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There are several manufacturers of hybrid water heaters that use a combination storage tank and tankless water heater. The idea is to eliminate some of the problems associated with tankless water heaters while still taking advantage of the
By using a much smaller tank the standby losses are much smaller than those associated with a full sized gas storage tank type water heater.
Hybrid tankless water heaters have a set of pros and cons just like any other appliance.
Tankless water heaters have some annoying characteristics that a small storage tank can solve. For instance, there is the cold water sandwich. A small holding tank can solve that problem.
For those of you who are not familiar with the "cold water sandwich", it's what happens when the flow of hot water is shut off briefly and then turned back on. The heater requires a few seconds to come up to speed after its been shut down, during which a slug of cold water can pass through to the faucet or shower fixture. It's not a big deal, but it's something to be annoyed by.
Another annoyance is the difficulty in getting a very small flow of hot water since tankless water heaters require at least a 1/2" gallon per minute or more to initiate and sustain heater operation. Tankless water heaters also take longer to get the hot water to your fixture, causing you to waste water running it down the drain while you wait for the hot water to arrive. The small tank would solve that problem as well.
Normally you can't use hot water circulating systems with tankless water heaters, but with a small tank that problem goes away as well. You can use a hot water circulating system with the hybrid units.
The only real downside I see to the storage tank side of the equation is that you will now have standby losses. The standby losses won't be as great as with a full size tank, but they will exist. I don't consider it a big problem since for a small buffer tank used with a tankless water heater probably only uses about $1-$3 dollars per month to compensate for standby losses.
Since a tankless unit is involved you will still probably need a larger than standard diameter gas line to feed the hungry little beast, and larger venting than with a standard gas water heater. The heater will most likely require a drain line for exhaust condensate. The installation will be more expensive as a result of these requirements. Installation is very important with tankless units, more so than with storage heaters. Be sure to have the installation done by factory trained individuals if possible.
If it works, I really like the idea of the tankless - storage combination. The strange problems that tankless units typically create like the low flow and cold water sandwich problems and especially the water conservation issues are solved by the hybrid tankless storage water heater concept and you get endless hot water if you need it, not to mention a small amount of energy savings due to the higher efficiency of the tankless burners.
And hot water circulating systems can be used with them for homes with long hot water lines.