If your water heater is near the end of its life, two of the most efficient options are a heat pump water heater (HPWH) and a tankless water heater. Both can cut energy use compared with a standard tank, but they work in very different ways and suit different homes. This guide compares them on efficiency, hot water delivery, installation needs, space, climate and maintenance, so you can decide which one fits your house.
The short answer
- Choose a heat pump water heater if you have (or can add) an electric circuit, a reasonably large space that stays above freezing such as a basement or garage, a place to drain condensate, and you want the lowest electric operating cost.
- Choose a tankless water heater if you have natural gas or propane with a gas line that can be sized for the load, want endless hot water for back-to-back showers, or are short on floor space.
- Electric tankless is a third option, but whole-house models need very large electrical service and work best in warm climates or for point-of-use.
How each type works
Heat pump water heater
A heat pump water heater is a storage tank with a small heat pump on top. Instead of making heat with a resistance element, a compressor and refrigerant move heat from the surrounding air into the water, much like a refrigerator running in reverse. Most models, such as the Rheem ProTerra hybrids we carry, also have electric elements that switch on when demand is high. That is why they are often called hybrid water heaters. The U.S. Department of Energy notes that heat pump water heaters can be two to three times more energy efficient than conventional electric resistance water heaters.
Tankless water heater
A tankless (on-demand) water heater stores no water. When you open a hot tap, a flow sensor fires a gas burner or switches on electric elements, and water is heated as it passes through a heat exchanger. Because nothing is kept hot in a tank, there is no standby heat loss. For a closer look, see How Does a Tankless Water Heater Work?
Side-by-side comparison
| Heat pump water heater | Gas tankless water heater | |
|---|---|---|
| Fuel | Electricity | Natural gas or propane (plus a 120 V outlet for controls) |
| Hot water supply | Stored tank, typically 40 to 80 gallons; can run out during heavy use | Continuous, limited by flow rate (GPM) at your temperature rise |
| Efficiency rating | UEF commonly above 3 for current models | UEF typically about 0.8 to 0.97, with condensing models at the top |
| Space | Floor space plus surrounding air volume or ducting | Wall-mounted, small footprint |
| Venting | None | Sealed vent to outdoors required |
| Drain | Condensate drain or pump | Condensate drain on condensing models |
| Climate fit | Best in spaces that stay warm; cools the room it is in | Works in any climate; cold incoming water reduces GPM |
| Typical maintenance | Clean the air filter, flush the tank, check the anode rod | Descale the heat exchanger, clean the inlet filter |
UEF (Uniform Energy Factor) is the federal efficiency rating for water heaters. A heat pump unit can score above 1.0 because it moves heat rather than creating it. Because the two types use different fuels, compare estimated annual operating cost at your local electricity and gas rates, not UEF alone. The yellow EnergyGuide label on each model lists an estimated yearly cost.
Hot water delivery: tank vs flow rate
A heat pump water heater behaves like a tank. You get a full tank of hot water, and once it is used, the unit has to recover. The heat pump alone recovers more slowly than electric elements, so most hybrids offer modes that let the elements help when demand is high. Look at the first-hour rating on the spec sheet: it tells you how much hot water the unit can deliver in an hour starting with a full tank.
A tankless heater never runs out, but it can only heat a certain number of gallons per minute. In winter, when incoming water is colder, that number drops. If two showers and a dishwasher run at once, an undersized unit will not keep up. Our guide What Size Tankless Water Heater Do I Need? explains how to size by GPM and temperature rise.
Installation requirements
Heat pump water heater
- Electrical: Most hybrid models need a 240 V circuit. The Rheem ProTerra 40 to 80 gallon hybrids we carry are listed for a 30 A circuit. 120 V plug-in models exist for homes without a 240 V circuit at the water heater.
- Air space: The heat pump needs enough surrounding air to work. Manufacturers list a minimum room volume or a ducting or louvered-door option in the installation manual.
- Condensate: The unit removes moisture from the air, so it needs a floor drain, a drain pan where leaks would cause damage, or a condensate pump.
- Clearance and noise: The fan and compressor make some noise, similar to a dehumidifier, and the unit is taller than many standard tanks. Check the dimensions before you order.
Gas tankless water heater
- Gas supply: Whole-house units can draw up to about 199,900 BTU/h, far more than a typical tank. Many retrofits need a larger gas line or meter.
- Venting: A tankless unit cannot usually reuse an old tank flue. Condensing models often vent with PVC, CPVC or polypropylene, as the manual allows.
- Professional install: Gas piping, venting and combustion air must follow local code and the manufacturer's instructions. Have a licensed plumber or gas fitter do this work.
Climate and location
A heat pump water heater pulls heat out of the room it sits in. In a warm garage or utility room in the South, that is a bonus: the unit also cools and dehumidifies the space. In a heated basement in a cold climate, it takes some heat that your furnace then has to replace. Heat pumps also have an operating air-temperature range; below it, the unit relies on its electric elements and efficiency drops. Check the range in the manual if the space gets cold in winter.
Tankless units work in any climate, but cold groundwater reduces flow capacity. Outdoor-rated models need freeze protection, which typically depends on the unit having power.
Upfront cost and incentives
Both types usually cost more to buy and install than a standard tank. For a heat pump unit, the main extra costs are often a new circuit and a condensate drain. For gas tankless, they are often the gas line upgrade and new venting. Utility rebates and state programs for heat pump water heaters are common, and some cover high-efficiency gas units. Programs change often, so check your utility's current offers and eligibility rules before you buy.
Which one is right for you?
- All-electric home, space in a basement or garage: a heat pump water heater is usually the strongest choice.
- Gas home, large family, back-to-back showers: a condensing gas tankless such as the Navien NPE-2 series is a good fit, as long as the gas line can support it.
- Small closet, no room for a tank: tankless.
- Replacing gas with electric and no 240 V circuit: look at 120 V plug-in heat pump models.
Comparing heat pump models? Read our guide to the best heat pump water heaters and how to choose one.
FAQ
Is a heat pump water heater cheaper to run than tankless?
It depends on your local electricity and gas prices. Compare the estimated yearly operating cost on each model's EnergyGuide label using your own rates.
Can a heat pump water heater go in a closet?
Only if the closet meets the manufacturer's air volume requirement, or if the model allows ducting or a louvered door. Check the installation manual.
Do I need a drain for either type?
A heat pump water heater always produces condensate. Condensing gas tankless units also produce acidic condensate, which usually goes through a neutralizer to a drain.
Which lasts longer?
Service life depends on water quality, maintenance and installation. Compare the manufacturer's published warranty terms for the specific models you are considering.