Scholarly article on topic 'Review of International Solar Cooling Incentive Schemes'

Review of International Solar Cooling Incentive Schemes Academic research paper on "Economics and business"

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Abstract of research paper on Economics and business, author of scientific article — Daniel Rowe, Stephen White

Abstract Each country has a range of government incentive and industry development programmes, which have been designed with the intention of assisting the renewable energy and building energy efficiency industries. These programmes call up procedures for inter alia quantifying benefits, rating effectiveness and achieving robust measurement and verification. Under Subtask C “Market Support Measures” of International Energy Agency Task 48 Quality Assurance & Support Measures for Solar Cooling, a country by country database of relevant standards, processes and incentives was created and links to the needs of the solar heating and cooling industry were identified. Analysis of this database is intended to provide insight into the needs of alternative policy interventions, and support the development of a scientific evidence base and tools to inform policy makers. In this way this exercise is intended to encourage the development and adoption of successful solar air conditioning support measures. This paper presents the insights from the incentive review and presents possible approaches to guide the future development of effective standards, guides and rating frameworks.

Academic research paper on topic "Review of International Solar Cooling Incentive Schemes"

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Energy Procedía 57 (2014) 3160 - 3170

2013 ISES Solar World Congress

Review of International Solar Cooling Incentive Schemes

Daniel Rowea*, Stephen Whitea

_aCSIRO Energy Technology, 10 Murray Dwyer Cct, Mayfield West, NSW, 2304, Australia_

Abstract

Each country has a range of government incentive and industry development programmes, which have been designed with the intention of assisting the renewable energy and building energy efficiency industries. These programmes call up procedures for inter alia quantifying benefits, rating effectiveness and achieving robust measurement and verification.

Under Subtask C "Market Support Measures" of International Energy Agency Task 48 Quality Assurance & Support Measures for Solar Cooling, a country by country database of relevant standards, processes and incentives was created and links to the needs of the solar heating and cooling industry were identified.

Analysis of this database is intended to provide insight into the needs of alternative policy interventions, and support the development of a scientific evidence base and tools to inform policy makers. In this way this exercise is intended to encourage the development and adoption of successful solar air conditioning support measures.

This paper presents the insights from the incentive review and presents possible approaches to guide the future development of effective standards, guides and rating frameworks.

© 2014TheAuthors.PublishedbyElsevierLtd.Thisis anopen access article under the CC BY-NC-ND license

(http://creativecommons.Org/licenses/by-nc-nd/4.0/).

Selection and/or peer-review under responsibility of ISES.

Keywords: Solar cooling; policy; incentive; task48; intervention; measure; standard; framework; CSIRO.

1. Introduction

Solar heating and cooling (SHC) is an emerging technology with the potential to reduce conventional energy consumption and carbon emissions in the building sector. The technology has been proven with a large number of demonstration projects around the world. However, progress toward widespread uptake requires policy instruments which support industry efforts to establish the technology and enable fair competition with incumbent technologies.

* Corresponding author. Tel.: +61-249-606-155. E-mail address: daniel.rowe@csiro.au.

1876-6102 © 2014 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license

(http://creativecommons.org/licenses/by-nc-nd/4.0/).

Selection and/or peer-review under responsibility of ISES.

doi:10.1016/j.egypro.2015.06.065

Successful support in these formative stages of market development would ultimately enable both the technology and the industry to become sustainable, competitive and self-sufficient in their own right.

As with many emerging technologies, solar cooling currently has higher costs than conventional technologies, has fragmented industry capability and market awareness is low. This is not surprising given the hidden transaction costs involved in early stage technology implementation (Fig 1). Ideally these early stage transaction costs would be reduced or eliminated through policy mechanisms that appropriately reveal the fundamental capital and operating costs.

Impacted by policies, programmes, awareness, and by V shifting preferences - ait roughly approximated by the "hurdle rate" or the "implicit discount rate"

Impacted by policies, R&D programmes, experience, growing expectations, and new innovations

Standard Efficient

technology technology

Source: Laimer (2009).

Fig. 1 Many components of a switch to new technology are affected by policy and must be tackled in order to reduce the barriers to

market transformation. [1]

"Learning by doing" research, development, demonstration and deployment (RDD&D) is also required to address these issues and enable the solar heating and cooling industry to move toward maturity. Thus, governments and industry must pursue energy technology innovation through a number of parallel and interrelated pathways sympathetic to both the "push" of RD&D and the "pull" of market deployment [1].

