The average life span of an electric water tank is less than 10 years. For a gas-fired tank, it’s about 15 years. So you are right to plan to replace the 17 year old tank.  It is probably on its last legs and old tanks also tend to be horribly inefficient.

One of the main advantages of a tankless water heater is that they don’t take up much space. Because the cost of natural gas is so low, the savings are probably not going to be a driving force when comparing a good tank heater with a tankless water heater.  Typically, the domestic hot water will be about 1/3^rd of your gas bill. If you guesstimate that the cost of domestic hot water is $350 per year, for example, saving an extra 10% isn’t going to be a compelling economic argument for the higher cost of a good tankless unit.

There are 2 basic kinds of ‘on demand’ or ‘tankless’ water heaters – condensing or non-condensing. Condensing units are so called because they will condense the water vapour resulting from burning natural gas. This makes them about 10% more efficient than non-condensing units. They are also more expensive.  Again, if you consider the potential savings with the extra cost of a condensing unit, you can decide whether it’s worth it economically. There are, however, significant bragging rights for the condensing units – they tend to be pretty and something that you will want to show off to house guests (especially if they are engineers). 

Be careful about the sizing of the heater. It is not so critical if you have a tank heater because you typically have a 40 or 60 gallon reserve of hot water in the tank. A tank heater will only produce the hot water that it is rated for. The units are rated in terms of temperature rise. If the incoming water is 45°F in the winter and you want 125°F at the tap, the temperature rise required will be 80°F. If it is rated for 3.5 USgal per minute at an 80°F rise, that’s all you will get.

You should also expect some time lag before the water comes hot out of the tap or shower. The unit has to fire-up and start producing hot water. This takes a little longer than just using hot water from a tank, however, it should be less than a minute, and most people don’t notice much difference.

Tankless water heaters build up lime deposits inside the heat exchanger, like an old kettle. They have to be washed out with vinegar once a year. This involves pumping vinegar through the unit using a bucket and a small pump. When the unit is being installed, make sure that the valves and extra take-offs are provided to facilitate this.

If you happen to need a new furnace to go along with your hot water heater, there are a number of manufacturers who combine a tankless hot water heater with a fan coil to produce domestic hot water and space heating. These are worth taking a look at. One manufacturer to check out is Rinnai. 

FW answers. Most direct-fired domestic hot water systems heat domestic water (the stuff that comes out of your tap) inside a boiler. The heat is very intense. This causes the calcium and other mineral deposits to precipitate out of the water and coat the inside of the tubes of the boiler. The same thing happens in a kettle. This starts to insulate the tube a little and creates hot spots. Eventually this causes the tubes to overheat and fail. A better solution is to use a plate and frame heat exchanger. Water circulates between the boiler and the heat exchanger where it heats the domestic or potable water without contacting it. Plate heat exchangers do not generally ‘lime up’ because of the more gentle heat and high velocities inside heat exchanger. The water that circulates between boiler and the heat exchanger contains no fresh water soon loses its minerals and oxygen and becomes inert.    

There are 2 ways to look at this issue. If you want to do your part to prevent climate change, you should change the boilers. They will reduce your CO2 output by at least 30%. If economic considerations are foremost, do the following: