Scholarly article on topic 'Learning from Interventions Aimed at Mainstreaming Solar Hot Water in the Australian Market'

Learning from Interventions Aimed at Mainstreaming Solar Hot Water in the Australian Market Academic research paper on "Economics and business"

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Abstract of research paper on Economics and business, author of scientific article — David Ferrari, Ken Guthrie, Sonja Ott, Robert Thomson

Abstract Domestic water heating in Australia conventionally uses electric resistance heating storage or gas fuelled water heaters. The Australian electricity supply has some of the highest greenhouse gas emissions factors in the world. Consequently, water heating is responsible for approximately 24 percent of residential sector greenhouse gas emissions in Australia. To assist households to move towards an energy efficient, low carbon future, a suite of market intervention programs to support solar hot water uptake have been introduced at both state and federal levels. These programs aim to improve the capacity of industry to deliver solar solutions, reduce the emissions intensity and net cost of household water heating, and increase the market share of the solar water heating sector. Incentives include: • Point of sale rebates and certificate-based programs for energy efficiency and renewable energy; • Regulations for new houses that encourage solar water heating installations; • Community awareness programs; and • Training programs for installers to ensure that tradespeople have the competencies to size systems and the skills to install them correctly. In some jurisdictions the incentive programs were performance-based, but in others a fixed rebate amount was available for all systems having performance above a minimum threshold. These programs have lead to the widespread expansion of the industry, with an almost doubling of the proportion of households with solar water heaters between 1999 and 2011. Installations in new homes have seen an even more marked increase: For example, regulations for new homes in the state of Victoria require the installation of a solar water heater or rainwater tank. This program has seen the adoption of solar water heaters in new homes increase fro m around 5% in 2004 to over 70% in 2011. Across most of Australia there are proposed regulations limiting the emissions intensity of replacement water heaters which will effectively ban resistance electric water heaters in most situations. Recently both South Australia and Queensland commenced their program for existing houses. It is expected that in the future these programs will drive an even greater uptake, which will go some way to insulating Australian households from price increases that may result from carbon driven future increases in the cost of energy. This paper discusses the various approaches and outcomes of the different programs and provides analysis of the basis of program success or improvements. Learning relevant to market interventions worldwide include • Continuity in program operation is necessary to allow industry to grow in a sustainable way. • Basing the incentive on independently derived performance results provides industry with a means of differentiating better products and provides purchasers with appropriate guidance. • Rebate program design should consider the consumer's purchasing priorities. For example, a point of sale discount awarded as part of the purchase transaction aligns with the urgency of the purchasing process and does not require additional cash to be available from the purchaser. • Design of the schemes can not only produce a greater market share, but can also encourage the manufacture of lower greenhouse gas emissions products. • Market interventions can have unintended consequences, so the programs need to be monitored and flexibility maintained to changes to avoid poor outcomes.

Academic research paper on topic "Learning from Interventions Aimed at Mainstreaming Solar Hot Water in the Australian Market"

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Energy Procedia 30 (2012) 1401 - 1410

SHC 2012

Learning from interventions aimed at mainstreaming solar hot water in the Australian market

David Ferraria*, Ken Guthriea, Sonja Otta, Robert Thomsona

aSustainability Victoria, Level 28, 50 Lonsdale St, Melbourne VIC 3000 Australia

Abstract

Domestic water heating in Australia conventionally uses electric resistance heating storage or gas fuelled water heaters. The Australian electricity supply has some of the highest greenhouse gas emissions factors in the world. Consequently, water heating is responsible for approximately 24 percent of residential sector greenhouse gas emissions in Australia.

To assist households to move towards an energy efficient, low carbon future, a suite of market intervention programs to support solar hot water uptake have been introduced at both state and federal levels. These programs aim to improve the capacity of industry to deliver solar solutions, reduce the emissions intensity and net cost of household water heating, and increase the market share of the solar water heating sector. Incentives include:

• Point of sale rebates and certificate-based programs for energy efficiency and renewable energy;

• Regulations for new houses that encourage solar water heating installations;

• Community awareness programs; and

• Training programs for installers to ensure that tradespeople have the competencies to size systems and the skills to install them correctly.

