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Updated Feb. 16, 2014

Solar energy can provide all normal domestic water needs. Backup may be required for cloudy days.

Initial investment is in the $4,000 - $7,000 range, though some systems, cost less. State tax credits (25% of the purchase price with a maximum of $1,000 per installation) and, federal tax credits (30%) and in some cases utility rebates, can reduce initial costs significantly. If conventional heaters need replacement, initial costs are further lowered by the cost of the conventional unit.

How much money you save versus a traditional water heater depends on a number of factors:

The amount of hot water you use Your system's performance Your geographic location and solar resource Available financing and incentives The cost of conventional fuels (natural gas, oil, and electricity) The cost of the fuel you use for your backup water heating system, if you have one.

On average, if you install a solar water heater, your water heating bills should drop 50%–80%.

Costs and payback periods for residential SWH systems with savings of 200 kWh/month
System cost After tax credits/rebates Electricity cost/kWh Electricity saving/month Payback period
$5000 $1540 11.2 cents per kWh $22.40 5.7 years


If you're building a new home or refinancing, the economics are even more attractive. Including the price of a solar water heater in a new 30-year mortgage usually amounts to between $13 and $20 per month. The federal income tax deduction for mortgage interest attributable to the solar system reduces that by about $3–$5 per month. So if your fuel savings are more than $15 per month, the solar investment is profitable immediately. On a monthly basis, you're saving more than you're paying.