This study investigates the hidden thermal losses of glass plate, collector plate, water pipe and storage tank of solar water heater in the process of energy conversion. The present non-conventional energy methods are insufficient, whereas the exergy analysis provides a remarkable solution. Thus, employing the exergy analysis, entropy generation, exergy destruction and exergy efficiency of each subsystem of solar water heater are computed. The obtained results showed that the entropy generation and exergy destruction are high during the heat transfer in each subsystem. Henceforth, the existing solar water heater design is modified placing hexagonal honeycomb structure between the glass plate and the collector plate and also water pipe is insulated to trap huge amount of solar energy. The proposed design exhibits improved exergy efficiency when compared with the existing model, which enhances the performance of the system.