Financial incentives are definitely one of the key factors influencing dissemination of SWHs in many countries. Government grants have paid for up to 50% of the initial cost of SWHs (Stevanovic and Pucar 2012). However, these discounted prices could lead to supply-side distortions. A possible negative impact on the sustainable development of the SWH industry is also expected. For instance, the total financial incentives offered by the Kinmen County (purchase-based subsidies, 2008 to 2010) and the BEMOEA in Taiwan approached the initial cost of an SWH (89%). Therefore, it is considered that there were many over-designed systems installed, resulting in a mismatch between the production and the demand for hot water (Chang et al. 2011). In addition, the long subsidy program in Taiwan has lost its momentum in expanding the market. The distribution of capital subsidies could be put to better use. To maximize energy savings with solar energy, this study proposes a new scheme in the residential sector and performance-based incentives in the commercial sector as described below.
A revised scheme in the residential sector
With the well-organized efforts (financial incentives and research projects) taken by the BEMOEA, there is increasing public interest in SWHs. As shown in Figure 2, the accumulated area of solar collector installed increased significantly from the late 1980s to 2000 (≈1 million m2). Direct subsidies by the BEMOEA (2000 to present) had definitely positive effects on the dissemination of SWHs. In 2010, the accumulated area of solar collector installed reached 2 million m2. Further, with a service period for SWHs less than 15 years, the effective accumulated area of solar collector installed was approximately 1.5 million m2 (or 0.3 million systems in operation) in 2013.
Popularization of SWHs in Taiwan is strongly correlated with the demographic characteristics of households (Chang et al. 2009). From 2001 to 2011, the market share of SWHs for one- or two-person households contributed only 1.4%. Stem families and some nucleus families have been more positive about installing SWHs (Lin et al. 2012). The households and the penetration rate of SWHs (SWHs/Households) with a service period of 15 years are shown in Figure 3. It can be seen that the number of households has doubled over the last three decades. As for the penetration rate, it increased significantly from 1985 to 2000, corresponding to an increase in the accumulated area of solar collector installed. With the second and the third subsidy programs, approximately 0.28 million SWHs were installed and the effective accumulated area of solar collector installed increased significantly. However, the penetration rate remained nearly constant (3.4% to 3.67%). According to the data of the DGBAS (2013), household composition has become more simplified and the average size of households has decreased in Taiwan. In 2013, the number of households with one or two persons is approximately four million. This partially explains the nearly frozen penetration rate during the last decade.
The timing of the termination of the current long-duration subsidy program is a subject of debate. The major concern for policy makers is how to ensure a sustainable SWH industry upon the end of the financial incentive. Under the current subsidy, all installers or dealers (492 persons in 2013) must take some training courses and attain a certificate issued by the BEMOEA. Upon the termination of the current subsidy program, economies of scale (or local market) will be the key element to sustain this professional network to ensure the quality of products and post-installation service for the remaining portion of a system’s technical life. When it comes to the end user, a field study (33,505 samples) was conducted by the ER/NCKU from 2008 to 2013 (Chang et al. 2013a). It found that the public attitude towards SWHs is critical to motivate first-time users. The survey indicated that energy conservation (68%) and safety (26%) are of major concerns. Recommendation by local installers/dealers (6%) or other SWH users (9%) is another key factor. Nevertheless, many households have replaced old SWHs (22%), of which the service periods of 10 to 15 years and over 15 years account for 22.8% and 58.0%, respectively.
