Solar water heating systems obviously heat water only during the day when solar radiation is hitting the solar collector. You might realize why it is important for Solar Water Heating Systems to store water, but to what extent should this be considered?

In North America, most hot water is consumed in the morning, presumably for personal hygiene. The second most water is consumed in the evening, as people clean the kitchen and prepare for bed. This creates a scenario where hot water is required at times when the most energy is not available. Much of the water stored in a tank may be exhausted in the evening with no solar resource available to heat water for the morning requirements!
The solution to this is to provide adequate storage of hot water so that there is enough solar heated water available when needed. On the other hand, providing too much storage becomes economically unreasonable, and in many homes, is impractical because of the space available. Here in Southwest Florida, water tanks are typically in a small closet or garage where storage space is at a premium.
The rule of thumb given to us by the National Renewable Energy Labs for solar water heating systems in residences is to provide at least 1.5 gallons of storage for each square foot of solar collector area (Urban, 2011). (Note: this applies to typical glass-copper flat plate collectors, not polymer collectors like the Fafco Revolution system). A typical 40 square foot solar collector would require a minimum 60 gallon tank. An 80 gallon tank is generally recommended.
However, this analysis is based on averages, and your water usage may not be average! For example, we have a lot of retirees in Florida who like to play golf in the morning and shower when returning from the course in the mid-day. Meals are often eaten earlier than in working families. Some families only shower in the mornings or evenings and some families do not cook often. The point is, if yours does not fit the typical or average U.S. household, your hot water demand might be vastly different and should be discussed with your solar dealer prior to installing a solar water heating system.
Possibly even more complex is hot water storage for commercial applications. Restaurants, offices, and hotels all have vastly different water heating needs. For example, in a recent study, “Monitoring And Modeling Hot Water Consumption In Hotels For Solar Thermal Water Heating System Optimization,” (Urban, 2011) it was determined that the optimum storage capacity for hotels was between 1/2 and 8 gallons of storage per square foot of collector area. Four gallons would be a good rule of thumb, but the author cautions that an analysis should be done on a case by case basis. Unfortunately, a full demand analysis is typically economically impractical, and estimating by solar professionals is the norm.

In addition to these factors, decisions need to be made whether to provide a dedicated solar storage tank that preheats water, or simply heat the lower half of an existing or new electric water tank. This is particularly the case in residential applications. Usually an adequately sized tank can be retrofit with a solar panel, and the bottom electric element is disconnected. The top electric element remains connected to provide a backup to the solar heated water. In the case of a dual tank configuration, both elements remain connected on the electric water tank, but the incoming preheated water from the solar tank results in greatly reduced electric heating costs.
Ideally a demand analysis would be performed on a case-by-case basis, but the cost of such an analysis would unreasonably reduce the savings and increase the payback period for solar water heating systems, especially in residential situations. As solar professionals, we are required to make judgment calls after making assumptions about and listening to our customers. Using generally accepted rules-of-thumb, we can supply economical systems that are sure to save homeowners significantly on water heating costs.
References
Urban, Eric J. “MONITORING AND MODELING HOT WATER CONSUMPTION IN HOTELS FOR SOLAR THERMAL WATER HEATING SYSTEM OPTIMIZATION.” (2011): 28+. Web.