The commercial water heating market has options for building owners and facility managers when it comes to selecting equipment for their facilities — tank or tankless, gas models or electric — even heat pump water heaters are seeing growth in this space. So which is the most popular? Well, it all depends on who you ask.

“The answer really depends on the type of application,” notes Amy Turner, director of marketing for Intellihot. “Restaurants with their space needs are installing mostly tankless systems, as these units fit into tight space constraints well. Many of these units are wall-mounted, providing valuable floor space for other restaurant operations.”

Turner reports that Intellihot has seen a significant increase (30%) in first-quarter year-over-year sales of gas tankless water heaters. “Many firms are choosing tankless, such as MLK Plaza, a new ground-up residential building developed in the industrial area in eastern Mott Haven, in the South Bronx (New York).

“We still see some new construction projects in other industries using ‘tank-type’ applications due to engineer familiarity through decades of work,” Turner adds. “But when an engineer looks at their needs and the many benefits of tankless, it’s a really easy decision to go tankless. Today’s tankless models provide great cost efficiencies, plus offer so many advanced benefits not found on tank-type systems, including working with building information systems and providing remote monitoring.”

Turner does note that electric models are gaining interest because of the policy changes regarding building emission standards, yet points out a robust tankless option is not currently available for commercial needs. She hints that Intellihot has its eye on this market segment, and hopes to have an announcement in the near future.

Michael Lloyd, product manager – commercial, Rheem Manufacturing Co., also believes the best product is what best suits the application and customer needs.

“If you need high volumes of continuous hot water while also complying with space constraints, tankless is best. If you need a burst of water for a limited period of time, but then sit idle with time to recover (like high school showers) a tank is best. However, in either case, energy efficiency is certainly important. Customers are actively seeking out more efficient products with high-efficiency gas and heat pump water heaters. Rheem has a commercial application team that works with engineers to help identify and size the different types of products. These sizing reports allow people to compare energy usage and show where savings can be had.”

Rinnai America Corp. has found that tankless is the most common consideration for commercial new construction projects, according to Dale Schmitz, senior marketing manager for Rinnai.

“Tankless offers redundancy, longer life and is readily available when compared to other forms of water heating,” he explains. “Customers are finding that condensing tankless offers optimal efficiency, heats water only when there is a demand and precisely tracks the load all the way to the maximum Btu/h with superior modulation. Also, space has never been at more of a premium, and with its compact size, tankless can fit in most mechanical rooms or in rooftop applications where suitable.”

Schmitz adds that consideration of alternative fuel sources continues to grow, but natural gas is still the most often specified in new construction due to energy cost and availability.

Navien's Director of Commercial Sales Brian Fenske notes that following a previous decade of minimal growth in both residential and commercial, acceptance of tankless has seen significant advancement in the past few years.

“The industry in general has gotten past the misapplication, misunderstanding and poor installation practices,” he says. “It's a credit to the industry for the wealth of information and training to advance the understanding of tankless is due to all participating manufacturers. Tankless can address and achieve any installation and usage criteria if its applied and executed properly. Essentially, unlike tank systems that have a drawdown reserve, tankless must be sized and selected to meet the known peak flow at a worst-case temperature rise.”

Cain White, director of commercial product management for Mitsubishi Electric Trane HVAC US (METUS), agrees, noting that gas-fired water-heating products are the m

“These products have a mature market and are familiar to mechanical contractors and engineers,” White explains. “However, the market is changing due to evolving codes, new technologies and the public interest in a cleaner environment. In cities like Seattle, we’re seeing new energy codes written to eliminate gas-fired water heating in multifamily buildings and commercial spaces such as hotels. As a result, we’ve experienced significant interest in our new Heat2O Heat Pump Water Heater. According to the Advanced Water Heating Initiative, the U.S. could prevent nearly 100 million tons of carbon emissions annually by transitioning to all-electric heat pump water heaters.

“Until now, a sustainable choice for providing reliable, high-volume domestic hot water has not been available,” White adds. “Our all-electric, cold-climate, scalable Heat2O Heat Pump Water Heater is uniquely designed for medium-to-large applications where on-demand high-volume DHW is needed.”

New efficiency standards down the pipe

In May, The U.S. Department of Energy proposed new energy-conservation standards for commercial water heating equipment, including gas storage, instantaneous water heaters and gas hot water supply boilers. The proposed standards would require commercial water heaters to incorporate condensing technology, which significantly reduces energy consumption by extracting additional heat from the combustion process. Energy efficiency is a key component of President Joe Biden’s plan to reduce climate pollution while delivering savings.

If finalized, the proposed standards would save businesses and operators $140 million per year in operating costs. Over the next 30 years, the new standards are projected to generate $2.4 billion in savings, with an average life-cycle cost saving of $301 for a commercial building operator of a gas-fired storage water heater. According to the Energy Information Administration, gas water heating accounts for 18% of natural gas consumption in commercial buildings, which is primarily driven by inefficient, non-condensing water heating equipment that allows excess heat to escape.

