If you are already using a standard propane water heater, switching to an instant or on-demand water heater will save up to 20 percent off of your energy costs, according to the California Energy Commission. Instant water heaters make hot water as it is needed, so there is no storage tank filled with water that must be kept hot through the rest of the day, and no pilot light to keep burning.

On the Other: Consider Total Costs

You may save money on your energy costs each month, but consider whether you will save money over the entire life of the unit. Retail prices for instant propane, whole-house water heaters can be four times the cost of standard tank water heaters. Retail prices for whole-house tank styles range from $190 to $649, while the tankless versions retail from $799 to $2,800. Qualifying hot water heaters may benefit from tax credits of up to 30 percent of the purchase price. Factor the costs of the purchase, installation and operation over the life of the instant-propane water heater. The money savings is not that significant.

Bottom Line

If your current propane hot water heater needs replacement, and you can find an instant propane water heater at discounted prices for costs similar to a standard-tank style water heater, you will benefit from significant savings each year. If you pay full retail price and the unit does not qualify for applicable tax credits, the instant propane hot water heater will not pay for itself until after several years of operation.

Source:

California Energy Commission: Comparing Fuel Costs

ACE3: Consumer Guide to Home Energy Savings

Lowes for Pros: Propane Water Heaters

More Information:

Discount Tankless Water Heaters Under $500