Through the policy spectrum Governments can reduce the risk for other actors in the early phases of technology development and then gradually expose the technology to greater competition [1]. This spectrum is shown below in Fig 2.

However these policy instruments must fit with the current stage and needs of the industry if they are to succeed. Thus, to achieve the desired effect the actor targeted by or implementing the policy instrument must be considered.

Preferences, perceived risk

Transaction costs

I nFormalion costs

Search costs

1. Technology development and demonstration

2. Niche

arkets ■

3. Achieving competitiveness

4. Mass market

Note: The figure includes generalised technology classifications; in most cases, technologies will fall in more than one category at any given time.

Fig. 2. Policies for supporting low-carbon technologies can have a significant impact on the RDD&D technology pathway, particularly if sympathetic to emerging industry needs. [1]

2. Solar Cooling Market Situation

A depiction of this technical and market development journey for solar cooling is shown in Fig 3. This graphic identifies some of the most relevant policy mechanisms as a function of solar cooling cost and performance, which are expected to change significantly as the learning curve is traversed.

(1) CL

Market development • Financial incentives

4 Low.jrj^esteiipns ■ Technical standards

Market initiation

• Demonstration funding

• Stamp of prestige

• Accredited suppliers

Tec '^al Refinement

* RD&D funding support

* Technical guides

Technical Development • R&D funding support

Cost/ kWh

Fig 3. The path from technical development to mass-market deployment is characterised by improved performance and lower

cost per unit energy produced.

Progress towards mass market deployment progressively transforms the task from a purely technical mission (bottom right in Fig 3) to a marketing and awareness exercise (top left in Fig 3). In the early stages the journey is reliant largely or entirely on R&D funding support and the cost per unit performance is high due to laboratory scale and one-off demonstration projects. Mass market deployment represents a stage where the benefit is clear and incentives can be accessed through performance-based market mechanisms such as tradable certificates.

To date, efforts to encourage the adoption of energy-efficient and low-carbon technologies have focused primarily on overcoming technological and economic barriers when, in fact, research suggests that consumer choices can often be heavily influenced by social and behavioural factors [1]. In particular, while cost and performance are important, the development challenge must now begin to include the need to develop capability and evolve the technology offering into an appealing 'package' to encourage mass market uptake and reduce implementation risk. This 'wrapping' may include non-technical performance characteristics such as system quality, user interface and engagement, risk, market education, industry training and support, attractive business models and general market appeal or 'buzz'.

A pyramid model depicted in Fig 4 emphasises and clarifies five different interrelated layers of SHC industry and technology development. In this way the model can help understand how the technology is presented to the market and where different actors can contribute to benefit the overall technology offering. Though the model does not imply a strict sequence a maturing of the technology results in growth towards the apex. The establishment of IEA Task 48 Quality Assurance & Support Measures for Solar Cooling is an indicator of the maturing solar cooling industry by tackling the 'System Quality and Promise Delivery' layer .

Fig. 4 A hierarchy of needs for solar cooling representing the development requirements for solar cooling industry development.

In addition to understanding the desired effect of an intervention a critical consideration is the change agent or agents involved. These actors may be a target, an implementer or a competitor. Their needs are critical to a policy instrument's success.

Solar cooling actors were classified by a recent roadmap for solar cooling [2] as belonging to four main groups including component manufacturers, real estate developers and owners, engineering designers and planners and research institutions. With the addition of installer/contractors and financiers, Table 1 shows the situation these actors face in solar cooling.

Table 1. Solar cooling actors and the situation they encounter in the solar cooling industry.

Actor Solar Cooling Situation

Component Manufacturers (eg collector manufacturers, chiller manufacturers) Weakly excited by market opportunity, but with a limited appetite for additional effort outside of core business. Equipment for solar cooling market is largely mature market equipment with limited profit margins. Aim is to sell more product.

Real Estate Developers and Owners Poor visibility of performance and aversion to high capital cost items. Opportunity for publicity and differentiation. Aim is to develop buildings that appeal to the real estate market.