In addition to the projected 30-year cost savings, the new standards will reduce carbon emissions by an amount equivalent to the annual emissions of 4.8 million homes. The new standards will also cut methane emissions by an amount equivalent to the annual emissions of 2.3 million gasoline cars. If implemented within DOE’s proposed timeframe, the new standards would come into effect in 2026.

“At A. O. Smith and Lochinvar, we anticipated the U.S. Department of Energy’s introduction of new minimum efficiency standards for commercial water heating efforts,” says Josh Greene, corporate vice president of government and industry affairs for A. O. Smith. “It’s been almost 15 years since the last standard raise, so this change doesn’t come as a shock to us. There are a lot of pre-existing incentives to utilize higher-efficiency units, and it’s likely that we will see these incentives embraced as the new standards are set into place.

“The true impact on the marketplace will be the eventual phasing out of non-condensing fossil fuel-fired water heating equipment,” he adds. “Instead, we’ll see the utilization of condensing technology as the minimum standard. The biggest question to come out of these new federal regulations is how quickly the market will embrace these new standards and drive proactive replacements.”

Greene also points out that the new standards will create a significantly higher bar for the water heating products that manufacturers produce. “While there has been a more market-based progression toward condensing equipment over the last decade, these new regulations are going to rapidly accelerate the adoption of high-efficiency commercial water heating equipment moving forward,” he says.

Intellihot CEO Sridhar Deivasigamani issued a statement applauding the Biden administration for the proposed efficiency standards.

“I’m glad the U.S. Department of Energy (DOE), led by Sec. Jennifer Granholm took decisive action to address this issue by eliminating outdated, inefficient water heaters from the market starting in 2026,” Deivasigamani says. “However, given the urgency of our climate crisis, why not implement these superb new standards by 2024? I have no doubt these modernized standards will reduce carbon emissions (DOE estimates 38 million tons between 2026 and 2055) and energy costs (DOE estimates $2.4 billion in that same time frame) when it goes into effect. This means cleaner air for all of us and more money for small businesses, hospitals, and schools. Intellihot is uniquely prepared to capitalize on this new rule — our units use 40% less energy than conventional tank-type heaters and have already effectively removed over 3.1 million tons of CO2 from our atmosphere. Updating outdated standards like this one is critical to accelerating the electrification movement and our path towards net zero carbon emissions while also saving money.”

Mitsubishi's White notes that the market is already moving toward higher-efficiency water heating products.

“While the transition feels slow for those of us committed to decarbonization, facility owners have a clear interest in lowering operating costs with energy-efficient products and future-proofing their buildings for code compliance,” he explains. “The new standards may contribute to a transition we view as inevitable, but we’ll need to push beyond them. For example, the proposed standards require water-heating systems to incorporate condensing technology. This is a step toward efficiency and means newly installed systems would repurpose exhaust heat instead of venting exhaust gas. We welcome these changes but believe the energy-efficient water-heating systems of our sustainable future must also eliminate on-site carbon emissions.”

Rheem's Lloyd doesn’t expect to see much impact from the proposed standards, as the market has already been demanding more energy-efficient products. “For replacements, there will be some growing pains upgrading standard gas water heaters because tank and tankless high-efficiency gas water heaters require different venting, resulting in additional time (and cost) at the job site. Rheem has been putting a lot of effort into designing high-efficiency products that can replace older ones as quickly as possible.”

Energy efficiency, sustainability are top-of-mind

Most facility owners seek products that offer a maximum thermal efficiency of at least 97% and last longer (10 years or more) because it has an immediate positive impact on operational costs and defers capital costs, Schmitz notes.

“Rinnai seeks to enhance our customers’ bottom line by helping them to use less water, less energy and reduce their landfill waste,” he says. “We achieve this by understanding the unique needs and goals of each project and then designing a highly efficient water heating system with reliable, long-lasting equipment. This also means accurately sizing the equipment including a recirculation pump that is run by a timer or aquastat and ensuring check valves are installed where needed.”

Fenske agrees that decision makers and end users seek high efficiency, but also better warranties, easy service and redundancy.

Additionally, Lloyd notes facility owners today have a much better understanding of the cost to run their equipment.

“High-efficiency condensing gas products are up to 22% more efficient than standard gas water heaters,” he says. “For a quick-service restaurant, this can translate into thousands of dollars saved every month in energy bills. And that’s gas. Rheem’s commercial heat pumps can reduce energy usage up to 75%.”

Lloyd points to Rheem’s aggressive goals for 2025 as an example of the company’s commitment to helping clients meet sustainability goals. “Our goals include launching a line of heating, cooling and water heating products that boast a 50% reduction in greenhouse gas production. We also will demonstrate best practices by reducing our greenhouse gas emissions by 50% and achieving Zero Waste to Landfill in our manufacturing operations. Finally, we want to provide leadership by training 250,000 plumbers, contractors and key influencers on sustainable products or sustainable installation and recycling best practices. Rheem is already well on the way to achieving these goals.”

