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When a condensing boiler is working at peak efficiency the water vapour produced by the consumption of gas or oil in the boiler condenses back into liquid water - hence the name "condensing boiler". The condensation of exhaust gases releases the Latent Heat of vaporization of the water, a more significant source of energy than the transfer of heat by cooling the vapour. By recovering the heat produced as water vapor, a condensing boiler will regain 970btuh/pound of condensate(the water vapor released whenever you burn fossil fuels).

Condensing boilers are now largely replacing earlier, "conventional" designs in powering domestic Central Heating systems in Europe and to a lesser degree in North America. The Netherlands was probably the first country to take them up in a large way. In Europe, their installation is strongly advocated by pressure groups and government bodies concerned with reducing energy use. In the United Kingdom , for example, since 2005 all new gas central-heating boilers fitted in England And Wales must be high-efficiency condensing boilers unless there are exceptional circumstances, and the same will apply to oil-fired boilers from 1st April 2007 ( Warm Air Central Heating systems are exempt from these regulations). In the
United States the there is a tax rebate for the installation of condensing boilers. In Western Canada energy suppliers now offer energy rebates when these systems are installed in multi-unit dwellings. The increase in natural gas prices in North America has encouraged the retrofit of existing boiler installations with condensing equipment.

Condensing boiler manufacturers claim that up to 98% thermal efficiency of fuel conversion can be achieved in normal domestic use, compared to 70%-80% with a conventional design. Typical condensing boiler efficiencies are around 90%, which brings most brands of condensing gas boiler in to the highest categories for energy efficiency; in the UK they receive a "SEDBUK" Band A or B energy efficiency rating, while in North America they typically receive an Eco Logo and/or Energy Star Certification. They have a reputation for being less reliable and require professional installational and regular service and may suffer for the lack of familiarity with them among installers and plumbers. In reality, gas condensing boilers have only one extra element to be installed - the drain pipe for the condensate collected during operation. This comprises a short length of inexpensive plastic waste pipe. The water that condenses out tends to be mildly acidic because of the impurities in the fuel, chiefly Sulphur and Nitrogen , however no special treatment is necessary in most applications; also, the relevant parts of the boiler have to be constructed of materials that will withstand this acidity, typically aluminum. Since the final exhaust from a condensing boiler has a lower temperature than the exhaust from a conventional boiler a fan is always required to expel it, and it produces a visible "plume" of condensing water vapour depending upon outside conditions.

One UK company, Atmos Heating Systems, have patented a drain free system which negates the need for a drain pipe.

Condensing boilers are up to 50% more expensive to buy and install than conventional types in the UK and the US. However, As Of 2006 , at UK prices the extra cost of installing a condensing boiler should be recovered in around 2-3 years through lower fuel use, and 2-5 years at US prices. Obviously the exact figure will depend on the efficiency of the original boiler installation and costs associated with the new boiler installation.