contamination by pathogenic microbes should be considered with an eye to designing and building the more expensive system with the HE; i.e. avoid obvious mistakes and pitfalls with the better system. Standing water in the cheap system undergoing wide temperature swings and remaining stagnant for periods of time may be what creates the environment favorable for the pathogenic microbes to incubate and propagate. With the better system you have water only in the 3/4" lines and what is in the hot water heater which likely presents no more risk for contamination than normal use of that type of heater using an electric element or natural gas - plus you could hook it up to an energy source for backup DHW source.
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