We also have a hybrid heat pump hot water heater, and we have been very happy with it. I don't know the answer to your question about the efficiency of an on-demand gas water heater. However, the main challenge in home energy use right now is eliminating the emissions of greenhouse gases from burning fossil fuels, like natural gas. Switching to electricity as your source of energy is the best way to do this, especially in Ontario because over 90% of the electricity here is produced without burning fossil fuels. For this reason, installing a new natural gas on-demand hot water heater is not the way to go.