Turner notes that energy efficiency and sustainability are two sides of the same coin, and Intellihot has found that most facility owners are concerned with both.

“Whether they’ve expressed a desire to reduce energy consumption or to operate in a more environmentally responsible way, our units typically save 40% of the energy used by tank-type systems,” she says. “But we occasionally see the rare facility owner who is less concerned with efficiency. Most of these owners have renters pay for utilities directly. We see this as rather short-sighted and encourage all facility users — whether owner-occupied or renting — to be aware of the systems in place in their facility, as they directly impact facility use costs.”

Turner adds that sustainability is Intellhot’s driving purpose. “Our water heaters are ENERGY STAR-certified, and are ultra-low NOx certified. We offer free online CE courses that provide GREEN CE credits. We also have product calculators that help spec the correct size of a water heater and other apps that project fuel savings of our tankless systems versus old school systems — properly sizing units and tracking energy consumption help reach sustainability goals, and we’re happy to help anyone with these calculations.”

Intellhot also features a CO2 reduction tracker on its website, showing how Intellihot units in the field over the last decade have reduced CO2 emissions by 3.1 million tons.

“This is equivalent to taking more than 310,000 passenger vehicles off the road for a year,” Turner points out. “We’re proud of our products for many reasons, with sustainability being a key reason. That said, we feel that we’re just at the beginning of our sustainability story, as we project that Intellihot products could likely save 2.6 billion tons of CO2 emissions per year by 2025, based on hours of operation, energy output per hour, BTU and other variables.”

While facility owners are definitely concerned about energy efficiency and sustainability, White explains they tend to view both in financially practical terms.

“Energy-efficient and sustainable water heating ultimately means lower operating costs, easier code compliance and a more attractive property for tenants and potential buyers,” White says. “Facility owners who consider energy efficiency and sustainability protect and enhance the value of their properties.

“Mitsubishi Electric Trane HVAC US (METUS) provides all-electric products and expertise to help customers meet sustainability goals while improving operating costs and comfort in their facilities,” he continues. “To reduce the environmental impact and cost of producing high-volume domestic hot water, we offer the Heat2O Heat Pump Water Heater in select markets. Through energy-efficient operation, a COP up to 4.52 and reduction of on-site carbon emissions, Heat2O significantly minimizes the environmental impact of producing high-volume DHW. Using natural CO2 refrigerant, with a global warming potential (GWP) of one, an ozone depletion potential (ODP) of zero, Heat2O helps commercial facilities qualify for rigorous sustainability criteria and certifications such as passive house status.”

Greene explains the facility owners who are concerned about energy efficiency and sustainability in their mechanical rooms tend to work in the hospitality and restaurant industries, as well as federal, state and local government properties that must comply with regulations that require high-efficiency equipment be installed in their properties.

“In the private sector, the concern stems from the property owner being part of an overarching organization that has Environmental, Social and Governance (ESG) goals in place,” he says. “These groups set ESG goals that drive sustainability efforts in each individual facility, or over a portfolio of properties, in turn, driving the need for more efficient water heating products that provide energy savings as well as lowering greenhouse gas emissions. Even for companies that are not publicly traded, high-efficiency equipment will play a key role in achieving sustainability and energy efficiency goals going forward.”

A. O. Smith and Lochinvar strive to always work closely with customers’ mechanical engineering groups that specify equipment so the companies can advise on what piece of equipment will best meet sustainability goals, Greene points out.

“We always keep in mind that we need to provide the best available equipment at a reasonable cost so that we’re bringing a solid return on investment for our customers while assisting them in reaching their sustainability goals,” he adds.

What’s next?

According to Schmitz, the market will continue to drive toward higher efficiencies and products with a smaller footprint.

Lloyd notes that Rheem has been providing products that produce hot water for nearly 100 years and expects to continue that tradition. “We expect to continue to do so, but with heaters that are more intelligent and limit our user’s downtime with smart features like health alerts, service alerts and built-in leak detection.”

The days of specifying tank-type units out of habit have ended and a new movement is underway, according to Turner.

“Engineers are constantly tasked with improving systems, and that’s an exciting part of their jobs,” she says. “We love interacting with them — whether they’re focused on energy savings or CO2 reduction, we have a strong story to convey. But that’s certainly not their only consideration — they also look at reliability, warranties, lifetime cost, space needs, safety, maintenance and other factors, which all point them to tankless units.”

Fenske is optimistic about the market outlook over the next several years. “For numerous reasons, some of which is equipment prices on the rise, availability problems and decision makers seeking domestic hot water redundancy and efficiency, tankless systems show great promise to continue to grow exponentially for years to come.”

Photos courtesy of Rheem, Intellihot, Rinnai, METUS and Navien.