Proponents of household solar water heating (SWH) tell us that the technology’s promise remains bright: solar water heaters work, they can save money for their owners, their use reduces air pollution and green-house gas emissions, and they are ready for the marketplace. Yet sales remain anemic, with an installed national base of under three-hundred thousand units (according to the U.S. Census Bureau) and a few thousand units sold nationwide per year. According to the Department of Energy, the SWH sector consisted in 1997 of 29 companies — one more than the year before, but fewer firms than any other year since before 1974, and far below the triple-digit figures of 1977 to 1984. Worse, most of the systems shipped heat swim-ming pools; household SWH accounts for a measly 7.3% of the market. To put it bluntly, that’s not really an industry. It’s a craft — albeit a craft pursued by a cadre of dedicated, hard-working professionals who believe in the value of their product.

The fragile state of the industry presents serious obstacles to consumers with even the best intentions. The authors of the following report tell us that they called all the SWH vendors in their local telephone direc-tory to “price” a unit. Their attempts yielded a series of answering machines, but not a single human. None of the vendors responded within two days. Worse, the directory listed the vendors under “solar,” rather than water heaters generally. Given that most people only buy a new water heater when their old unit fails, one would expect even many environmentalists to give up and purchase some other variety of water heater in order to take a hot shower again.

Policy analysts have given much thought to public programs able to provide appropriate subsidies for the purchase of solar water heaters. For instance, the Clinton Administration’s “Million Solar Roofs” initiative, intended to remove market barriers and strengthen demand for solar energy, includes a proposed $6.3- billion package of Federal tax and research incentives. One component of the ambitious plan would be a 15% income tax credit (limited to $1000 per household) for rooftop SWH. Solar supporters justify such public support by pointing to the environmental value provided by SWH but ignored in market energy prices. Supporters also hope that providing such subsidies will expand markets for the technologies in ques-tion to the point where manufacturers can bring down prices.

In the following paper, Hoffman, Wells and Guiney pose a different question. Rather than asking what type of subsidy could best sustain the SWH industry, or what subsidy precisely represents the environmental benefits of SWH, this report instead considers what business structure could best enable the industry to succeed. Their answer is provocative, and so far only preliminary. But it is a new answer, and worthy of consideration.

Solar water heaters work. They can also compete commercially. They should play a role in a renewable energy future. We believe SWH has a better chance of surviving and contributing to that future if it frees itself of transitory political support — no matter how sincere — and vulnerable subsidies — no matter how well deserved. SWH entrepreneurs must instead organize their businesses so as to take best advantage of those things on which they know they can rely: their own efforts, and basic consumer for the product they sell.

Adam Serchuk, Research Director and Executive Director of the Research Report series
Roby Roberts, Executive Director
Virinder Singh, Research Associate
J. Bernard Moore, Research Intern

August 17, 1998