North American manufacturers provide insight on the trends leading the way for the future of the industry.
Original Post Date July 5, 2020
The world was first introduced to the tankless water heater in 1889. More than 130 years later, the on-demand product is more in demand by consumers, and that trend is expected to continue.
According to Grand View Research, the global tankless water heater market size was valued at $2.8 billion in 2018 and expanding at a compound annual growth rate of 7.5 percent through 2025.
As the country grapples with the current pandemic, and both consumers and businesses adjust to a new normal, tankless water heater manufacturers continue to work, produce and innovate, all in an effort to provide a product that brings comfort and safety to millions across the nation. And although the rapid development and constant change of COVID-19 has led to serious implications across manufacturing and supply chains, the manufacturers we spoke to for this report remain steadfast at keeping business as usual.
We spoke to several tankless water heater manufacturers — A. O. Smith, AERCO, Bosch Thermotechnology, Bradford White, Diversified Heat Transfer (DHT), Eemax, Intellihot, Navien, Noritz, Rheem, Rinnai, Stiebel Eltron and Vesta.DS — to get their views on trends in the industry, as well as where they see it going in the future.
Demand for Efficiency Keeps Business Efficient
Throughout North America, consumers have become accustomed to on-demand solutions that allow them to lower their own eco footprint while maintaining a desired level of comfort. Tankless water heaters provide hot water only when it is required, thus reducing wasted energy. Add to that the benefits of technology such as the Internet of Things (IoT), smart-controls and self-diagnostic functionality, and you’ve got a product that will remain in demand for the foreseeable future.
According to energy.gov, the tankless water heater can be 24 percent to 34 percent more energy efficient as compared to a traditional water heater. These benefits extend to both the residential and commercial markets as they can save both space and money.
And although there aren’t any new federal regulations coming down the pike for tankless water heaters, increasing awareness on the adoption of energy-efficient and eco-friendly water heaters will continue to fuel the demand as well as innovation and competition in North America.
On a more localized level, there are discussions in a few states that could impact tankless water heaters. Massachusetts, for example, is considering banning PVC as a venting material, and California is debating whether or not to apply low NOx standards to propane models. California is also holding discussions on other, more stringent, regulations.
“Many of the regulations we’re seeing today have started in California with Title 24, Building Energy Efficient Standards,” says Jeff Ogan, director of product management for A. O. Smith. “These regulations were designed to reduce wasteful and unnecessary energy consumption in newly constructed and existing buildings.”
Not everyone saw the regulations coming out of California as a good thing. According to Randall Oshiro, senior supervisor of application engineering at Noritz, there are new regulations under Title 24 in California that are shaping the entire water heating market regionally, and potentially nationally.
“There is a strong push through a number of different bills to phase out natural gas in the home, which would negatively impact consumer choice,” he says. “This will force the only option to be electric heat pump water heating. In this case, tankless water heating would not be an option for compliance as there would be no gas in the home.”
DHT’s Director of Engineering Peter Rimassa adds, “Phasing out the usage of fossil fuels and moving toward electricity will cause challenges for many manufacturers in designing innovative high-efficiency product solutions.”
California residential and nonresidential new construction, additions and alterations permitted after Jan. 1, 2020, must comply with the 2019 Building Energy Efficiency Standards. “I could be wrong, but I think all of the gas tankless water heaters sold in the U.S. already comply with those standards,” notes Richard Ponce, national sales manager of Vesta.DS. “That said, these new regulations will eventually migrate to other states and will continue to affect tankless water heater sales now and in the future.”
Other manufacturers are keeping a close eye on a new plumbing standard — ASSE 1085 — that was added to the 2018 International Plumbing Code (IPC) change proposal process. It will be published in the 2021 edition of the IPC.
“ASSE 1085 covers water heaters with precise setpoint controls under varying flow conditions,” says David Calkins, product manager at Eemax. “It is for water heaters supplying tepid water to emergency equipment, including eyewash, eye/face wash, emergency showers and combination units.”
North of us, Canada also has increased the minimum efficiency value to a level that requires condensing technology that took effect on Jan. 1, 2020. “This effectively bans the sale of noncondensing models,” explains Dan Moffroid, director of product management at Bosch.
As with most consumer-driven industries, better and more efficient will always be in demand, even if it comes at a cost.How these manufacturers navigate new rules and regulations, especially in changing times, will continue to drive innovation as well as competition. They’re all in it for the long haul.
What’s the Forecast for Tankless Water Heaters?
The current public health and economic crisis and when it will end — as well as regulations, tariffs and technology —will ultimately play a crucial role in how the tankless water heater industry will fair in the next two to five years. That said, the manufacturers we spoke to seemed mostly optimistic about the future.
