Warming Up?: Large-Scale Solar Water Heating in North America

Issue 3 and Volume 2.

A new solar water heating program in the bellwether state of California signals a potential shift in the market across the North American continent. Similar legislative and regulatory initiatives are already underway in other states and at the U.S. federal level.

This article combines a broad overview of the nearly untapped market of commercial and institutional customers in the U.S. and Canada with a profile of the new California program and asks: Will the new program trigger a significant uptick in the non-residential market? Which industry types are best suited to take advantage of the technology and new program provisions? What are some opportunities and challenges ahead for the solar water heating industry in North America?

Technology, Applications, Manufacturers, Policy

Solar water heating (SWH) falls under the broad category of solar thermal technologies. Within the solar thermal category, technologies are further defined as low-, medium- or high-temperature. SWH typically uses medium-temperature technologies, which usually operate between 140 F and 180 F. The majority of systems, by total energy contribution and number of systems, are used in homes. As of 2007, 85 percent of all U.S. shipments were residential systems.1

Most systems consist of a solar collector and a storage tank. Most collectors are flat-plate.2 The collector contains either water or a heat-transfer fluid exposed to the sun to raise its temperature. Heated water is kept in the storage tank. Fluid moves to and from the collector using passive or active circulation. Active systems, which use electric pumps and controllers to circulate fluids through the collectors, are most common.

Solar water heating enjoyed a bubble of activity in the U.S. during the 1970s and 1980s. Inconsistent product quality, poorly designed policy mechanisms and dropping energy prices caused the market to collapse in the 1980s, leaving only a few based in North America.3

With low levels of public support and private-sector under-investment, North America reverted to a small market, in which costs have been high, installation encounters structural barriers, and most people are largely unaware of solar water heating as an option. Sales in the U.S. as recently as 2007 accounted for about half of one percent of the global market (see Figure 1, below).

European and Asian companies, however, continued to develop and improve water heating technology. Some of these companies — especially from China and Germany — view the U.S. as the next big market. In part, this has meant meeting new product and other quality standards which were established after the 1980s’ market collapse. Systems must be certified by the Solar Rating and Certification Corp. to qualify for federal investment tax credits among other incentives. Of the 45 manufacturers with certified collectors as of 2008, 20 were based outside the U.S.4 Currently, 67 companies participate in the certification program.5

Commercial and Institutional Applications

Today in North American commercial and institutional facilities, solar water heating is used for pool heating and direct use hot water. Less commonly, SWH is used for space heating.

A variety of building types already are using solar hot water. Some indication of which industries are adopting SWH systems and the size of projects may be gained by using a list of North American installations from

Heliodyne, a systems manufacturer.6 As seen in Figure 2, (left) schools and unversities represent the largest single building type in the list. The volume of power production, as measured by the number of collectors, is over twice that in schools as in the next-highest building types, multi-family residences, public and senior housing and private commercial buildings.

Figure 3 (left) shows that schools and universities have the largest average system size, at around 225 collectors. This includes projects at the University of California campuses of Davis (825 collectors) and Santa Barbara (723 collectors). By number of collectors, and thus total system size, schools and universities comprise over one-third of the completed projects. Public and senior housing and hospitals have the next largest system size with an average 130 and 95 collectors per project.


Scores of solar water heating companies do business in the U.S. Some of the most established are listed by the California Center for Sustainable Energy. Of the 13 manufacturers on the list, several have non-U.S. origins and all have offices in North America (see Figure 1).

Venture capital investment in the sector is just starting. The Canadian manufacturer EnerWorks, which was at first rejected by more than 100 venture capital organizations,8 ultimately secured over $5 million in venture funding in 2009,9 making it among the first venture-funded SWH manufacturers in North America. Investors were interested, among other reasons, because of “roughly 5:1 energy output per dollar invested compared to solar PV” and ubiquitous adoption in Asia and Europe.10

Regional Trends and New California Program

Through the close of 2007, the state with the most solar water heating installed-annually and cumulatively-was Hawaii, followed by Florida and California. In late 2008, the federal Investment Tax Credit was extended to provide a 30 percent tax credit for residential and commercial solar water heating systems through 2016.11 This has laid the foundation for a new market in the U.S., spurred by state-level programs.