Engineering Designers and Planners Opportunity for publicity and to generate high profile case studies and knowledge. There are a small number of specialist companies looking for a competitive advantage. These companies are typically small with limited market power. Some generalist contractors are taking on jobs with insufficient specific solar thermal knowledge. Aim is to secure the next job.

Research Institutions Interested in technical development and application of science. Also interested in monitoring, development of future technology and publishing papers. Industry benefits from public communication via scientific publications or through commercialisation. Aim is to develop technology and receive funding to continue research.

Installers and Contractors Often emerge from the Heating Ventilation and Air Conditioning (HVAC) industry with limited experience in solar technology. High costs result from additional risk margin applied due to lack of familiarity with the technology. Motivation once a project is secured is to get in and out and stick to the letter of the contract. The recent emergence of specialist Energy Service Companies (ESCOs) addresses many of these issues. Aim is to complete a project as required under a contract and move onto the next job.

Financiers The financier may play an important role in facilitating Energy Service Companies (ESCOs) -who build, own and operate the system and sell services to building occupants. Their key motivation is to reduce risk. Lending collateral is usually tied up in the building rather than the solar system. Aim is to obtain a secure return on capital.

3. Types of Incentive Schemes

Numerous renewable energy and other policy incentive schemes exist around the world. These have been summarised in a recent the United Nations Environment Programme (UNEP) study which defined and categorised 20 policy instruments in five categories with wide relevance across the Environment field [3]. These five categories and the 20 policy instruments selected by UNEP are shown below in Fig 5.

Control and regulatory Economic and Fiscal Support,

instruments market-based instruments information

instruments and and voluntary

incentives action

Normative: Informative: - Energy - Taxes - Voluntary

- Appliance - Mandatory performance - Tax ex- certification

standards audits contracting emptions / and labelling

- Building - Utility De- - Cooperative reductions - Voluntary and

codes mand-side procurement - Public negotiated

- Procure- manage- - Energy benefit agreements

ment ment (DSM) efficiency charges - Public leade-

regulations programs certificate - Capital ship programs

- Energy - Mandatory schemes subsidies, - Awareness

efficiency labelling and - Kyoto Proto- grants, raising,

obligations certifica-tion col flexible subsidized education,

and quotas programs mechanisms loans Information

campaigns

- Detailed

billing and

disclosure

programs

Fig. 5 Policy instruments analysed in the UNEP Assessment of Policy Instruments for Reducing Greenhouse Gas Emissions From Buildings — Summary and Recommendations report [3].

These policy instruments have been considered in the context of the solar cooling actors and their needs described in Table 1. For each solar cooling actor, Table 2 shows the barrier or issue they face and relevant policy options.

Table 2. The barriers and issues experienced by solar cooling actors and corresponding policy options.

Actor Solar Cooling Barrier or Issue Policy Option

Component Manufacturers Skills in solar cooling Market and company inertia Effort in adapting product line to new applications Transaction cost on relatively small size of market opportunity Training R&D Funding Stimulation of market demand

Real Estate Developers and Owners Uncertain performance and cost Lack of awareness of solar cooling Appeal of general technology offering Education and information Subsidies and incentives (eg. tax credits, low interest loans and tradable certificates) Cooperative procurement Standardisation Access to finance (including ESCOs) Labelling and certification

Engineering Designers and Planners Lack of skills in solar technology Project accountability risk Uncertain performance and cost Training Standardisation and technical guides

Research Institutions Access to funding Industry engagement Access to technology and market data Technology transfer R&D Funding Access to venture capital Business incubators

Installers and Contractors Skills and equipment Performance risk Commissioning costs Transaction costs Pricing and sourcing of equipment Warranties Low enquiry to uptake ratio Subsidies and incentives (eg. tax credits, low interest loans and tradable certificates) Technical guides and standards ESCO offers

Financiers Technical risk Commercial risk Low cost finance ESCO support

4. Survey Template Development

A survey template was developed by Task 48 Subtask C to compare currently available solar cooling incentive schemes. The survey categorised incentive schemes into eleven policy instrument categories based on the five categories proposed by UNEP. These Task 48 categories and the corresponding UNEP policy categories are shown below in Table 3.

Table 3. Policy instrument categories used in the survey template and the corresponding UNEP Policy Instrument category.