The benefits of a tankless water heater are not short-lived and as consumers — both residential and commercial —consider options, they will weigh all the benefits of this very essential product. “Energy efficiency, sustainability and green product solutions will continue to drive purchasing and installation decisions,” Ogan says. “This will make tankless water heaters a top choice for residential and commercial applications.”
Nery Hernandez, product manager of hot water solutions at AERCO, notes they expect tankless water heaters to be a growth market in 2020. “The benefits of tankless are becoming more widely recognized in the commercial marketplace,” he says. “Along with the efficiency gains associated with tankless water heaters, Legionella mitigation is another benefit that is a factor with many users. Being able to provide hot water on-demand is a proven methodology (among many) in helping reduce risk to Legionella.”
Bosch also expects solid 7 percent to 9 percent growth in 2020, but cautions of a flattening or slight decline in the noncondensing segment. “This would continue the long-term growth rate the tankless industry has seen over many years,” Moffroid notes. “Of course, I am saying this in the early stages of the novel coronavirus crisis, which may certainly affect demand, but that remains to be seen.”
All the manufacturers we spoke to reported steady growth in 2020 and expected that to continue through the remainder of the year. Some, however, cautioned of the unknowns that still need to play out.
“Continued growth of the tankless water heater market is expected in 2020,” says Carl Pinto Jr, senior director of marketing communications at Bradford White. “However, the rate at which it has been historically growing will likely begin to level off.”
Eemax’s Senior Director of Wholesale Sales Bill Dahlin says the company has seen positive market gains for the first quarter of this year with double-digit year-over-year growth in residential, commercial and safety product segments, but adds: “COVID-19 has impacted commercial jobs in many cities affected by current stay-at-home guidelines, and Eemax has seen a slight shift away from commercial/light industrial product demand. However, at the same time, we are seeing an increased focus on handwashing product solutions, including our MiniTank product family.”
COVID-19 is affecting everyone across the nation, but manufacturers are getting creative in how they respond to the crisis and keep operations going.
“COVID-19 certainly has an impact on all businesses — lowering demand in a few sectors such as hospitality while increasing it in others such as residential,” notes Sridhar Deivasigamani, Intellihot’s CEO. “Despite the pandemic, we expect to continue our strong growth as we effect market transformation. We expect that there will be a strong recovery in late Q3/Q4. In general, there is an increased awareness of health and the environment that has led consumers to choose healthy products as well as conserving energy.”
“We are expecting a drop in residential installations and an increase with commercial installations,” explains Chai Lin, Navien's tankless water heater product manager, adding that the current crisis makes it hard to predict what the market trend will be.
Noritz’s Oshiro echoed that sentiment: “We like to stay optimistic about the market. There’s still a huge market share of existing tank installations that tankless can tap into. We may have to pivot due to economic uncertainty, but there will always be a need due to the essential nature of plumbing and water heating.”
Scott Cohen, senior manager at Rheem, notes: “We are optimistic. We are seeing an emphasis on providing more advanced tools and resources for plumbers, which will ultimately optimize residential and commercial installations. This emphasis is because plumbers have a big influence on their customers’ water heater selection, whether it be tank or tankless.”
Rinnai shares that optimism and belief that it is ultimately the homeowners, builders, and contractors who will continue to push for tankless water heaters.
“We see strong continued growth into the foreseeable future for the tankless market,” says Jennifer Kaminski, product director of residential tankless at Rinnai. “Market data shows condensing tankless consistently growing at over 10 percent year-over-year for the last 10 years, so it remains a strong growth category in water heating. Homeowners, builders and contractors recognize the benefits of tankless in residential applications and continue to recommend and promote the product, increasing the base of installations.”
Julius Goodman of Stiebel Eltron agrees: “The market will continue to grow as people realize the benefits of endless hot water, plus the energy savings of eliminating the standby losses of a tank. As we have said in the past, electric tankless is poised for growth due to the increasing generation of electric energy though renewable technologies rather than the use of fossil fuels.”
DHT’s Rimassa notes that the company continues to see tremendous growth in the tankless water heater market. “As the industry mandates higher efficiency and end-users and installers realize the space-saving, energy-saving and water-saving benefits tankless water heaters provide. we will continue to see tankless water heating make an impact in the market,” he says.
“Current energy standards mandate requirements to facilitate future installations of high-efficiency systems using gas or propane,” Vesta.DS’ Ponce concludes. “These requirements are for new construction and additions if a water heater is installed in the added floor area. These requirements will make it easy to retrofit from storage tank to gas tankless systems. That’s got to be good for future business!”
