Solar panels heat water that is delivered to a storage tank. Solar water heaters -- also called solar domestic hot water systems -- can be a cost-effective way to generate hot water for your home. They can be used in any climate, and the fuel they use -- sunshine -- is free. How They Work: Solar water heating systems include storage tanks and solar collectors. There are two types of solar water heating systems: active, which have circulating pumps and controls, and passive. Capacity: 100 LPD to 500 LPD