Best practice: Solar obligations becoming mainstream

Several countries have now introduced solar obligations for new buildings or those undergoing major renovation. This is probably the single most powerful instrument to promote solar thermal. Uwe Trenkner and Raffaele Piria summarize the key findings of the first comprehensive study on solar obligations, recently published by ESTIF.

The first comprehensive study on solar thermal obligations – regulations requiring a minimum share of the heating demand to be covered by solar energy – was published in mid-September by the European Solar Thermal Industry Federation (ESTIF). The study concludes that solar obligations are a key instrument to promote a renewable and sustainable heat supply in Europe. And it provides guidelines for policy makers to design them effectively, including the necessary quality assurance measures.

Such solar obligations are usually applied to new buildings and those undergoing major renovation and in the past few years, solar or renewable heat obligations have been adopted or are being discussed in a number of countries, regions and municipalities in Europe and beyond.

In September 2007, the European Parliament adopted, by a large majority, a resolution with indications for the upcoming Directive proposal on renewable energies. Concerning solar obligations, the Parliament has called on the European Commission ‘to accelerate the widespread adoption of such regulations in all Member States, saying ‘at least in the case of major renovation of buildings and new buildings … a minimum proportion of the heating requirement [is] to be met from renewable sources as has already been implemented in a growing number of regions and municipalities.’ ESTIF expects that the Commission will take this Parliamentary request into account when drafting the Directive proposal – which was recently postponed to January 2008. However, obligations must be carefully designed, including appropriate enforcement procedures and quality assurance measures.

A European trend

The first solar thermal obligation was enacted in Israel in 1980, as an answer to concerns about security of energy supply in the aftermath of the second oil crisis. Despite its success, it took two decades before the next one was adopted in Barcelona. Prompted by ultimately unsuccessful debate in Berlin in the 1980s, the City Council of Barcelona adopted its solar obligation in 1999, which then entered into effect in 2000. The Barcelona model came at the right time, with rising energy prices and worries over supply security and climate change creating a receptive political environment.

A decade ago, the idea of making the use of solar or renewable energy compulsory sounded radical and politically unfeasible in most parts of the world. Currently, solar obligations have been adopted or are being discussed in a number of countries, regions and municipalities in Europe and beyond. Security of energy supply and climate change have become top political priorities and, together with energy efficiency, renewables are the only sustainable answer to both problems. Within the renewable energy policy debate, the heating and cooling sector are now fully integrated in the European agenda – after having been neglected for over a decade – and the solar industry has grown too, and with it a new generation of highly reliable products.

A solar thermal collector field used for district heating in Leinz, a large ski resort in central Austria

The announcement of the Spanish building code triggered a wave of investments in the industry. However, even advocates of solar energy were surprised by the speed with which solar obligations spread through Spain and into other European countries. Solar obligations are now in force in more than 50 Spanish municipalities, including large cities like Madrid and Seville, and cover more than half of the population in Catalonia. Obligations were also adopted by local governments of different political colours and the broad political consensus lead to the inclusion of a solar obligation in the new National Building Code (CTE) that was finally adopted in 2006. In the same year, Barcelona City Council adopted a revised version of its municipal obligation that enlarged the number of obliged buildings, increased the share of solar energy required and tightened the quality assurance measures. Six years after the ‘Barcelona model’ was launched, solar obligations have stood the first test of time.

By mid-2007, solar or renewable heat obligations were in force or in an advanced state of discussion in a growing number of European countries, regions and cities. These include Portugal, Italy – with several municipalities including Rome, two regions and at national level – Germany in the town of Vellmar, the Federal State of Baden-Württemberg and at federal level; the region of Wallonia in Belgium, some Irish counties and a number of UK local authorities that followed the example of the London Borough of Merton. Nor is this list exhaustive, as the number of local initiatives is constantly growing.

At EU level, the decision of the 27 Heads of State in March 2007 to set a binding 20% target for the renewable share of total energy consumption by 2020 is creating pressure to implement more effective policies that are able to deliver the necessary growth rates throughout Europe. Currently, the European Commission is preparing the proposal for a new Directive that will cover all renewable energies. For the first time, this Directive will also cover the heating and cooling sector. It is not yet known which specific measures will be included in the proposal, which must then be adopted by the European Council and the European Parliament, although the latter has already sent a strong message in favour of solar obligations.

However, the main responsibility for the design, implementation and enforcement of solar obligations will remain with the national or local authorities which have the competence for building regulations. For them, there is no reason to wait for the EU Directive to be adopted. The sooner they are in force, the stronger the benefits.

