Solar hot water could help states with the increasingly difficult task of meeting renewable portfolio standards (RPS). Elisa Wood explores this new market opening for the oft-neglected technology.Solar hot water heating is a bit like the brilliant actor who never wins a blockbuster movie deal. The technology receives great reviews, but has yet to hit the big time in the US energy market.
Using the sun to heat water has taken a backseat, in particular, to its sister technology, photovoltaics, which uses sunlight to generate electricity. Indeed, if jobs are an indicator, the US solar electric industry is several times the size of the solar hot water sector. The solar thermal collector industry accounted for 1069 US jobs in 2006, while photovoltaic manufacturing, alone, was responsible for 4028, according to data released by the US Energy Information Administration in April. Job statistics on solar installers paints an even bleaker picture for solar thermal. The North American Board of Certified Energy Practitioners (NABCEP) reports that it has 422 certified PV installers, yet only 56 solar hot water installers.
‘Everybody knows that solar hot water systems work. One of the problems in America, however, is that solar hot water has to prove itself again and again,’ says Ole Pilgaard, former president of the European Solar Thermal Industry Federation (ESTIF) and current president of Heliodyne, a California-based solar hot water equipment manufacturer. ‘We have millions of electrical hot water heaters in America all working at low efficiency levels. We are wasting energy in every household in a big way,’ he adds.
Solar thermal advocates find this discrepancy baffling, given that solar hot water offers a quicker payback and is more efficient than solar PV. ‘Solar thermal is far more space effective; it uses a quarter of the space of PV. If you were generating the same amount of energy with PV, backyards and road ways would be covered,’ says Bob Fisher, vice president of business development for EnerWorks, a solar thermal provider based in Ontario, Canada.
Nonetheless, solar hot water may still find its place in the sun. Fisher and other solar thermal advocates have uncovered a yet-to-be explored role for solar hot water. They posit that the technology can help states with the increasingly difficult task of meeting renewable portfolio standards (RPS) – and do so on a large scale. Solar hot water can assume this role, they say, thanks to advanced metering technology, innovative contracting, aggregation, and some clever thinking.
RPS in hot water
RPS rules, now in half of the United States, require that a percentage of power sold comes from renewable sources. In some cases, the requirements are ambitious. For example, Illinois, Minnesota and Oregon will require that a quarter of electricity sales be from renewable energy within the next 12 to 17 years. Several other states want at least one-fifth of their power portfolio to be renewable, among them California, Colorado, Connecticut, Delaware, Hawaii, New Mexico, New Jersey and New York. Meanwhile, California’s governor is pushing a new goal to make 33% of power supply green by 2020, and a citizen’s ballot initiative is in the works to increase it to 50% by 2025. In comparison, the US now generates only 2.5% of its power from renewable energy, excluding conventional hydroelectricity, which often cannot be used to meet RPS requirements.
The RPS rules have certainly helped spur the recent US renewable energy boom, with the Lawrence Berkeley National Laboratory (LBNL) finding that in 2007 alone, about 76% of new renewable energy projects came from states with portfolio standards.
Many utilities want to see green projects built because they produce renewable energy certificates (RECs). Also called green tags, these certificates are a tradable currency purchased by utilities and other retail suppliers to meet portfolio standards. One REC equals 1 MWh of electricity generated from renewable sources. If utilities cannot secure enough of the certificates to meet relevant portfolio standards, they may face financial penalties. Indeed, utilities paid about $18 million in penalties in 2006, according to an April 2008 RPS status report by the LBNL.
These penalties come into play in regions like New England where there are too few renewable developments. Little open space, and even less community support, thwarts project developers from siting turbines in the region. Energy planners are beginning to express concern that some states may fail to meet the RPS goals, and critics of the RPS use this failure to bolster arguments against the policy.
In a recent report, Standard & Poor’s (S&P) Ratings Services warned that the RPS policy may lead to significantly higher electricity rates and a consumer backlash against green energy and utilities. ‘While renewable technology costs generally have been falling over the past decade, an important development that has not attracted significant attention is that wind generation – often the most economic renewable resource – has experienced recent and sharp cost increases,’ says S&P in its report: ‘The race for the green: How renewable portfolio standards could affect US utility credit quality.’
Capital costs for wind projects, which had been $800-1100/kW at the beginning of the decade, are now as high as $2000-2500/kW. Under long-term power purchase agreements, wind power prices could rise as high as $80-120/MWh this year in hard-to-permit areas, up from only $25-30/MWh in 2000-2002, according to the report.
