You can backup w/encyption (AME – Application Managed Encryption) to the internal SAS LTO4 drive in a Power6 520 type box, but you will suffer a 50% degradation in performance and a loss of data compression. This requires BRMS which generates and controls the KEY for the encryption – though you need to export it and store it elsewhere too. I can’t speak to the price of BRMS directly in your case, but it will work.
Until recently your only other option was LME (Library Managed Encryption) that is hardware & required a fiber attached tape drive library like the T3xxx series using LTO4, but you can get an SAS version now that uses that same hardware encryption. You need to order the LTO Transparent Tape Encryption Feature Code and the Library has to have a couple of other Feature Codes ordered on it. You also have to run IBM’s Java Key Manager in at least 2 places. Once of those can be a virtual host “i” partition on the Power6 box, but you need it somewhere else too .. ie what if it crashes – how do you recover. I recommend a handy laptop you can take to a off-site recovery location as a minimum.
I recommend BRMS in any case to manage the encrypted and un-encrypted tape libraries. This is a pretty deep subject but there are several IBM documents on this – though only a couple are up-to-date enough to get into the SAS tape library options. Do a google search for LTO4, Encryption, BRMS and Power6 .. you will find some stuff.