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Indirect water heaters use the home's heating system as the heat source, but the water from the boiler is circulated through a heat exchanger in a separate, insulated tank. Since hot water is stored in a storage tank, the boiler does not have to turn on and off as often.

Source: UF/IFAS Energy Efficient Homes: Water Heaters; Wendell A. Porter, Hyun-Jeong Lee, and Kathleen C. Ruppert, 2008.

Additional Resources

EnergyStar®  

UF IFAS Energy Efficient Homes: Water Heaters