Starting in May 2010, California has a new set of programs subsidizing the purchase and installation of solar water heating equipment. Directed at reducing the use of natural gas and grid electricity, the program sets aside $358 million for direct economic subsidies and market development support. The program will continue through 2017, or until funding is used completely.

The new Solar Thermal program will be administered by the pre-existing California Solar Initiative. The amount of subsidy for each project is determined by the expected first-year annual energy displacement, based on rating by the SRCC. Incentives for natural gas-displacing systems are expected to start at $12.82 per therm and are required to decline in four steps to $5.13 per therm.

Incentives for multi-unit housing and commercial systems are allowed a maximum of $500,000 for systems that reduce natural gas use and $100,000 for electric-displacing systems. For natural gas displacing systems, the program has set aside 30 percent of funds for multi-family housing and 60 percent for commercial facilities. For electric-displacing systems, there is no earmarking of customer type, but commercial and multi-tenant is not allowed to exceed 80 percent of funds. In the program’s first and second tier, the incentive is roughly $10,000 for a multi-family dwelling and $75,000 for a business.

The program’s stated goals are to displace as much as 585 million therms of natural gas and 275.7 million kilowatt-hours per year of electricity. Total installed system cost reductions of at least 16 percent are expected, and the program will address “market barriers to solar water heating adoption.”12

Questions for the Future

Will the new California program trigger a big uptick in the non-residential market? Assuming the direct and indirect subsidies are sufficient to develop the expected market growth, the answer is “yes.” With funds directed at commercial facilities, the program is designed to develop the markets beyond single-family and even multi-family homes. Since similar subsidy programs are being discussed outside California, it is not difficult to imagine that the California program could represent a turning point in North American market development.

Which industry types are best suited to take advantage of the technology and program provisions? Three commercial market sectors with the greatest potential to reduce fossil fuel use for water heating are lodging, health and restaurants. In 2002, California’s hotels and motels, hospitals, nursing homes and residential care facilities and restaurants used 224 million therms a year of natural gas for water heating.13 They also tend to use hot water midday to evening, when solar systems are most efficient.

What opportunities and challenges exist for North America’s solar water heating industry? The greatest barriers continue to be high upfront cost, lack of public awareness, absence of a well-developed workforce and variable permitting requirements that result in increased costs and uncertainty. As California’s program addresses these issues-most importantly by stimulating new businesses and new employment-it is also not difficult to imagine that the expectations of program designers will at least be partly realized: that cost and other “market barriers” will be significantly lowered.


  1. Solar Thermal Collector Manufacturing Activities, 2007. Energy Information Administration, October 2008.
  2. “Solar Energy Technologies Program: Solar Heating.” Energy Efficiency and Renewable Energy, U.S. Department of Energy.
  3. Del Chiaro, Bernadette, and Timothy Telleen-Lawton. Solar Water Heating: How California Can Reduce Its Dependence on Natural Gas. Environment California, April 2007.
  4. “2008 National Program Report: United States of America.” International Energy Agency Solar Heating & Cooling Programme.
  5. “SRCC – Solar Rating and Certification Corporation.”
  6. Heliodyne Corporation, Projects,, accessed: December 15, 2009.
  7. “California Center for Sustainable Energy : Solar Water Heating Pilot Program,”
  8. “Heating up demand as financing freezes.” Frank Armstrong, The Globe and Mail, Jan. 19, 2009,
  9. Renewable Energy World, “Enerworks Secures $5 million Investment,”, accessed February 20, 2010.
  10. Enerworks, “Investor Relations,”, accessed February 20, 2010.
  11. California Center for Sustainable Energy Solar Water Heating Pilot Program: Interim Evaluation Report. Itron Inc., Jan. 2009,
  12. CSI-Thermal Program: Energy Division Staff Proposal for Solar Water Heating Program. California Public Utilities Commission, February 2010.
  13. California Center for Sustainable Energy Solar Water Heating Pilot Program: Interim Evaluation Report. Itron Inc., Jan. 2009,

About the Authors

John Guice, PhD, is managing director of research at AltaTerra Research, a research consultancy specializing in sustainable business and the commercial marketplace for clean technology solutions. Eric J. Paul and Anneke Hohl are analysts with the firm.