Task 48 Policy Instrument Categorisation Corresponding UNEP Policy Instrument Category

Certificate trading scheme Economic and market-based instruments

Technical compliance standard Control and regulatory instruments

Development planning requirement Control and regulatory instruments

Competitive grant Fiscal instruments and incentives

Subsidy on capital cost Fiscal instruments and incentives

Feed in tariff Fiscal instruments and incentives

Access to capital Fiscal instruments and incentives

Information or promotional service Support, information and voluntary action

Stamp of quality/ performance or prestige Support, information and voluntary action

Tax deduction Fiscal instruments and incentives

The survey template required the IEA country experts to fill in a survey for each of the interventions, further describing and categorising their characteristics. This included:

• Five pre-set drop-down fields (Table 4) allowing more targeted categorisation

• Ten 'free-form' descriptor fields (Table 5) allowing respondents to provide more detailed descriptions of the structure, pros, cons and effectiveness of a given policy instrument

Table 4 Pre-set drop-down options in the template provided improved measure categorisation and classification.

Descriptor Options Explanation

Category/Type of Intervention (Select) Certificate trading scheme Technical compliance standard Development planning requirement Competitive grant Subsidy on capital cost Feed in tariff Access to capital Information or promotional service Stamp of quality/ performance or prestige Tax deduction Other (type into cell) Common types of intervention measures are listed -only one measure may be selected The pre-set fields surround financial, regulatory and prestige motivators

Eligibility/ Assessment Approach Deemed Savings Engineered Design/ Eligibility Criteria Measured Performance Combination (type in cell) Other (type into cell) Unknown Common methods that can be used to quantify, rate or assess the eligibility of an installation for support under the given intervention - only one measure may be selected

Implementing Level of Government Local/City State/Regional Federal/National Combination (type into cell) Other (type into cell) Identify the breadth of the implementation Identify the potential for measure influence and replication Identify whether other areas may be eligible for the measure

Solar Cooling Opportunity Size No limit (or close to) Finite budget (type euro limit into cell) Finite capacity (type MW(refrig) limit into cell) Other (type into cell) Evaluate the magnitude of the potential opportunity Identify the likely lifetime of the measure

Application Niche Residential Commercial & Industrial All Other (type into cell) Evaluate the magnitude of the potential opportunity Estimate the likely suite of suitable technologies

Table 5 Free-form template descriptors used in the incentive scheme survey template.

Descriptor Explanation

Affected Country / Jurisdiction (Domain) Identify the breadth of the implementation Identify the potential for measure influence and replication

Intervention Mechanism (Title) The official label given to the measure Also included in some responses the colloquial label

Contact Organisation (incl. contact details) Contact details for the administering organisation

The Intervention's General Intent and Operating Principles General explanation of how the measure works General explanation of what the measure aims to achieve

Summary of the Benefits for Solar AC contractors (dot points) Potential benefit solar air conditioner installers may derive from the measure (especially important for measures targeting technologies other than solar air conditioning)

Summary of the Disadvantages for Solar AC contractors (dot points) Potential disadvantages solar air conditioner installers may experience regarding the measure (eg. subsidised competing technologies)

Effectiveness - outcomes to date (or likelihood of) stimulating solar cooling Evidence of measure's success in stimulating the solar cooling market Likelihood of measure stimulating the solar cooling market in the future

Administrative forms, timelines and processes for accessing support Information on the administrative burden accompanying the measure

Comments Free field for any other feedback which does not fit into the other categories Information on the historical or current context of the measure and on its creation

References Sources of external information and data about the measure and its implementation

5. Survey Result Analysis

The survey template was populated by representatives from country contributors. Input from six member countries was obtained, including Australia, Austria, France, Germany, Italy and the USA.

This input identified some 65 support mechanisms which were categorised and assessed. The responses indicate a large number of direct financial incentives present in member countries - with the top four schemes being subsidy, tax deduction, grant-based and access to capital measures. These direct incentives provide a benefit to a proponent directly from the incentive administrator. A chart showing responses by type of intervention is included in Fig 6.

Fig 6. Responses by category show the dominance of direct financial measures.

While more direct instruments were reported it is likely that respondents have considered the most direct and obvious measures first when completing this template, possibly overlooking other relevant incentives. Alternatively these direct measures may simply be more attractive to policymakers as they are more obvious to eligible parties, simpler to administer or easier to evaluate as they are more quantifiable.