Regardless of where we are regarding predictions, we all know that there are various factors at play. We also know that tankless water heaters will remain both a necessity in some areas and a sought-after product in others. But what’s driving or, in some cases, holding back the market now?
Drivers of the Tankless Market
Simply put, the efficiency benefits of a tankless water heater are driving growth. But beyond that, the tankless water heater also provides a smaller footprint, saving space in both residential and commercial properties. The convenience of having hot water when you need it and without wasting energy — while also saving money and space — is very appealing. These things, either individually or collectively, have been a driver for a while now and will continue to be drivers for years to come.
“The tankless water heater’s biggest appeal is its ability to produce endless hot water, giving owners access to it as they need it,” A. O. Smith’s Ogan said.
Rheem’s Cohen agrees, adding: “Factors driving the tankless water heater market include energy efficiency and the ability to provide an uninterrupted flow of hot water, even for a large home or big family that uses a lot of water. Tankless is also a smart home upgrade.”
Technology absolutely plays a part in all the drivers. “Manufacturers are integrating new technologies including smart monitoring and control features to improve the product life and efficiency,” Rimassa from DHT says. “As the industry continues to shift toward Legionella-conscious owners and smart buildings, we are seeing the utilization of low-flow fixtures to conserve water usage, reducing the need for storage.”
Pinto from Bradford White believes that new construction will also play a role in driving the tankless water heater market. “This is especially true in warmer climates of the country,” he says.
Almost all the manufacturers agreed on the market drivers. “It comes down to reliability, space, operational savings and availability,” Intellihot’s Deivasigamani says. Navien’s Lin adds: “Consumers’ increasing awareness for green products is definitely a factor.”
Vesta.DS’ Ponce agrees: “Just as its always been, it’s still the same factors — space savings, energy savings and continuous, precise hot water — that has contractors, builders and savvy homeowners driving the tankless water heater market.”
Barriers of the Tankless Market
With all the benefits tankless water heaters provide — and there are many — there are downsides, too. Installation requirements are one of those barriers. A tankless unit needs up to five times the amount of gas to run (tankless water heaters range between 120,000 to 199,000 BTUs) versus a tank-type water heater (40,000 BTUs). A tankless unit also requires a different venting system to allow the internal fan to run properly.
“Another barrier to installation is cost,” Ogan explains. “Tankless installations may be two to three times more than a tank-type water heater to purchase and install.”
Bosch’s Moffroid echoed the concerns over cost: “The barriers to growth have long been the higher purchase price and convenience of installing like-for-like when a tank fails.” But he adds that those barriers have been coming down in recent years. Navien’s Lin suggests the added costs make it difficult to compete with other types of water heaters.
But it’s not all about cost and installation. Other barriers include those imposed by regulations. Bradford White’s Pinto points to the regulation limiting fuel price as a barrier to growth as well as to innovation.
“As I mentioned earlier, there is a big movement in California to phase out natural gas, which will definitely provide a barrier to growth of the gas water heating market,” Noritz’s Oshiro said. “In other parts of the country, however, natural gas water heating is on the rise as customers and utilities look to increase efficiency and reduce their carbon footprint.”
In some instances, technology can hinder the sales of tankless water heaters. According to Stiebel Eltron’s Goodman: “Unfamiliarity with the technology can be a barrier to adoption and, therefore, sales.” Deivasigamani notes, however, that although “the apprehension of new technology and its durability was a barrier, it’s no longer the case.”
It’s easy to get bogged down with barriers and challenges, but where there is a will, there is a way. And these manufacturers have proven to find innovative ways to work around the obstacles and develop products that rise to the challenge, whatever it may be.
Rising Above the Wave of Uncertainty
Each of these manufacturers are at the top of their game. They not only design and produce tankless water heaters, but they also actively participate in educating the public on the benefits and longevity of their products and services. We asked all who participated in the report to tell us how their company is helping the professional channel both market and sell their products. Here’s what they had to say:
A. O. Smith is always looking for ways to increase the value it provides to its downstream channel partners. “We understand the importance of proper training and are proud to invest the time and resources into educational tools that support our contractors, wholesalers and specifying engineers,” Ogan says. “Training is led by our full-time staff of dedicated technicians. We offer virtual training at www.university.hotwater.com, which combines online digital classes and web-based interactive sessions. Online certifications are available in multiple categories, including tankless, residential and a course specific to our new X3 Technology.”
The manufacturer also offers free on-campus training sessions in its recently remodeled facility in Ashland City, Tenn. Professionals interested in the in-person classes should visit the website for dates and additional details.
