Solar water heating up? Or will it explode?

As many may know, South Africa has a solar water heater subsidy scheme driven by ESKOM. Although I believe a subsidy scheme is a good idea to grow the market, I believe that the way it is currently being implemented isseriously problematic.

For a subsidy scheme to be successful, international experience has shown
that long-term market certainty is a pre-requisite for a successful solar
water heating market. Unfortunately, I do not believe this is the case in
South Africa for the following reasons.

Firstly, it is a major concern of mine that the Solar Water Heating
programme is driven as a Demand-Side Management intervention out of ESKOM.
ESKOM's current business model is predicated on selling as much electricity
as possible, not reducing consumption. Demand-Side Management is about
managing demand in such a way that you don't have grid failures so that you
can continue to sell as much electricity as possible. Right now, with more
demand than supply, it makes sense for ESKOM to promote DSM (including SWH)
as it will help keep the grid stable. However, as soon as additional
capacity is added to the grid, it will become business as usual again (i.e.
sell as much electricity as possible), and SWHs will no longer make sense to
ESKOM.

Secondly, the way ESKOM has handled the SWH subsidy programme so far is
laughable. The reasons for this include:

• The subsidies are calculated using a testing regime implemented by the SABS that is not similar to any other approved international way of testing solar water heaters. Thus the test biases towards powerful systems rather than towards optimal solutions. It also requires complete systems to be tested, an expensive process that only increase the revenue of the SABS and adds no value to the industry.
• The test does NOT really test the long term quality of the system, just the thermal performance.
• The first round of subsidies were not large enough to stimulate the market. Now there have been a sudden dramatic increase in subsidies, in some cases this is as much as 300% (not 120% as indicated in the article), in other cases it has been 0%.
• The new formula for calculating the subsidies is not public, and seems to be unreasonably biased to large powerful expensive systems.
• Lastly, and most importantly, there is no certainty around HOW this programme is going to run over the next few years, let alone next 10 years.

Thus the market may boom in the short term, but then there may be a sudden
change in the subsidy (again), leading to the market collapsing. This gives
investors little certainty about the market.

The lack of decent quality testing protocols and market certainty means that
we are likely to have a market flooded by cheap systems, where the suppliers
will disappear as quickly as they arrived if (when?) the subsidy changes,
leaving consumers in the lurch with low-quality products they cannot have
maintained or warranty support.

It is imperative that the SWH subsidy scheme be taken out of the hands of
ESKOM and be placed with an independent body who is primarily tasked with
ENERGY EFFICIENCY, or the reduction of electrical consumption, not DEMAND
SIDE MANAGEMENT, the management of electricity demand to increase sales
revenue. This body would require a long term funding source to drive a
long-term, transparent, consistent subsidy programme, and a proper quality
testing regime. Without this we run the risk of the bottom falling out of
the market.

Frank