Indirect water heaters are a more efficient choice for most homes, even though they require a storage tank. An indirect water heater uses the main furnace or boiler to heat a fluid that's circulated through a heat exchanger in the storage tank. The energy stored by the water tank allows the furnace to turn off and on less often, which saves energy. An indirect water heater, if used with a high-efficiency boiler and well-insulated tank, can be the least expensive means of providing hot water, particularly if the heat source boiler is set to "cold start."
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