Hernandez says AERCO offers a sizing tool to make it easy to size a water heating plant based on system application. “Our sizing tool also includes a sizing guarantee: If you provide accurate information and still run out of hot water, we will ensure it never happens again with a fully functioning AERCO plant,” he explains. “Another initiative we are offering are thought-leadership materials designed to educate specifying engineers and contractors on best design practices to optimize system performance, efficiency and reliability.”
Bosch’s Moffroid said the company firmly believes in the benefit of product training and puts a great amount of focus and resources into this area of the business. “We currently perform trainings at our live-fire training center in New Hampshire, sometimes remotely with a mobile training vehicle. We also provide webinars, and we have a large library of training videos that is constantly being expanded,” he says.
Bradford White’s Pinto says: “We provide specialized tankless training for professionals, and we have been helping our wholesalers who are e-commerce-ready sell both our tank and tankless products, via their b-to-b platforms.”
Training is key for DHT. “We are committed to providing product, installation or troubleshooting training,” Rimassa says. “We offer training at the DHT factory, on-site, or via webinar to ensure our customers are 100-percent supported.”
Calkins says Eemax is invested in supporting its partners with continuing education units (CEUs) and Eemax Product Knowledge sessions.
“Specifying engineers can earn ASPE CEU credits with our live webinar series of courses,” he notes. “You can visit eemax.com/resources for a list of course descriptions and to register. Or, to schedule a CEU presentation for your company, please contact your representative. Eemax technical training courses will teach plumbing contractors and wholesalers how to correctly size, install and troubleshoot products ranging from 0.2 to 40 gpm and 1.8 kW to 150 kW.”
Interested professionals can request live webinar training for residential, commercial and industrial products by visiting surveymonkey.com/r/33WJJCN.
Intellihot regularly holds webinars for engineers with a relevant range of topics with EIA credits. “We have developed easy-to-use tools that are available online for customers to review ROI and compare alternate options before purchasing equipment,” Deivasigamani explains. “Additionally, we are in the process of opening a new headquarters and training facility in Chicago.”
Navien’s Lin says: “Continual product training and education is key. Training drives sales at all levels for wholesalers, engineers and contractors.”
“Recently, we’ve started to concentrate on the training and educating of our contractors with various webinars and other training resources,” Oshiro of Noritz notes. “We feel like once they learn the value of tankless, they start to fully embrace and buy into the advantages versus traditional water heating products.”
Rheem’s Cohen says: “Rheem is committed to making lives easier for plumbing contractors. For example, the RealSupport feature in Rheem’s Contractor App allows a plumber to connect with another plumber like one would via a video call, using a smart device’s augmented reality capabilities. Plumbing contractors can use their smart device as a video screen and drawing board to point out situations and to troubleshoot without sacrificing productivity or dispatching additional technicians to the jobsite. Once drawn, if a plumber were to move the phone and point the phone’s camera away, the drawing would still be visibly in place as a helpful learning tool.”
He adds that the manufacturer invests heavily in training distributors and contractors, including equipping them with industry-leading technology and routine education. Rheem offers comprehensive, in-person training programs at its five state-of-the-art Innovation Learning Centers throughout the United States and Canada.
“Given current times surrounding the coronavirus pandemic, Rheem has shifted from in-person training to e-learning and online webinars,” Cohen explains. “More information on online training can be found at www.rheemtraining.com. And lastly, for specifying engineers working on commercial tankless water heater projects, Rheem has application engineers on staff available to help with sizing and product selection.”
David Federico, brand director for Rinnai, says the company has an excellent training team that regularly puts on training for newcomers to the industry (Level 1 and Level 2) and for service veterans (Level 3).
“They are also training our dealer network and distribution partners via webinars and local classes,” he notes. “We employ a lean philosophy with our training and regularly innovate with content, frequently based on suggestions and requests from our participants. Rinnai also is launching the new Rinnai PRO Network, which is a channel program that provides professional installers with many benefits and tools to assist with driving growth of the tankless category.”
Goodman from Stiebel Eltron says: “We have been hard at work to energize and equip our manufacturer’s representatives with the tools they need to reach out to the people and companies they deal with.”
“Vesta.DS is committed to supporting the professional channel market by partnering with wholesalers who provide excellent service to contractors and their b-to-b customers,” Ponce notes. “At the end of the day, our wholesalers, specifying engineers and contractors service the end-users. Our goal is to provide excellent products and support for them.”
As we all navigate these uncertain times and as tankless water heater manufacturers learn to adapt to new business processes, regulations and demands, we can all find comfort in knowing this essential industry is here to stay for the long haul.
All the manufacturers we spoke with are dedicated to producing a product that delivers comfort and convenience without sacrificing quality or safety. Thank-you all for your commitment and for your readiness to work through this crisis.