A tankless water heater is essentially a very fast, very precise instant-on gas appliance. When you open a hot tap, the unit detects flow, fires a large gas burner, runs the cold water over a copper or stainless heat exchanger, modulates the flame to hit your target temperature, and shuts down when you close the tap. Total cycle time from tap-open to hot water: 5-10 seconds.
The high-level overview
A tankless water heater has six main parts:
- Cold water inlet with a flow sensor
- Gas burner (150,000-199,000 BTU in most residential units)
- Primary heat exchanger — a copper or stainless steel coil over the burner
- Secondary heat exchanger (condensing units only) — captures exhaust heat
- Hot water outlet with a temperature sensor
- Control board that coordinates everything + fan for forced venting
When no hot water is flowing, the unit is essentially off — no pilot light, no standby energy use. This is the fundamental efficiency advantage over a tank: nothing is being heated when nothing is being used.
What happens step by step
You turn on the hot water tap in your master bathroom. Here's the sequence inside the unit:
Second 0.0 — Flow detected
The flow sensor on the cold inlet detects water moving through the unit. Most sensors trigger at about 0.5 GPM minimum flow.
Second 0.2 — Fan starts
The combustion fan spins up to pre-purge the combustion chamber and establish draft through the vent.
Second 1.5 — Gas valve opens
Control board opens the gas valve and fires the igniter (hot surface igniter or spark). Burner lights.
Second 2.0 — Heat transfer begins
Cold water flowing through the heat exchanger above the flame immediately begins heating. Outlet temperature sensor reads the temperature.
Second 3-5 — Temperature ramps
Control board adjusts gas valve open/close based on outlet temperature. If your setpoint is 120°F and output is 100°F, valve opens wider. Modulation is continuous, hundreds of times per minute.
Second 5-10 — Hot water reaches tap
Depending on how far your tap is from the unit, the hot water arrives. With recirculation (Signature tier and up), this drops to 5 seconds regardless of tap location.
Tap closes — Everything reverses
Flow sensor detects zero flow, control board closes gas valve, burner extinguishes, fan runs 30 seconds to post-purge combustion chamber, unit returns to standby. Standby energy use: essentially zero.
The heat exchanger — where the magic happens
The heat exchanger is the coil of metal that cold water flows through. It sits directly above the gas flame. The design has a few remarkable properties:
Massive heat transfer surface. A 199K BTU burner can heat water by 75°F at 7-8 GPM because the exchanger has enormous surface area in a small package — essentially a tightly wound spiral coil.
Material choice. Copper exchangers (Rinnai) transfer heat faster but require slightly thicker walls. Stainless steel exchangers (Navien, most Rheem) transfer heat slightly slower but handle thermal stress and corrosion better. Both are valid — 15-year warranties cover both.
Scale vulnerability. Hard water minerals accumulate inside the coil over time. This is why annual descaling matters — scale reduces heat transfer and creates hot spots that crack the exchanger.
Condensing vs non-condensing
Every tankless unit has at least one heat exchanger. "Condensing" units have two.
Non-condensing: Water passes through the primary exchanger, picks up heat, exits hot. Exhaust gases leave the unit at around 300°F — a lot of wasted heat. Efficiency peaks at about 0.82 UEF.
Condensing: Cold water enters the unit, first passes through a secondary exchanger that captures heat from the exhaust (pre-warming the water from, say, 45°F to 80°F), then enters the primary exchanger above the flame (which only needs to raise it from 80°F to 120°F). Exhaust gases leave cooled to 100-140°F — enough that the water vapor in them condenses, releasing additional latent heat. Efficiency reaches 0.96 UEF.
We only install condensing. The efficiency difference is real money over 20 years, and the PVC venting (cheaper and easier to route) is a major install advantage.
Short version: condensing units cost a little more up front and save 10-15% on gas forever. We haven't installed a non-condensing unit since 2021.
Gas modulation — why temperature stays steady
A tankless unit doesn't just fire on/off. It continuously varies the flame size based on water flow and target temperature. This is called modulation.
Why it matters: if you run one shower at 2.5 GPM, the unit needs a medium flame. If a second shower starts (total 5 GPM), the flame needs to double. Modern tankless units adjust this almost instantly. Older or poorly designed units modulate sluggishly — you'll feel the water temperature dip briefly when demand changes.
Our installed units (Navien, Rinnai, Rheem) modulate from about 10% to 100% of burner capacity in smooth steps. In practice, you won't feel simultaneous-use temperature changes.
The control board — the brain
Everything above is coordinated by a control board — essentially a small computer that reads flow sensors, temperature sensors, gas valve position, fan speed, exhaust temperature, and outputs commands thousands of times per second.
Modern units (all three brands we install) add Wi-Fi, which means the control board also reports data to a homeowner-facing app: current flow rate, gas usage history, error codes, and maintenance reminders. Some units even auto-schedule recirculation based on learned household routines.
How this differs from a tank water heater
A tank heater stores 40-50 gallons of hot water 24/7. A thermostat monitors the tank temperature; when it drops below setpoint, a pilot light or electric igniter fires the burner (gas tank) or activates the heating element (electric tank). The burner runs until the tank hits setpoint again, then shuts off. This cycles all day, even when you're not using hot water — hence "standby loss."
When you open a tap, the pre-heated water flows out of the tank. No heating happens in the moment — you're drawing from stored supply. When the tank empties, you wait 30-60 minutes for recovery.
Tank heaters are mechanically simpler. They also waste 10-20% of their fuel on standby. And they fail catastrophically (tank rupture = 50 gallons in your basement).
Full comparison: Tank vs. tankless water heater.
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