A Unique Fee-Based Approach
to Solar Hot Water Programs
Solar domestic hot water (SDHW) programs have never
thrived at utilities. However, the Utility Solar Hot Water Organization
(USH2O) sees utility deregulation as an
opportunity to introduce a new type of SDHW program, in which an energy
services company (ESCO) purchases the solar systems and contracts out for
the installation. The utility handles marketing and collects bills from
the customer.
Under this arrangement, customers do not own
the systems and pay only a monthly service fee that includes maintenance.
The fee is based on energy savings determined from a utility-read submeter
on the water heating system. Little or no down payment is required, and
the service fee is structured so that the customers pay less than they
used to for water heating.
A solar service program can help utilities overcome
obstacles they have faced with SDHW rebate programs. These past barriers
include:
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SDHW systems are expensive, usually about $3,000,
and traditional utility programs do a poor job of creating the type of
competition that drives prices down. Higher sales volume does not necessarily
reduce prices in a given market. While the factory can charge less when
sales are brisk, contractors' prices often include $600-$800 per system
for marketing, which is often done door-to-door or by equally inefficient
means.
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The customer becomes the owner of an unfamiliar
technology and has difficulty understanding how much hot water the system
contributes or how much money it saves, due in part to its redundancy to
an existing electric water heater.
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The utility also takes a risk, paying an up-front
rebate equal to the net value of the avoided energy, capacity, and transmission
and distribution benefits, assuming a useful life of fifteen years or so.
This can become a "stranded investment" if savings don't persist over the
life of the system.
In a deregulated environment, residential customers,
unlike large commercial and industrial customers, probably won't have a
wide choice of energy providers. In fact, residential customers may find
themselves bearing additional costs in the form of rate increases applied
to offset the utility's cost of remaining competitive with the commercial
and industrial customers.
Although it's not a new idea, the economics now
make a residential solar hot water service program practical for more utilities.
Customers pay, at a reduced rate, only for the solar energy delivered.
Thus they can be guaranteed savings and given a partial hedge against rate
increases. The ESCO receives revenues billed and collected by the utility,
which benefits from reduced peak demand and has a competitive edge to retain
customers. With a broader array of services to offer, utilities also may
be able to attract new customers. Such programs would also spur local economic
development by increasing solar contracting and manufacturing jobs.
USH2O has representatives
from utilities, the solar industry, National Renewable Energy Laboratory,
and the Department of Energy, and offers customized assistance to utilities
that are considering solar water heating programs. Interest in the SDHW
service approach is spreading among utilities, with a program beginning
in Wisconsin this spring.
Cliff Murley manages Sacramento Municipal
Utility District's solar domestic hot water program, and represents municipal
utilities in the USH2O Initiative.
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