This solar thermal collector system on the roof of the Schwarzenegger sports arena is used for district heating in Graz, Austria

The idea of renewable heat or solar obligations is gaining ground beyond Europe, too. In June 2007, speakers at the estec2007 (European Solar Thermal Energy Conference) reported that solar obligations are being discussed in the Tokyo Metropolitan Area with 35 million inhabitants and in Minas Gerais, the second most populous state in Brazil. Meanwhile, some Australian Federal States have also enacted regulations that make solar thermal one of the favoured options to meet the required efficiency standards. According to representatives of the Chinese Renewable Energy Industries Association, a discussion on solar obligation is also progressing in China.

Economic justification

This international trend is well justified by the manifold benefits of a solar obligation instrument, which allows for a gradual shift in the building stock in anticipation of the inevitable future scarcity of fossil fuels. Among other benefits, solar obligations create a minimum critical mass in the solar market and bring about economies of scale that also favour the voluntary market in the majority of buildings that are not generally subject to the obligation. Moreover, solar obligations help solve the owner–tenant dilemma for rented properties and send a strong signal to both users and professionals involved in the construction and heating sectors.

The logic of the financial markets implies that buildings are planned with an investment horizon of a few decades, though experience shows that many last far longer. Taking into account the amounts of energy needed to construct buildings, it is reasonable to assume that by the second half of the 21st century there will be increased interest in building conservation, not yet reflected in the economic rationale of today’s developers. Many future new buildings will last into the 22nd century and by then, fossil fuels used for heating may be too expensive. In the long-term – with some 40% of the EU’s energy consumption coming from buildings, and heating the lion’s share of that – buildings are key to any comprehensive energy policy and, ultimately, 100% of their energy needs has to be covered by renewables.

At the EU and national levels, legislation has been adopted to improve the energy performance of buildings. However, in most EU countries, this legislation is mainly promoting energy savings measures. Higher energy efficiency is necessary and urgent, but alone will not be enough to keep houses and people warm. Particularly for domestic hot water, energy must be consumed and solar can make a significant contribution.

Promoting renewables through financial incentives taken from the public budget becomes more and more difficult as the market volumes increase. However, a key advantage of solar obligations is that they have a very limited impact on public budgets, with the main costs being carried by the building developers or owners. If the certification of the energy performance of buildings works correctly, the owners will be able to pass the costs on to the building users, who also benefit from reduced energy bills. Adapting the building stock will be a steady process. At least new buildings, and those undergoing major renovations, should be adapted to future conditions. And, consequently, a solar or renewable heat obligation helps gradually prepare the building stock for the post-oil and gas era.

The aggregated energy savings triggered by a solar obligation are a function of manifold factors, among them the number of buildings subject to the obligation – depending on its detailed provisions and enforcement – and the number and types of new buildings in a country, region or city. Clearly, the specific share of solar energy to be achieved, the quality of the products, their installation and maintenance and the behavioural patterns of the users – mainly the volume and timing of domestic hot water usage – all heavily influence energy consumption and potential savings.

While a precise quantification would require complex assumptions and modelling, and would have a wide margin of error – especially considering the relatively little available empirical data – it may be useful to consider some data that can contribute to a rough estimation. Domestic hot water contributes roughly 2% of the final energy consumption in the European Union, equivalent to around 24 million tonnes of oil per year. If all buildings covered 50% of their hot water demand with solar energy, the savings would be around 12 MTOE per year. This is equivalent to the total consumption for hot water and space heating of almost 10 million European households. Taking into account that roughly one third of domestic hot water is currently produced with electricity, the gains in terms of primary energy are substantially higher. Of course, depending on other support measures and on energy prices, it may take more or less time to cover all buildings, but on the other hand a solar obligation also encourages the voluntary solar market beyond the legal requirement.

Seizing the opportunity

Installing a solar system implies works on the roof, piping through walls and, if not installed on the roof, finding a place for the hot water tank inside the building. All this is easier, cheaper and often more effective if the solar system is included from the earliest stage of planning of a new building. In existing buildings, there are short windows of opportunities when the installation of the system is usually most convenient, mainly when the water heating system and/or the roof are being changed anyway. Once these opportunities in new build and refurbishment projects are missed, the installation of a solar thermal system is usually technically possible, but economically less interesting taking into account not only the direct financial cost of the works, but also the time and effort needed to commission them, as well as the disturbance caused to those living or working in the building. A solar obligation makes sure that these convenient opportunities are not missed.

