The manufacturers of on demand hot water systems claim that their devices can save $200 per year in hot water heating costs. If true, this would be a substantial savings. We were not able to locate any independent research studies that evaluated the energy savings of these devices.
Even without purchasing an on demand hot water system, lowering your water heater temperature between 10ºF and 25ºF, will save 5% to 15% of energy for water heating (U.S. Dept. of Energy, 2001).
Reducing hot water use and temperature is an excellent way to save energy. On demand hot water systems may be a good choice for reducing hot water demand, but there needs to be additional research to validate manufacturers claims of savings.