Basically, it uses a design similar to a shell and tube exchanger to pre-heat the water, by running several tubes through the fresh water box and running the blower exhaust through the tubes.
In addition, on the enhanced model, there are 2 diverters. Diverter number 1 is the diverter for the engine exhaust and routes the exhaust either through the exhaust exchanger, or around it, depending upon the temperature relative to the temperature setting. In either case, the exhaust eventually merges into the blower exhaust and the resulting combined airflow continues on it's way to the pre-heat exchanger (i.e, the exchanger that uses blower exhaust to pre- heat the water). The resulting combined exhaust gas is either routed through the box, or around the box, via diverter number 2, depending upon whether the box temperature is below 120 degrees, or above 120, respectively.
In the first dual- diverter, "Nemesis" prototype system we built, it generated a dependable 203 degrees ATW @ 1.8 GPM, using a 25 Kohler and #4 blower. However, that temperature dropped substantially in the wintertime, to 160 ATW. After consulting with some friends who have engineering backgrounds, we determined that using stainless steel for the water box pre- heater was the problem, because stainless, though great for the corrosive atmosphere of exhaust gas, isn't so great at heat transfer efficiency. So, when efficiency is essential, aluminum or copper is better. So now, the exchanger boxes are anodized aluminum (as seen in the picture above). And soon, on the more expensive models, the tubes will be copper, and the box itself of stainless steel (for durability).
This is all taking time to lay it out the way I want, as you might imagine. And I want to be sure to lay it out on a model that we'll be moving forward with. So, it will be a bit longer, but it will be worth the wait.
