Proper estimation of potential of any renewable energy technology is essential for planning and promotion of the technology. The methods reported in literature for estimation of potential of solar water heating in a target area are aggregate in nature. A methodology for potential estimation (technical, economic and market potential) of solar water heating in a target area is proposed in this paper. This methodology links the micro-level factors and macro-level market effects affecting the diffusion or adoption of solar water heating systems. Different sectors with end uses of low temperature hot water are considered for potential estimation. Potential is estimated at each end use point by simulation using TRNSYS taking micro-level factors. The methodology is illustrated for a synthetic area in India with an area of 2 sq. km and population of 10,000. The end use sectors considered are residential, hospitals, nursing homes and hotels. The estimated technical potential and market potential are 1700 m(2) and 350 m(2) of collector area, respectively. The annual energy savings for the technical potential in the area is estimated as 110 kW h/capita and 0.55 million-kW h/sq. km. area, with an annual average peak saving of 1 MW. The annual savings is 650-kW It per m(2) of collector area and accounts for approximately 3% of the total electricity consumption of the target area. Some of the salient features of the model are the factors considered for potential estimation; estimation of electrical usage pattern for typical day, amount of electricity savings and savings during the peak load. The framework is general and enables accurate estimation of potential of solar water heating for a city, block. Energy planners and policy makers can use this framework for tracking and promotion of diffusion of solar water heating systems. (c) 2006 Elsevier Ltd. All rights reserved.