In some jurisdictions the incentive programs were performance-based, but in others a fixed rebate amount was available for all systems having performance above a minimum threshold.

These programs have lead to the widespread expansion of the industry, with an almost doubling of the proportion of households with solar water heaters between 1999 and 2011. Installations in new homes have seen an even more marked increase: For example, regulations for new homes in the state of Victoria require the installation of a solar

* Corresponding author. Tel.: +61-03-8626-8706; fax: +61-03-9663-1007 . E-mail address: david.ferrari@sustainability.vic.gov.au

1876-6102 © 2012 The Authors. Published by Elsevier Ltd. Selection and peer-review under responsibility of the PSE AG doi:10.1016/j.egypro.2012.11.154

water heater or rainwater tank. This program has seen the adoption of solar water heaters in new homes increase from around 5% in 2004 to over 70% in 2011.

Across most of Australia there are proposed regulations limiting the emissions intensity of replacement water heaters which will effectively ban resistance electric water heaters in most situations. Recently both South Australia and Queensland commenced their program for existing houses.

It is expected that in the future these programs will drive an even greater uptake, which will go some way to insulating Australian households from price increases that may result from carbon driven future increases in the cost of energy.

This paper discusses the various approaches and outcomes of the different programs and provides analysis of the basis of program success or improvements.

Learning relevant to market interventions worldwide include

• Continuity in program operation is necessary to allow industry to grow in a sustainable way.

• Basing the incentive on independently derived performance results provides industry with a means of differentiating better products and provides purchasers with appropriate guidance.

• Rebate program design should consider the consumer's purchasing priorities. For example, a point of sale discount awarded as part of the purchase transaction aligns with the urgency of the purchasing process and does not require additional cash to be available from the purchaser.

• Design of the schemes can not only produce a greater market share, but can also encourage the manufacture of lower greenhouse gas emissions products.

• Market interventions can have unintended consequences, so the programs need to be monitored and flexibility maintained to changes to avoid poor outcomes.

© 2012 Published by Elsevier Ltd. Selection and peer-review under responsibility of the PSE AG

Keywords: Solar hot water; market interventions; rebate programs; subsidies; regulations

1. The Australian SHW market

The residential sector in Australia emitted 102 Mt CO2-eq. in 2010 [1]. Water heating accounted for the largest share of pollution in this sector with 24 per cent of the total GHG emissions. In 2010, 44 per cent of water heaters used resistance electric elements to provide heat and 43 per cent use gas. Energy efficient water heaters (solar water heaters and heat pumps) account for only 13 per cent [2] of existing stock.

The total annual market for water heater sales across Australia is approximately 700,000 units with about 20 per cent of these sold in the State of Victoria. Data indicates increasing penetration of efficient water heaters, with 32 per cent of water heater sales in 2010 being SHW or HP [2] (see Fig. 1):

NT, ACT, Tas (unknown)

stock: 8%

stock: 12% sales: 35%

sales: 26%

Fig. 1. Australian solar and heat pump water heaters: sales and existing stock by State (2010). Source [2].

Throughout Australia, SHW systems are usually sold as packaged units and are supplied in one of two configurations: thermosyphon systems incorporate a storage tank with integral thermal collector; whereas split systems separate the collector and tank, with flow driven by pumps which are controlled according to the temperature differential between the tank and the collector (note that some split systems incorporate a heat exchanger to allow a non-potable fluid such as glycol to be used on the collector side). For periods of low solar insolation, supplementary heating may be provided by an in-line instantaneous gas booster between the tank outlet and delivery point, or electric resistance element in the tank. Gas-boosted storage tanks are sometimes used, but are becoming less common due to their higher storage losses. Systems incorporating auxiliary heat-pumps attached to the tank are now becoming commercially available.

Systems are occasionally installed as pre-heaters (collector and tank) or retrofit kits (collector, pump and controller fitted to conventional systems). Air-sourced heat-pump systems of various configurations are also common.

