While the on demand system will be more energy efficient, you also have to consider the initial start-up cost in the equation. If the smaller waterheaters work similarly (with a small tank near the point of use), manufacturing requirements to make the smaller tanks may make them significantly more expensive for the capacity. Locally a 40 gallon waterheater is $100-$300. A tankless point of use costs $200 each. The prices are from the Lowe's website and is based on the store nearest my zipcode YMMV.