Furthermore, it may be impossible to build enough wind power to meet portfolio goals in the time frame set by states, says S&P. LBNL found the states will need to build about 60 GW of renewable capacity by 2025 to meet the standards. No small figure, it is equivalent to 4.7% of projected 2025 electricity generation in the US, and 15% of projected electricity demand growth.
S&P calculates that 41 GW, or 6000 MW of new renewable capacity each year must come on line to meet the 2015 targets. ‘That is, records for new wind generation established in 2007 will have to be replicated annually going forward to supply enough generation to RPS. We question whether this is attainable,’ S&P says.
If these targets are not met, it will be utilities that will be held responsible by a public increasingly in favour of green technologies. S&P concludes: ‘In today’s environment, going green (however defined) has rapidly become a corporate virtue. If a utility doesn’t meet a standard, the political process may not look to whether the RPS objectives were reasonable, but rather may have a tendency to blame companies for failing to be proactive. This can create negative perceptions for the utility even if it is making best efforts.’
An unlikely hero
Solar hot water heaters may seem like a small and unlikely technology to solve such a big problem. In fact, the technology tends to fall below the radar screen of utilities, Fisher says. After all, solar hot water heaters are not deployed on a large-scale, typically being small appliances used in homes. And, for years solar thermal has been perceived by utilities as more of a demand reduction tool than a generating source. As such, they stole business away from utilities because they displaced grid electricity or gas that would otherwise produce the heat. So utilities typically have showed little support for the technology. However, that could change soon because companies like EnerWorks are demonstrating how to aggregate neighbourhoods and create financial products that could benefit utilities. Combined, homes can make a significant contribution to RPS. After all, Fisher points out, heating water is responsible for 20%–40% of household energy consumption. Indeed, water heating is second only to space heating and cooling. And, in commercial applications such as hotels, long-term care and other accommodation institutions, the percentage of energy use for hot water can be even higher. Just one installation in Phoenix, Arizona can produce 3.2 MWh annually toward RPS compliance, according to Fisher, or 2.7 MWh if located in Raleigh, North Carolina.
EnerWorks is partnering with Fat Spaniel Technologies, a technology company in California’s Silicon Valley, to install ‘smart’ solar water heaters. They include a monitoring device by Fat Spaniel that measures the energy produced by solar thermal installations in kWh. By doing so, the company provides what it describes as ‘usable revenue-grade data’ for trading renewable energy credits. Without an energy meter, solar thermal is a conservation measure. With an energy meter, solar thermal is a distributed energy revenue opportunity for the utility. In addition, the meters can calculate greenhouse gas savings, information that could come in handy if the US creates its widely anticipated carbon dioxide cap and trade programme. The devices provide real-time, web-view display of a system’s performance which can be read on computer, a phone or even may be displayed in a hotel lobby so that customers can see, first hand, the facility’s efforts to use clean energy.
Alex Winch, president of Toronto-based Mondial Energy, describes the Fat Spaniel technology as ‘the last mile to opening up the solar thermal market to massive adoption.’ Mondial is also helping to break new ground for solar thermal through innovative contracting. The company arranges 20-year contracts with multi-family residential complexes, laundries, hospitals and other large hot water users. Mondial pays for the solar equipment and its installation, while the customer pays a monthly charge for the energy so generated. The contract allows customers to hedge volatile natural gas costs against long-term solar energy prices. ‘We are very long on energy, and the customer is very short. When a customer owns an apartment building they have committed to buy energy for the period of ownership. If it is anticipated to be 20 years, they are short natural gas for 20 years – each year they have to go out to the market and buy gas. We mitigate that by allowing them to go long,’ Winch says.
Mondial also allows customers to choose among products that offer different levels of pricing risk. For example, a customer may choose a fixed price product or a variable tariff tied to gas prices. The company says it has broken through barriers to solar acceptance by removing the daunting up-front equipment and installation costs and by assuming all product performance risks. The company only gets paid for the energy the system delivers. ‘The customers are happy they can manage their energy prices,’ Winch says, adding: ‘They are delighted that they are able to do something with renewable energy that didn’t cost them a premium.’