Performance of the system is assessed against the Standard methodology AS/NZS 4234 'Heated water systems - Calculation of Energy Consumption' [3] which specifies a TRNSYS modelling methodology accounting for component behaviour (derived from physical tests), load and weather profile according to the installation location. The model estimates annual energy consumption of the water heater and the Standard specifies a conventional water energy consumption to be used as a reference for determining the system's 'solar savings'. The results for various water heaters from the more than 1,800 models listed on the rebate database maintained by Sustainability Victoria [4] are presented in Fig. 2 as the specific GHG emissions per unit of energy delivered to the load. Small loads represent one and two person households with maximum peak winter hot water energy delivery of 25.2 mega joules (MJ) per day and medium loads three to five person households with maximum 42 MJ per day hot water delivery in peak winter months.

Electric water heaters have the highest GHG emission amongst water heaters with more than 325 g CO2-eq. per MJ heat added to the water by the water heater. Gas water heaters emit between 83 and 138g CO2-eq. per MJ depending on the water heating load and energy efficiency rating (one to six stars [5]). Solar electric water heaters achieve between 47 and 152g CO2-eq. per MJ depending on solar savings and water heating load. Solar gas systems achieve by far the best performance in GHG emissions which is between 11 and 62g CO2-eq. per MJ.

325 -300

275 -250 -

225 ■ 200 -

O 150 -

125 • 100 -75 50 25 0

Off-peak electric (250L) - Small load | Off-peak electric (315L) - Medium load

Gas instantaneous - Small load (1-6 Stars)

Gas instantaneous - Medium load (1-6 Stars) Gas storage (170L) - Small load (1-6 Stars)

Gas storage (170L) - Medium load (1-6 Stars)

GHG coefficient (uniform national): Electricity: 272g CO2/MJ Natural gas: 61g CO2/MJ

Solar electric - Small load

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Solar electric - Medium load*

Solar gas - Small load*

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Medium load

Solar gas - Medium load

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Solar savings

Note: Gas water heater performance distributed along horizontal axis for clarification - all have zero 'solar savings'

Fig. 2. Specific greenhouse gas emissions for water heaters in climate zone 4 (Melbourne, Hobart). Source: [4].

2. Market interventions

There are two broad approaches to mainstreaming solar: to increase consumer demand and to improve industry capacity in manufacturing, distributing and installing systems. Within each of these, there are several tools which can be employed. Fig. 3 below depicts the components of each.

Fig. 3. Solar hot water market influences. Source: [6].

In Australia, Government programs at the State and Commonwealth levels leverage these drivers in various ways.

2.1. Commonwealth Support

In 2001, the Commonwealth of Australia introduced the Mandatory Renewable Energy Target (MRET) scheme in order to tackle climate change and reduce greenhouse gas emissions. In 2010, the program was split into two parts: the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). These schemes aim to encourage investment in renewable energy technologies and supply 41,800 gigawatt hours of electricity generation annually from renewable energy sources by 2020. This is achieved through a market-based certificate trading scheme which is administered by the Office of the Clean Energy Regulation (CER).

Installations of registered solar water heaters and heat pumps are enable the creation of Small-scale Technology Certificates (STCs, previously Renewable Energy Certificates or RECs) under the SRES part of the scheme [7]. Practically all installations of Solar Hot Water and Heat Pump water heaters are eligible. The number of certificates created by solar hot water systems represents the number of megawatt hours that the solar water heater is deemed to displace over 10 years. The benefits of the certificate creation are typically paid to the owner of the solar water heating system in the form of an upfront discount from the full purchase price. The SRES scheme runs until 2030.

From mid-2007, the Federal Government offered a rebate of $1,000 when replacing an existing electric water heater with a SHW system if the system design met a minimum performance threshold. The rebate increased to $1,600 from February 2009 to early 2010. Since then the Renewable Energy Bonus Scheme (REBS) awarded a rebate of $1,000 for installation of an eligible SHW system and $600 for a heat pump when replacing an electric storage hot water system; the scheme was discontinued from late February 2012.

