In this paper a techno-economic model for a hybrid domestic hot water system operating under natural convection mode is presented. Three modes of auxiliary energy supply viz. A electric heater fitted in the solar hot water tank. B electric heater fitted in a small water tank in series with the solar hot water tank, and C an instant electric heater fitted in the tap have been considered. Taking into account the life and the capital and maintenance costs of the solar and electrical equipments, the cost of useful energy (Rs/kWh) has been calculated for different values of the collector area and the tank capacity, and thereby the optimum collector area and tank capacity (for a given demand), corresponding to minimum cost of useful energy, has been determined. From numerical calculations made for the climate of Delhi, India (a representative composite climate) corresponding to the two cases of monthly hot water demand viz. (i) constant monthly demand, and (ii) variable monthly demand, it is seen that case (C) is the most economic design of the hybrid hot water system; numerical calculations have also been made for this case corresponding to the climates of Srinagar and Madras (representing cold and hot climates). The effect of government subsidy on the optimized values of collector area, tank capacity and cost of useful energy has also been investigated for the climate of Delhi.