Direct solar water heating (SWH) is an environmentally attractive and potentially economic means of providing homes and commercial institutions with hot water. Using the sun's energy to warm water directly appeals to many people, not just those who identify themselves as environmentalists. Despite this appeal, however, the solar water heater industry has had difficulty gaining a permanent share of the hot water market. Solar water heater sales have fallen to dangerously low levels, with most stemming from repairs and replacements. SWH is achieving minimal sales in the market for new homes. The continuing demise of utility programs that offer rebates or support SWH further threatens the industry.

Current efforts to promote energy efficiency and renewable energy increasingly use "market transformation" strategies, which seek to create self-perpetuating markets that do not rely on continued subsidies. For solar water heating, several such programs could assist in the development of a more viable industry, especially:

• Energy Star^TM Homes and Home Energy Rating Systems, which can legitimate SWH by integrating them into certified, energy-efficient, low life-cycle-cost homes (i.e., homes that cost less per month to own, when considering principal, interest, taxes, mortgage insurance, and energy costs);

• new financial services aimed at efficiency investments in homes, which can provide rapid approval of credit with loan periods consistent with the life of the equipment; and

• the Million Solar Roofs program, which can provide public visibility and capital for creating SWH sales.

By themselves, however, these market transformation tools cannot create a sustainable industry because they do not address the key issue that past programs have failed to address -- the lack of a viable, committed, and permanent sales force. Because the profits from selling SWH alone are unlikely to create sufficient profit to attract a viable sales force, development of a permanent group of effective salespersons will probably require adaptation of the insurance agent model, which has successfully allowed small entrepreneurs to bring a variety of insurance products to market by carrying more than one kind of insurance. Preliminary analysis indicates that selling other efficiency and environmental products that add to the profit margin of each transaction may create sufficient profit to attract entrepreneurs to sell SWH as part of their livelihood, thereby transforming the market for SWH sales.

However, private corporations and investors are unlikely to invest in promoting this model for SWH, given the past history of the industry and the uncertainties associated with making the model a success. Public-policy-oriented organizations (such as foundations or public institutions disbursing market transformation funds in New England, California, or the Northwest) that want to support SWH should consider developing investment funds that help finance a few entrepreneurs to enter the business of bundling SWH with other efficiency and environmental products. The paper concludes with recommendations for other groups -- federal and state governments, utilities, environmental and consumer groups, builders associations -- who can play supporting roles in developing the insurance agent model.

Additional resources need to be dedicated to improving the marketing and business assessments contained in this paper so that the best bundles of goods and means for operating a combined sales agency can be developed. What is clear is that the proposed organization must operate in a lean and efficient manner, as do small insurance agents and other professionals. The embryonic business plan provided in this report is probably insufficient to secure the larger investments needed. Further assessments are needed of the logistics and profits associated with various technologies that could be handled by the combined sales agency.

Abstract A Message from the Staff of the Renewable Energy Policy Project Article