We make our domestic hot water with diesel
(when we're not on shore power). It's great. We have a 10kW Eberspaecher diesel-fueled heater which also heats the boat with fan coils in all the spaces. It will make hot water so fast that it you almost can't run out of it. Nice piping hot showers for several people in a row, if you don't mind the expenditure of fresh water, just like on dry land.
The only flaws of such a system are (a) it's pretty expensive, similar to air conditioning
in cost for the whole system; and (b) uses just a little too much electrical
power to run off our battery
bank without cranking up the generator
every 4 or 5 hours.
Still, I think this would be at the top of my list of amenities for cruising in cool climates. Almost worth installing an extra battery