Proposed future regulations, which will apply to all detached residential dwellings, will see the phase-out of greenhouse intensive hot water heaters.

2.2. Jurisdictional support

Throughout the period 2000-present, many installations were eligible for a rebate from the relevant State Government. Additional incentives were available for some low-income households and those installing bottled gas systems in non-gas reticulated areas (see Table 1). Extensive details are provided in [8].

Table 1. State-based rebates and incentives.

Region Rebate amount ($)* Notes

Queensland $600 Available April 2010 - June 2012. Additional $400 available to low-income households. System eligibility determined by minimum performance threshold.

Australian Capital Territory Up to $1,000 Available 2000 to mid-2012. System eligibility determined by minimum performance threshold.

South Australia $500 Low-income households only. System eligibility determined by minimum performance threshold.

Western Australia $500 Available to 1 June 2013. System eligibility determined by minimum performance threshold, gas-boosted systems only. Additional $200 to installations using bottled gas if reticulated gas not available.

Tasmania N/A None

Northern Territory $1,000 Available when replacing a storage electric system. System eligibility determined by minimum performance threshold. Additional $600 available for houses which require structural reinforcement in roofing.

New South Wales $600-$1,200 Available October 2007 - June 2011. Rebate amount is performance-based.

Victoria $400-$1,600 Available 2000 - present when replacing an existing water heater with gas-boost solar. Rebate amount is performance-based.

The Victorian State Government rebate program commenced mid-2000. At that time, some other Australian jurisdictions had rebates available for solar water heaters in which the rebate amount was related only to the number of collectors. Initially providing up to $1,500 for each installation, the Victorian rebates were the most generous available in Australia and were the first to be delivered on a true performance basis. No support program was provided by the Commonwealth Government until the following year.

The Victorian Government rebate program was the key driver in developing the Victorian solar hot water market from 2000 to 2004 [9]. The rebate was awarded on the basis of performance, with systems exhibiting higher energy savings potential being awarded up to $1,600. This aspect of the program was aimed at increasing consumer demand for the higher-performance range of SHW systems, distorting the market and providing an incentive to manufacturers to improve designs of systems.

Other SHW market drivers from the Victorian Government include the Victorian Energy Efficiency Target (VEET), 6-star new homes regulations, awareness raising programs and support for developing industry capacity.

* Rebate amounts across most jurisdictions have varied during the last decade. For instance, for a short period in 2008-09, the Victorian rebate offered up to $2,500 to eligible installations in non-metropolitan areas. Amounts listed in Table 1 are intended as an indicative guide of typical rebate values throught the period.

6-star regulations require all new houses and single-storey units designed since 1 July 2005 to meet a minimum building energy efficiency standard and include either a solar water heater system or a rainwater tank connected to all sanitary flushing systems. One of the unplanned benefits of introducing the regulation after the rebate program was that, by 2005, the rebate had improved the capacity of industry to deliver higher quality products. The regulatory program was thus able to specify a higher threshold of minimum performance because the industry was capable of delivering those systems at lower cost than would otherwise have been possible. Under 6-star, the water heater is required to meet the minimum benchmark of 60% solar savings performance with respect to a conventional storage water heater. Data indicates that around 70 per cent of new homes are installing a solar water heater.

VEET is a white certificate scheme which commenced in 2009, initially setting energy saving targets for households and expanding to the commercial sector in early 2012. Liable entities (electricity retailers) are obliged to surrender a certain number of certificates reflecting a proportion of electricity sales each year. Eligible energy saving actions, such as the replacement of a conventional water heater with a solar water heating system, enable creation of certificates which the installer may sell to a liable entity. The number of certificates created by the installation of a solar water heating system depends on the deemed solar savings of the solar system.

