About 420 low-income households in Hawai'i will soon be getting solar water heaters paid for with $3.7 million from the federal economic stimulus program.

The new money represents a tenfold increase in the size of the state's energy efficiency program for low-income families.

A solar water heater can cut monthly power bills by 20 percent to 40 percent.

"I think it's fantastic that money is being put into this because the payback for renewable energy and the benefit to the environment is awesome," said Myron Thompson, president of Niu Valley solar installer 21st Century Technologies.

The solar water heaters are part of a program that has been helping dozens of low-income families each year to shave their electricity bills through the installation of more efficient water heaters, energy efficient refrigerators and the installation of compact fluorescent light bulbs. Now that program, which typically received about $300,000 a year in federal funds, is being massively expanded.

During the next year or so, program officials expect to install about 420 solar water heaters statewide, while retrofitting 250 homes with energy efficient CFL bulbs.

"We never had this much money before," said Keith Yabusaki, a planner in the state Department of Labor and Industrial Relations, which is administering the program.

In May, DLIR awarded the Honolulu Community Action Program $1.2 million to run the program on O'ahu. Another $2.5 million was awarded to Maui Economic Opportunity Inc. to run the program on the Neighbor Islands. Both agencies were already involved in the program.

Honolulu Community Action, which in past years installed about seven water heaters a year, expects to install 132 solar water heaters by October 2010. Maui Economic Opportunity, which in past years installed about 25 water heaters annually, expects to install 290 solar water heaters.

To qualify for a solar water heater, households must have at least four family members, use at least 6,000 kilowatt hours of electricity annually and, on Maui, must have a monthly electricity bill of $120 or more, said Sandy Baz, chief executive for Maui Economic Opportunity. There's also an income requirement. A family of four seeking to participate in the program cannot have an income of more than $50,720 a year.

This year marks the first time that low-income renters can qualify for free solar water heaters.

The added federal money comes with one caveat. Under the American Recovery and Reinvestment Act employees working on construction projects must be paid so-called prevailing wages, which are set by the government at rates comparable to unionized worker rates. The local prevailing wage for a plumber is $56.28 an hour, including the value of benefits.

It's likely to be a boon to the state's predominantly nonunion solar installers.

"That's certainly high (wages) for our industry, but if people can get that, more power to them," said Thompson of 21st Century Technologies.

Those higher wages could also make it difficult to install solar water heaters below a benefit cap of $6,500 per household.

"That's certainly from a cost standpoint an issue," said Joy Barua director of finance for Honolulu Community Action. "We would have to look at ensuring the installations (occur) at the lowest cost and doing as many installations as possible (so) we would have to look at (achieving) some economies of scale."

Program officials said they hope to start soliciting for solar water heater contractors soon with installations beginning within a few months.