We have lots of our clients ask if they should upgrade to an "on demand" water heating system and the answer is all the same. It might make them feel better but the chance of it paying for itself isn't going to happen for a number of years. If they plan to live there the rest of their lives it might pay for itself but if they are typically homeowners they will likely upgrade to a new home within 3-5 years and, OOPs, they didn't recover their investment as they thought they were going to.
Does this make it a bad investment. Not for the environment, or the city/county you live in. You certainly are helping them by not storing hot water. But you are doing it for the environment and that is okay to make that decision. Does it cost more than a standard water heater... YES it does, quite a bit more. We are seeing them cost from $2,000 - $3,800 fully installed vs about $650 - $1,000 for a standard water heater.
BTW it is a "Water Heater" not a "Hot Water Heater". I get such a laugh when I hear someone call it a "hot water heater", heck, if it was hot water already they wouldn't need the water heater... LOL. I never here anyone talk about the "cold refrigerator". It is just a refrigerator.
I was told there is no need for a TPR or Temperature Pressure Relief valve or a drain line on a tankless water heater the other day... NOT true, they have to be safe for operation just like a standard water heater. Does it save energy, YES it does.