"I'm not belittling the green movement, but mostly we wanted to save money," says Mr. Banack, who now shuts off his gas boiler in the summer except during stretches of cloudy days. Mr. Banack estimates his heating-fuel bills have dropped at least 25% since adding the system, which was made by Germany's Stiebel Eltron GmbH and cost about $6,000 after tax credits. "This is a form of independence," he says.

As more homeowners are discovering, you don't need a super hot climate and tens of thousands of dollars to go solar. In many cases, all it takes to offset two-thirds of your hot water bill is a couple of panels resembling skylights, an 80-gallon water storage tank and some shade-free southern rooftop exposure. Costs range from about $2,000 to $10,000, sums that can be halved thanks to hefty new federal and state incentives. Just last week, California launched a cash-rebate program that will average $1,500 for residents to install solar water heaters at home.

When most people think of solar energy, they imagine using it to generate electricity—and that's where a lot of buzz and venture capital investment dollars currently go. But in the average home, harnessing the sun's free energy for daily hot-water needs can be a more practical and affordable bet. Water-heating is the third-largest energy expense in most households, after space heating and air-conditioning, according to the U.S. Department of Energy. This year, Hawaii began mandating solar water heaters in most new homes, and cold-weather locales such as New York and Colorado are among the state leaders in installations.

Hot water "is the most efficient way to use solar, short of passive solar where you're using sunlight to warm up tile or stone," says Monique Hanis of the Solar Energy Industries Association trade group, which represents manufacturers and installers of solar products for electricity, water and other uses.

"You are locking in your cost rate for the next 25 to 30 years. It's basic, but it works."

In most regions, a backup heat source is needed for overcast days. For instance, the gas boiler providing my home's baseboard heat also is hooked to the solar tank and will goose the water temperature inside to 110 degrees (that's the setting I've programmed) if the solar-powered system isn't able to reach that temperature on its own. Other possibilities: an electric or gas heating element integrated directly into the solar tank or a separate on-demand water heater. Some homes with ample space and greater hot water needs use two tanks—one as a solar preheat tank that feeds water into a second tank warmed by gas, oil or electricity.

A couple of caveats: You'll need a space on the roof or wherever you place panels with minimal shading from 11 a.m. to 3 p.m. to make a system work most efficiently. I took down several ailing trees on my property that cast shadows, which added to upfront costs. And depending on your roof's pitch and where you live, installers might recommend propping panels at an angle for maximum solar gain—which look unsightly.

Whatever the route, financial incentives are heating up. For starters, a federal renewable energy tax credit in place through 2016 can now pay for 30% of your system, with no cap. Water heaters for swimming pools or hot tubs don't qualify, and equipment must be certified for performance and durability by the not-for-profit Solar Rating and Certification Corp.

Many states offer perks, too. In Arizona and New York, a 25% tax credit of up to $1,000 and $5,000 respectively knocks off another chunk. Along with California, utilities in Florida, Texas and elsewhere provide upfront rebates. (For a list of state and federal incentives, go to dsireusa.org.)

"Solar hot water has been like the redheaded stepchild and not seen as sexy as electricity—but it should be," says Bernadette Del Chiaro, clean-energy program director for the not-for-profit advocacy group, Environment California, which helped sponsor the rebate program.

Interest in solar hot water last peaked amid rising fuel prices in the 1970s and early 1980s until federal tax credits expired and an easing of energy prices made consumers lose interest. In recent years, reinstated incentives, sleeker equipment and rising fuel prices pumped life back into the industry. Between 2005 and 2008, the annual installed capacity of the solar hot water systems in the continental U.S. quintupled, according the Interstate Renewable Energy Council, a not-for-profit information and policy group.

While the recession triggered a sales slowdown in 2009, manufacturers nevertheless are pushing forward with expansion. Skylight-maker Velux Group, a unit of Copenhagen-based VKR Holding A/S, began selling its solar hot water systems in the U.S. in 2008 and says residential sales have quadrupled. There are nearly 100 companies listed online whose solar water equipment is now rated by the SRCC certification group, and systems are widely sold on the Internet.

Stiebel Eltron plans to begin manufacturing its solar hot water panels in Hatfield, Mass., later this year, while Kingston, N.Y., upstart EarthKind Solar Inc. is gearing up to produce panels made by Phoenix SonnenWaerme AG, also German. They join a host of established players such as California-based Fafco Inc. and Heliodyne Inc. that already produce equipment in the U.S.

Consumer appetite may swell as solar hot water technology broadens to applications such as air-conditioning and space heating.

At Alchemy Construction Inc. in Arcata, Calif., residential sales of solar hot water systems climbed 50% over the past two years and most included a radiant heat component, says owner Stephen Bohner. He bristles a bit when customers focus too much on payback time of panels. "What's the payback time of your granite countertop?" Mr. Bohner asks.

Jim and Patti Jeffries of Hampton, Ga., replaced their 1986 water heater last March with a two-panel Velux solar system with electric backup. The Jeffries' natural-gas usage plummeted 79% between 2008 and 2009, while electric usage climbed only 11%.

"The only problem we had is when there was an ice storm two weeks ago and the sun never came out," Ms. Jeffries says.

Exploring a Solar System

Click above to see how one solar water-heating configuration works.

As more contractors stung by the recession add solar to bolster their offerings, consumers will see increased competition for their dollars.

The company designing my system, Fishkill, N.Y.-based Smart Systems USA Inc., is a local electrical and plumbing outfit that recently segued into renewable energy. I was only their second hot-water job, but took the gamble because of their reputation and proximity to my home for future maintenance. Installation lasted about three days in November with few hiccups.

On cold days, if the sky is clear, the sun heats water to nearly 100 degrees. Come summer, those temps should rise to 140 and higher. Federal and state tax credits will knock the system's $10,000 cost down to $4,500.

These systems, I found, can make you a little nutty. To use as little backup fuel as possible, I initially tried to time showers to coincide with maximum sunshine, tricky when there's an 8 a.m. meeting on the calendar. A long stretch of snow even drove me up on the roof to clear panels with a broom—um, don't try that at home. Eventually though, I relaxed and early tabulations show my monthly fuel usage dropping from last year, which makes this particular project hot in more ways than one