Responses by region are shown in Fig 7 and indicate that either more supporting programs for solar cooling exist in Australia, Italy and the US or that a smaller number of larger programmes are on offer in the European responding countries. It is unclear whether a large number of smaller opportunities or a smaller number of large opportunities is beneficial for solar cooling.

Australia Austria France Germany Italy USA{New

Fig 7. Responses by region show larger numbers of reported incentives from New York, Australia and Italy.

Fig 8 shows that a majority of responses were implemented by State/Regional governments, closely followed by National/Federal governments. A smaller number of programmes were administered by Local/City governments. No programmes were administered by a combination of entities. This may be due to a very "jurisdictional" approach in government, but also provides a clear opportunity for policy harmonisation and cooperation.

35 30 25 20 15 10

1 1 0 0

Fig 8. Responses analysed by implementing body show that 50% of reported incentives are administered by State/Regional bodies with Federal/National accounting for 41% and only 9% by Local/City.

As shown in Fig 9, analysis of eligibility/assessment approaches shows strong representation by the Engineered Design/Eligibility approach. This approach assesses a design for incentives prior to construction, based on the size of some feature (e.g. m2 of collector area or kW capacity). This may be due to the ease of implementation and clarity of this approach. Both this and the deemed savings approach result in high levels of certainty and clarity about what is on offer and what will be achieved.

Fig 9. Responses analysed by assessment approach show dominance of design and eligibility criteria methods with a 47% response rate. NB: The response count is 72 (rather than 65) as the three combination cases result in multiple counts.

Measured performance is also prominent in the response and is a desirable incentive from a technical and policy point of view. However this approach may create uncertainty and thus risk for the applicant because the size of the incentive is tied to performance which is not certain during the investment phase. Performance-based policy instruments may also create implementation complexity resulting from measurement and verification requirements.

Fig 10 shows a bias towards residential and application independent ('All') instruments in responses. In a similar way to the direct incentives result mentioned earlier, this may represent a clear desire to communicate with residential occupants, as voters, in a political conversation or, may indicate a recognition that resource limitations are greater in residential applications and thus this application requires more support. Alternatively the view may also be formed that commercial and industrial entities are supported in other ways, are better served by a smaller number of larger incentives (eg. tax incentives) or are more able to act to respond to drivers in a business-as-usual way (eg. investing in new equipment).

7 ■ ■

Residential Commercial & All Other {type into

Industrial cell)

Fig 10. Responses analysed by application niche show a bias towards residential support, closely followed by the "all" case. Many of the "other" responses related to public and educational buildings.

6. Conclusion

The solar cooling market is developing quickly. A range of policy interventions were identified in 6 countries around the world that could potentially be used to support solar cooling. Many of these policy incentive schemes are focussed on awarding subsidies to systems based on technical parameters such as solar collector area. These incentives, created with solar hot water applications in mind are not targeted to the cost/ performance situation of the emerging solar cooling industry.

There has been some policy foray into system quality support through performance-based incentives. However, given the maturity of the solar cooling industry this approach has risks for industry actors as it is difficult to accurately predict performance during the design/investment phase. Measurement and verification costs may also create undue administrative burden and project risk for actors including the system designer or developer and the proponent.

There is a need for non-technical policy support addressing characteristics such as system quality, user interface, risk, market education, industry training and support, attractive business models and general market appeal or 'buzz'. These less tangible but critical policy strategies could be those that influence consumer choices by targeting, informing, motivating and empowering consumers.

Acknowledgements

The survey template was populated by representatives from country contributors. Input from six member countries was obtained, including:

• Australia - Daniel Rowe

• Austria - Hilbert Focke

• France - Romain Sire

• Germany - Uli Jakob and Matthias Schicktanz

• Italy - Roberto Fedrizzi, Simon Pezzutto and Marco Calderoni

• USA - Khalid Nagidi

References

[1] International Energy Agency. Energy Technology Perspectives 2010. Paris: OECD/IEA, 2010.

[2] Ing. Anita Preisler et. al, Technologie-Roadmap für solarthermische Kühlung in Österreich. Vienna: Bundesministerium für Verkehr, Innovation und Technologie, 2012.

[3] United Nations Environment Programme and CEU. Assessment of Policy Instruments for Reducing Greenhouse Gas Emissions From Buildings — Summary and Recommendations. Paris: UNEP, 2007.