Why Solar Thermal Technology Lacks Incentives and Financing

Compared to the outpouring of financing for solar photovoltaics, financing for solar thermal technologies has taken a back seat for many years in the United States. The Clean Energy Finance Forum (CEFF) spoke with Everett Barber, a consultant and author who has worked for many decades in the solar thermal industry, about his perspective on this discrepancy.

The solar thermal systems Barber designs are medium-to-low-temperature systems with flat plate collectors. They absorb solar heat and transfer it via a fluid or gas without generating electricity. Some of the plates are glazed while others are unglazed. They can be used in residential, industrial and commercial settings. In this interview, Barber focused on these flat plate systems rather than other solar thermal technologies.

This interview has been edited by CEFF.

CEFF: Comparing small-scale solar thermal financing to photovoltaic financing in the United States, what would you say are the differences between them?

Barber: Considerable.

Also, I want to be sure to make clear that I have not been involved in the financing end of the industry. I have been involved in the technology application end of the industry – and exclusively and largely in the solar thermal portion of it. I’d like to clarify that and restrict that.

When you talk to solar scientists such as the ones at Sandia National Laboratories, they may think solar thermal collectors are either the ones in power towers or the linear concentrators used to make electricity. I’ve not been involved in that end of the industry. I’ve been involved in what has typically been the low- and medium-temperature solar applications.

With that qualification, solar thermal financing or support is quite a bit less prevalent and, in many states, nonexistent compared to solar electric systems.

The solar thermal systems in New England have, from time to time, received incentives. And sometimes, it’s difficult for the agencies that are providing those incentives to provide a basis for the incentives. This is unlike the solar electric systems, which are more clearly based on the dollars per watt – or, like a renewable energy credit (REC), based on the watt-hours produced.

I have not made a study of the states that offer solar thermal incentives for space heating, industrial process heating, and these sorts of applications.

I can offer one interesting aside on a subject about which a lot of people are not aware. The unglazed solar thermal collectors that are used for pool heating and other lower-temperature applications have never had federal or state support of any sort, neither tax credits nor incentives, and yet that’s a very stable industry.

It’s been this way since the early 1970s, ever since unglazed manufacturing went into business. It’s a segment of the industry that appears to be not very well recognized now.

CEFF: It sounds like there’s a real absence of financing for a lot of these projects.

Barber: With the financing for solar electric systems – for example, in the Northeast – there’s a 30 percent tax credit for residential and for commercial applications plus accelerated depreciation.

There’s really no consistent incentive for solar thermal applications.

About 20 percent of the energy in a typical residence is electricity. A preponderance of the existing housing stock certainly needs some way to improve the use of thermal energy, but it’s still not there. For commercial applications, it varies so widely. And for the energy used in commercial office buildings, for example, thermal energy balances electricity.

There’s a downside to incentives, which is really something I’ve focused on for a long time. In the 1970s, Carter pushed through the solar federal tax credits. There was a substantial incentive that created a rapid growth in the industry that some argued at that time was needed because the cost of oil was going up so fast.

In 1985, Reagan did not renew the tax credits in the industry. It was all solar thermal at that time. It collapsed and went from 375 collector and component manufacturers to about six within nine months.

But a number of us who were in the industry from the outset thought it was not a bad thing, because there were a lot of quick buck artists who came into the industry and really gave it a terrible reputation.

A lot of us who stuck it out and continued working in the industry during the late 1980s and 1990s felt that we don’t want what happened to happen again. But it did. And there were some improvements to the incentives.

One of the downsides to the incentives that launched for the solar electric market has been that the agencies that issue the incentives don’t have a very steady hand on the tiller. So an incentive is offered for a year, a year and a half, or two years that really drives a very vigorous market, and then the money is gone – they have no way to replenish it.

What that did was to make it almost impossible to have continuity in a business. When the incentives ran out of money, the consumers were aware of that and they said, “Well, we’ll just wait for another round of incentives.”

Sometimes it was a different type of incentive. Sometimes it was a year – or a year and a half – in coming, and the vendors all went out of business. Someone had to start a new business, find competent installers… it was just no way to plan a business.

And that’s my feeling. Unless there can be a way to provide a steady inducement to use the technology, we’re doomed to have a start-and-stop type of industry.

I’m not sure whether you’re equating finance, which I understand to be quite different, with the incentives that are there. That’s not clear to me.

CEFF: I was about to ask, actually, about the role of private markets.

Barber: For a while, this was back in the 1990s, power purchase agreements (PPAs) financed large commercial solar installations. I’m not aware of them financing thermal solar installations. They’re only financing the solar electric installations.

But on a per square meter basis, you get four to five times the energy over the year from a solar thermal system as from a solar electric system. It’s unfortunate that is not recognized.

To look at it from a different point of view, you might say that – and I’ve heard policy makers say – that the solar thermal industry is able to survive on its own, whereas the solar electric industry – this was especially back in the late 1990s – there was such a huge cost for a solar electric installation in dollars per watt installed that it really did take a type of incentive.

That incentive has been really helpful in driving down the cost. I’m not sure how much you follow solar electric systems specifically, but over the past 15 years it’s gone from on the order of $10 per watt down to $1-2 per watt. That’s the module itself, not the installed system.

I think a carbon tax would be without question the most effective incentive on everything for solar electric systems, solar thermal systems, and energy efficiency.

And I am seeing more evidence in the trade publications that there’s discussion about carbon taxes. They’re trying to call it a carbon charge rather than a carbon tax because people hate the word tax so much.

That would drop all the federal tax credits, depreciation, and state incentives and just apply a carbon tax across the board to all use of carbon. That would let a lot of sorting out occur in the industry. A solar thermal system getting four times more per square foot than a solar electric system might get more respect.

The market is very skewed with respect to solar finance programs – or at least, the incentives are.

CEFF: You mentioned earlier that policymakers seem to be of the opinion that the market is mature and incentives aren’t needed. Are there any other reasons they’re not providing incentives of this type?

Barber: I haven’t made a lot of effort to canvass policymakers or find out what they think they should do. I do talk to some of them.

This story might typify what you get into with a lot of policymakers. I was in a hearing trying to get a solar contractors’ license established so that solar electric installers and solar thermal installers would have to go through training and pass an exam in order to be licensed to install a system.

They had a legislative committee meeting that was appropriate to the topic and there were about 20 people on the other side from me who were asking questions and were taking notes.

At one point, I made a differentiation between the two kinds of systems and one of the legislators who was the chair of the committee said, “I don’t understand this solar thermal system. Isn’t that just electricity?”

And I’d never encountered anyone with that perception.

I heard later from one of the aides of the committee that people on the committee had no idea about solar thermal energy. That was a few years ago.

I don’t know how bad the ignorance is. I know there’s a lot of ignorance in general about energy in the country among policymakers.

Disclaimer: Everett Barber has taught at Yale University but is not affiliated with the Clean Energy Finance Forum.

Front page image credit: "Solar panels, Santorini2" by 23x2 - Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Solar_panels,_Santorini2.jpg#mediaviewer/File:Solar_panels,_Santorini2.jpg

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