EnerWorks is attempting to educate utilities about the advantages of broad adoption of solar thermal, made possible through the innovations of companies like Fat Spaniel and Mondial. ‘The major barrier in all solar technology is money; utilities have access to low cost capital,’ Fisher says. But, so far, utilities remain wary because they continue to see solar thermal as a conservation measure that robs them of business. ‘They shed the load and shed the revenue,’ he says. ‘They are losing sight of the fact that if they developed an ongoing relationship, either through metering or leasing, they could generate income from the lease and also they would own the green attributes or RECs,’
In addition to earning revenue through REC sales, utilities could also cash in on the emerging energy efficiency credit market. Also known as ‘white tags,’ these tradable credits are much like RECs, except they represent energy saved through demand reduction and efficiency measures. Three states – Connecticut, Pennsylvania and Nevada – have now introduced energy efficiency portfolio standards, which require utilities to achieve set energy savings goals each year. Utilities can meet the requirement by securing white tags from businesses, aggregations or others which install efficiency measures. Several other states are considering adopting similar standards. As a result, solar thermal is in the unusual position of being able to take advantage of green credits that both produce energy and reduce energy, Fisher says. In some markets where RECs are short, the credits are selling in the mid-$50/MWh range, while early trading of efficiency certificates in Connecticut garnered prices in the low $30/MWh range.
Several US regions are undertaking major transmission expansion to move wind power to load centres, but large-scale deployment of solar thermal would also help utilities avoid the cost and permitting difficulties associated with building new transmission lines. ‘By the time you have gone through a three-year environmental assessment, you could have installed 3000 solar hot water systems,’ Fisher says.
According to Fischer, the capital cost of distributed solar thermal generation is approximately $1.50/W for energy which is at point of use, requires no transmission, distribution or wire capital and no environmental impact process. And, a managed deployment of residential solar water heating appliances similar to European deployments of more than 20,000 appliances generates 60 to 80 MW of metered RPS qualified solar energy in peak hours.
Finally, pursuing solar thermal would prove to be a good public relations move for utilities: ‘All of a sudden instead of being seen as a bad utility you are seen as good guy,’ says Fisher, adding: ‘If you are a utility trying to build a coal-fired plant and you went to a regulator and to the public and said, “We are going to build a coal-fired plant, but at the same time we are going to offset all of that carbon by installing solar hot water” – there is opportunity on all sides.’
Solar thermal advocates say the market is clearly growing. But it remains to be seen whether the innovations of companies like EnerWorks, Fat Spaniel and Mondial will gain widespread appeal, particularly among utilities. If they do, RPS critics may find themselves silenced as a new, easily built technology helps states meet their portfolio goals. Solar thermal may finally – after waiting many years – find itself in the spotlight.
Elisa Wood is US correspondent for Renewable Energy World Magazine.
Solar thermal metering in Europe
Europe’s solar thermal installations have a total capacity of around 6500 MW (700 MW added in 2007), and Germany alone employs around 15,000 people in the sector. Upcoming markets in Spain, France and Italy all saw increased installation rates in 2007, thanks in part to building regulations and in part to the increased price of heating fuels. Even so, solar heating has a much larger role to play across Europe, where it is sometimes referred to as the ‘sleeping giant.’ With Europe committed to significantly increasing the share of its energy coming from renewables of all kinds, does metering of solar thermal have a useful role to play?
‘It depends – largely on the size of the installation,’ says Uwe Trenkner of European Solar Thermal trade association ESTIF.
Larger systems have been typically metered for a long time already, and meters are widespread in installations on multi-family buildings and so on. If an energy supply company (ESCO) is involved, then metering is also standard. In these cases, the metering is really a way of ensuring the system is working optimally and that users of the heat are being billed for the correct amount where appropriate. No European countries have a ‘feed in’ mechanism for renewable heat, though several do for electric power.
Even though the industry is keen to make the energy contribution made by solar thermal more visible, it seems that metering of small-scale domestic installations is still some way off. At the moment, with prices as they are, says Trenkner, the costs of precise measuring in small domestic hot water systems can quickly outweigh the additional benefit. Adding a meter (which most system suppliers would be happy to do) would add something like €200 to the total installation cost. One German user group recommends a rule-of-thumb guideline that a meter only becomes valuable if its investment cost is offset by energy savings from solar rather than gas/electricity within four months.
As markets are not set up to make any kind of financial reward based on the data measured, the main benefit of metering would be to enable system owners to check that their systems are performing well.
It’s a matter of debate within the industry, says Trenkner, just how best to monitor quality issues – this is especially important in markets with solar obligations. Having systems regularly checked by independent contractors is one option, though expensive. But ensuring that owners themselves can check that the system is working optimally is not completely straightforward.
There’s also a question about whether a heat meter should be obligatory. While many consider the cost of meters too high for small systems at the moment, no-one knows how far their price would come down if used in large numbers.
Europe’s largest solar event, Intersolar, took place in Munich in June, and included the Solar Thermal Industry Forum. See www.intersolar.de