Importantly, solar obligations also create a predictable market for solar or other renewable heating technologies. In contrast to financial incentives, which often change according to the availability of public budgets, solar obligations are believed to be a rather stable form of support, less prone to unexpected changes. In a stable environment, the whole supply chain is encouraged to invest in the long-term development of the market. In manufacturing, the approval of the Spanish CTE alone has contributed to trigger substantial investments, expanding production lines all over Europe. These investments will benefit the buyers of solar equipment well beyond Spain. However, the economies of scale in the manufacturing process are only a part of the benefit of creating a critical market mass. On average, more than half of the turnover linked to solar thermal is due to services like system design, marketing and sales, installation and after-sales service. These services are inherently local and benefit the regional economy with solar thermal replacing imported fuels with local jobs. Within the area of application of an obligation, investments are triggered to expand the distribution networks, to train installers and engineers, and on marketing. These investments contribute to build up the critical mass on the supply side that is needed to address wider groups of potential users. These investments tend to reduce costs in the medium-term and consequently increase the use of solar thermal in the large numbers of buildings that are not subject to the obligation. The voluntary market benefits from a broad availability of trained installers and heating engineers, architects gain experience in the integration of solar, and potential users become exposed to spontaneous mouth-to-mouth propaganda. These effects can make the solar thermal market largely self-sustaining in the medium-term, as shown by over two decades of experience in the development of solar thermal in different countries. Comparing Greece with Sicily, or Austria with similar countries, one sees that the same level of public support produces massively higher effects where the market has already reached a significant dimension. Thanks to strong support in past decades, Greece is one of the leading markets in Europe with hardly any subsidies. By creating a stable market in a small fraction of buildings, solar obligations trigger investments in the whole supply chain, leading to economies of scale and much higher use of solar energy.

THE Structure of solar obligations

The study analyzes the structure of a number of renewable heat obligations, looking at each of their key elements: the definition of buildings and events (usually new built and major renovations) subject to the obligation; the definition of the required solar contribution; the specific advantages of solar and other renewable heat sources; the technical parameters for the calculation of the fulfilment; and enforcement procedures and sanctioning regime.

Most solar obligations refer only to the domestic hot water demand and prescribe a minimal solar share ranging from 30% to 70%. Often, they are, in effect, a general renewable heat obligation, as the legal requirement can be fulfilled with other renewable technologies. However, solar thermal is the only source of renewable heat that does not rely on scarce fuels nor causes a significant increase of electricity consumption, and should therefore enjoy priority within an obligation. The real impact of any regulation strongly depends on its technical parameters, and the control procedures.

Policy makers considering adopting or revising a solar obligation will have to deal with these questions and can find useful experience and guidelines.

Solar obligations fundamentally change the way the solar thermal market functions. In an obliged market, if users are unhappy with the functioning of the solar systems, they will tend to react more negatively than in a voluntary market. Construction companies responsible for the choice of the products and their installation may answer that they simply fulfilled a regulation. Without appropriate quality assurance measures, it is likely that some construction companies will install the cheapest products, thus producing less solar yield than desired. This could not only reduce public acceptance of the obligation, but also, possibly, of solar technology in general.

Therefore, the regulations must be designed to ensure that products, planning, installation and maintenance of the system are state-of-the-art, leading to the same high level of customer satisfaction as in the current voluntary market. Within a solar obligation, proper quality assurance measures must include parameters for the components and system configuration, installation works, guarantee and after-sales service, a function control and third-party monitoring of a sample of the systems installed. Detailed analysis and guidelines for these different elements of a quality assurance scheme for solar obligations are covered in more depth in the study.

Necessary flanking measures

Solar obligations are probably the single most powerful instrument for promoting the use of renewables in new buildings. However, they must be designed to be easily applicable in all buildings subject to the obligation, and thus at a minimal common denominator. Therefore, they do not cover a large part of the potential uses of solar thermal, like space heating and cooling, industrial processes, water desalination, as well as existing buildings that are not undergoing major renovation. While indirect positive effects of solar obligations on these areas can be expected, flanking measures focused on the voluntary market are necessary to complement them. These measures should include financial incentives, awareness raising and training, as well as demonstration projects and special support schemes for innovative applications like renewable cooling or solar process heat.

Uwe Trenkner is Secretary General of ESTIF

Raffaele Piria is Policy Director of ESTIF

For more information on solar obligations: One element of the Solar Thermal Action Plan for Europe:

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