Finder lists partner rebates on certified models by ZIP code; check the eligibility rules before you buy.
How do you size a new heater?
For a heat pump tank, ENERGY STAR suggests starting from the gallon capacity of your current heater, found on its nameplate or yellow EnergyGuide sticker, and going larger only if you have added people or fixtures in frequent use, such as a new shower or dishwasher. A contractor can help you decide whether a larger model is needed. Tankless units are sized differently, by flow rate in gallons per minute, which HomeGuide lists among the factors in a tankless unit's price.
Why plan the switch ahead?
Because both types take more arranging than a like-for-like swap. ENERGY STAR advises planning your next replacement before an emergency, so there is time to research the options, and warns that an installer may need time to order a heat pump model and that it may take longer to install than a standard heater. A rushed replacement after a failure, it says, can cost more and typically limits you to less efficient models.
What should you ask the installer?
ENERGY STAR's list for choosing a contractor is short: get cost estimates in writing, ask for references, check the company with the Better Business Bureau, and see whether it will obtain a local permit if needed and understands local codes. Add the questions specific to each type:
- Heat pump: Is there enough air space, and will the room stay between 40 and 90 degrees? What annual maintenance does it need? ENERGY STAR mentions changing air filters.
- Gas tankless: Where will the vent and condensate drain run? Does the gas supply need upgrading? HomeGuide lists gas line, electrical or venting upgrades among the reasons tankless installs cost more.
- Either: Who files the permit? Pennsylvania's construction code requires one before a regulated plumbing system is replaced, and Philadelphia lists water heaters on its plumbing permit fee table.
For any gas appliance, the Consumer Product Safety Commission's advice applies: most should be installed by qualified professionals, following the manufacturer's instructions and local codes. Repair or replace covers when to make the change, water heater safety covers relief valves and carbon monoxide, and plumbers who install water heaters are on the plumbers directory page.
Sources
- How It Works: Whole-Home Gas Tankless Water Heaters, ENERGY STAR
- Heat Pump Water Heaters, ENERGY STAR
- When Should You Replace Your Water Heater?, ENERGY STAR
- How Much Does Water Heater Installation or Replacement Cost? (2026), HomeGuide
- How Much Does Plumbing Repair Cost? [2026 Data], Angi
- Get a Plumbing Permit, City of Philadelphia
- 34 Pa. Code § 403.62. Permit requirements and exemptions., Commonwealth of Pennsylvania (Pennsylvania Code)
- Carbon Monoxide Fact Sheet, U.S. Consumer Product Safety Commission