Consumer awareness of the viability of solar water heating is critical to breaking down perceived barriers to the market, particularly in cooler climates such as Victoria. Sustainability Victoria publishes a weekly Solar Report on the ResourceSmart website [10] which provides an estimate of GHG and energy cost savings of SHW compared to conventional systems. The Smarter Choices program provides retail stores with point-of-sale information and training for their sales staff to help them to confidently advise their customers about energy and water efficiency of product. In Australia, 54 per cent of households nominate their plumber or hot water specialist as their initial point of contact when choosing a new replacement hot water system [2]. Sustainability Victoria and the Master Plumbers' Association have developed training and accreditation for Green Plumbers skilled in the installation of SHW systems, with more than 9,000 plumbers now accredited through the program.

The quality of SHW systems is addressed by the VEET and SRET programs which specify that eligible designs comply with "AS/NZS 2712:2007 Solar and heat pump water heaters - Design and construction". Additionally, the Victorian rebate program requires that the manufacturer provide a minimum five year warranty on major components.

3. Results

Whilst there are no reliable statistics available, it is estimated that annual sales of solar water heaters in Victoria in the late 1990's (prior to any rebate), was in the order of 700-800 systems. The sales generally occurred through specialist franchises which operated on a low volume, high margin market model. At that time, virtually all solar water heaters sold were electric boosted. Similar circumstances prevailed in most other jurisdictions except Western Australia and the Northern Territory, with SHW sales respectively taking around 20 per cent and 45 per cent of water heater market share in those states [11].

The impact of the various support schemes is clearly apparent in Fig. 4. Over the years 2004-2010, SHW sales grew from 5 per cent to 27 per cent of market share across the country. Growth was most pronounced in NSW and Victoria, which offered the most generous rebates through the period. Very little change was seen in South Australia, where relatively small rebates of $500 were only available to low-income households.

m Total Flectrfc Total fias SHW+HP

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2004 D CÛ ri o D O S (S NSW O 1 o it- o 3 -J O CO n o 3 o S CJ VIC O ' 1-1 o <N ;+ lÛ D O D O N (N c CO o o r-l iLD 1 fiD D N Û CO D O 3 o N <N SA O 1 1-1 o (S t VÛ D Ci 3 o (N 00 o o WA 1 ■

Fig. 4. Water heater type - market share by year and jurisdiction. Source [2].

Fig. 5 presents the annual creation of STCs (RECs) from solar hot water systems and heat pumps since the start of the scheme. As most installations were eligible to create certificates, this data may be taken as a proxy for all installations.

T3 ■ffi ra

o m O I-

i—| i—i

„ m n n n n n

ry ry ry ry ry

Fig. 5. Creation of Renewable Energy Certificates for solar hot water (as at March 2012), Source: [12]

In the first year of the MRET scheme, around 215,000 certificates were created by solar hot water systems. Since then, the target was a major driver for solar hot water system sales and in 2011 around 2.8 million certificates were created.

In 2009, installations spiked at 7.9 million certificates. One explanation for this vast increase in sales was the high certificate price which increased from AUD$14 in October 2006 (all time low) to AUD$35 in April 2007 and AUD$53 in May 2008 (all time high). Currently (May 2012), STCs are trading around AUD$25 [13] (Note: the current exchange rate for the Australian Dollar is around 1.01 USD and 0.776 EUR). A second driver was the combination of generous rebates available at the time from both State and Commonwealth governments (details below) combined with drastic reductions in the retail prices of some types of system.

The focus on gas boosted systems under the Victorian and Western Australian solar hot water rebates is clearly reflected in the increasing stock of those products (Fig. 6): in 2008, one third of Victorian SHW systems were gas boosted while by 2010 this proportion had doubled to 67 per cent. In Western Australia, gas boosted solar water heaters grew from three to 19 per cent of solar water heaters in that state. Under the NSW rebate program, which did not directly target gas boosted SHW, only 3 per cent of systems funded were gas SHW.

Electric Gas

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Fig. 6. SHW booster type - existing stock by year and jurisdiction. Source [2].

4. Learnings

There are two broad approaches to mainstreaming solar: to increase consumer demand and to improve industry capacity in manufacturing, distributing and installing systems. Within each of these, there are many levers which can be employed. Support programs can address either or both.

