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What does a cover on a solar water heater do?

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If by cover you are referring to a slip-on or wrap around 'blanketing' that surrounds the heater tank, its purpose is simply to reduce the amount of heat energy transferred to the air from the tank, reducing the amount of water that must be circulated through the collectors, and keeping the water hotter longer, for when there is no sunlight to warm it, (although almost all units have electric backups, the purpose of a solar heater is to not use electricity). It's basically just insulation.

If you are talking about a cover for the collectors, it could serve a number of purposes; protection, amplification, insulation, etc. There are some that direct solar light toward the collectors at the most efficient angle regardless of the position of the sun; It just has to be visible.

Solar water heaters do three basic operations before the hot water comes out of your faucet:
1. Energy Collection: Sunlight, short wave energy, is collected and converted to heat which is long wave energy energy.
The solar collector is mounted on or near your home facing south. As the sunlight passes through the collector's plastic or glass "glazing," it strikes a metal or rubber absorbing material. This material converts the sunlight into long wave heat, and the glazing prevents the heat from escaping like a greenhouse. It is like leaving a car parked in the sun with its windows rolled up. The temperature inside a glazed solar collector on your roof can easily reach 300°F when there is no heat transfer fluid flowing through it.
The most common types of solar collectors used in solar water heaters are glazed flat plate collectors. A glazed flat plate collector consists of a shallow rectangular box with a transparent plastic or glass "window" covering a flat black plate or selective "Chrome" coating. The black plate is attached to a series of parallel tubes or one serpentine tube through which water, or other heat transfer fluids pass.
2. Energy Transfer: Circulating fluids like water in an "Open Loop" or Propylene Glycol in a Closed Loop" transfer the collected energy in the form of heat to a storage tank.
Heat energy is transferred from the collector to the water storage tank. In some water heaters, hot fluid is pumped from the collector to the storage tank. The pump is powered by electricity that either comes from an electrical wall outlet or a small photovoltaic module located beside the collector.
3. Energy Storage
Solar-heated water is stored in an insulated tank until you need it. Hot water is drawn off the tank when tap water is used, and cold make-up water enters at the bottom of the tank.
Solar water heaters tend to have a slightly larger hot water storage capacity than conventional water heaters. This is because solar heat is available only during the day and sufficient hot water must be collected to meet evening and morning requirements.
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