Rebate programs primarily address the capital cost barrier, but in order to effectively do so they must have the following attributes:

• Continuity: A successful support program needs to be in place for sufficient time for industry to grow in a sustainable way by investing in new products and channels to market. Short term programs do not provide the confidence for industry to make planned investments.

• Performance based: The most effective rebates provide an incentive for manufacturers to improve products and for purchasers to buy the best performers.

• Simple, user-friendly process: The purchasers must be able to easily understand the requirements to get the rebate, be able to purchase without delay for approval, and where possible not be out of pocket awaiting a refund.

• Monitored and flexible: Market interventions can have unintended consequences, so the programs need to be monitored and flexibility maintained to changes to avoid poor outcomes.

Incentives clearly have a part to play but this is just one tool of many which can support the uptake of solar hot water heaters. When used in concert the impact can be far greater.

Awareness programs can help to drive consumer demand. The cost of awareness raising is often significantly lower than direct subsidies and can have a longer-lasting impact. Further, consumer choice is made on the basis of a range of factors which can be leveraged to emphasise quality in a way that is not feasible to a rebate program. Product quality must also be a consideration in the design of a rebate program so as to establish and protect the reputation of the emerging industry. Effective programs

supporting the establishment of an industry should address barriers in skills through education, accreditation or both.

Regulatory programs mandating the use of technology generally result in the proliferation of systems which comply with minimum cost (just-compliant systems). By supporting the development of the industry's capacity before imposing the regulation, SHW regulations are able to specify a higher threshold of minimum performance because the industry becomes capable of delivering those systems at lower cost than would otherwise have been possible.

Public administrators, designers of government programs and industry players should be mindful that the goal of mainstreaming solar is to establish a robust industry delivering high quality products.

References

[1] Australian Government, Department of Climate Change and Energy Efficiency (2012). Australian National Greenhouse Accounts: National inventory by economic sector 2009-10.

[2] BIS Shrapnel (2010). The Household Appliance Market in Australia 2010: Vol 4 Hot Water Systems,

August 2010.

[3] Standards Australia (2008). AS/NZS 4234:2008 (incorporating Amdt 1, 2011) Heated water systems - Calculation of energy consumption.

[4] Sustainability Victoria. (2012). Rebate - Solar Hot Water. Accessed online 23 June 2012. http://www.resourcesmart.vic.gov.au/for_households_3096.html

[5] Australian Government, Department of Climate Change and Energy Efficiency (2009). Gas Energy Labelling: Requirements for Gas Space Heaters, Gas Water Heaters and Gas Cookers. Accessed online 23 June 2012. http://www.eeergyratieg.com.au/gas.html

[6] Guthrie, K., Hines, R., Ott, S. and Woolfe, K. (2008). Mamstreammg Solar Hot Water. In Proceedings of the ANZSES Conference Solar2008. Townsville, Australia.

[7] Australian Government, Clean Energy Regulator (2012). The Small-scale Renewable Energy Scheme (SRES). Accessed online, 14 May 2012. http://ret.cleaeeeergyregulator.gov.au/about-the-schemes/SRES

[8] Guthrie, K. and Ott, S. (2009) Australia: Mamstreammg Solar Down Under. In Proceedings of the Fourth European Solar Thermal Energy Conference (ESTEC2009).

[9] Guthrie, K. et al. (2005). Victorian Solar Hot Water Rebate Program Review of Outcomes 2000 - 2004. In Proceeding of the ANZSES Conference Solar2005. Dunedin, New Zealand.

[10] Sustainability Victoria (2012). Solar Report. Accessed online, 24 June 2012, http://www.resourcesmart.vic.gov.au/for_households_2675.html

[11] Australian Bureau of Statistics (2011). Environmental Issues: Energy Use and Conservation (4602.0), March 2011.

[12] Green Energy Markets. (2012). The Solar Report - March 2012.

[13] Green Energy Trading (2012). Today's Pricing. Accessed online, 14 May 2012, http://www.greeeeeergy1radieg.com.au/certificates/todays-pricieg