In the last decade, 55% SWHs were installed in new buildings, of which the completion of housing construction was completed within 3 years. The subsidy programs and the status of new construction affect the local SWH market dramatically. As shown in Figure 4, the ΣA
SC is correlated reasonably well with the total floor area of occupancy permits, ΣA
op, in which the ratio of ΣA
SC/ΣA
op increases significantly at the initial stage of each subsidy program and approaches some constant levels. The values are approximately 0.17% and 0.33% in the periods of 1988 to 1999 (without financial incentives) and 2002 to 2007, respectively. In 2010, the peak value of ΣA
SC/ΣA
op (=0.57%) corresponds to a regional subsidy program by a local government (Chang et al. 2011). It is also noted that the average value of ΣA
SC/ΣA
op is 0.42% in the period of 2011 to 2013. Therefore, upon the termination of the current subsidy program, it is possible to estimate the ΣA
SC installed in new buildings, e.g., ΣA
SC, new = ΣA
op × 0.42%. It is also worth noting that more than 80% of end users have positive comments about system performance, and most of them (75% of end users) are willing to purchase new SWH in the future. In particular, the piping and supporting structure account for approximately 10% of the initial cost. A lower initial cost can be expected for a replacement. With the service period of 15 years, ΣA
SC for the replacement can be estimated, e.g., ΣA
SC, replacement, 2025 = ΣA
SC, replacement, 2010 × 75%. Therefore, to ensure a sustainable SWH industry in Taiwan, two scenarios could be put into practice, of which the termination of the current subsidy program is in 2015 or 2019. Note that the second one includes the deduction in direct subsidies (2016 to 2017, 2,000 NTD/m2; 2018 to 2019, 1,750 NTD/m2). In this case, the ratio of the subsidy to the initial cost of an SWH for a four-person household would be approximately 12% in 2019.
A performance-based subsidy scheme in the commercial sector
Timilsina et al. (2012) indicated that technological improvements and supportive government policies result in phenomenal growth in utilization of renewable energy. To promote domestic PV installation, the ‘Million Rooftop PVs Project’ was initiated by the BEMOEA in 2011. Targets of 1,020 and 3,100 MW of installed capacity have been set for 2020 and 2030, respectively. The project adopts a photovoltaic-energy service company (PV-ESCO) business model by providing capital financing to local system integrators and installers, gaining profits from reasonable whole-sale pricing. A feed-in tariff (FIT), ranging from 5.23 NTD/kWh (installed capacity ≥ 500 kW) to 7.16 NTD/kWh (installed capacity = 1 to 10 kW), is offered. Note that the retailed electricity price in the domestic sector was 2.97 NTD/kWh in 2012 BEMOEA, (2013).
According to the ‘Measures for promoting solar water heaters’ by the BEMOEA, the minimum thermal efficiency (ratio of useful heat absorbed by a solar water heater to incoming solar energy on the solar collector) for a certified SWH is 0.5. A field measurement of an SWH for dormitory application was conducted by Lin et al. (2012). Results indicated that the thermal efficiency of the system was higher than 0.3 only when the daily solar radiation per square meter exceeds 7 MJ/m2 (the Chinese National Standard 12558-B7277). Note that the maximum thermal efficiency was approximately 0.45 for the system. Since more than 98% of SWHs have been installed in the residential sector, system design of larger-scale SWHs is a critical issue for most installers. Therefore, the expected energy savings over the lifespan of a system cannot be realized under the present purchase-based subsidy program. To disseminate SWHs in the commercial sector (such as the food, agro, textiles, chemical, and beverage industries), an upgrading campaign is necessary within system design to facilitate effective energy saving. Nevertheless, Islam et al. (2013) demonstrated that the installation of an SWH with a large A
SC is more feasible compared to a small unit installed in terms of energy conservation and per unit energy cost over initial costs. Note that the initial cost per A
SC can be cut in half for a larger scale system in Taiwan (Chang et al. 2009).
For the field measurements by Lin et al. (2012), a solar meter, power meter, flow meter, and temperature sensors were employed to monitor thermal efficiency and actual thermal output of the system. For the FIT, the thermal output should be measured with correct quantity. An incentive should be paid for real energy savings, but not for heat which is vented into the atmosphere or where a heat requirement has been created artificially. A cost-effective heat meter and data logging are required. Details about choice and maintenance of metering were given by Crowther et al. (2010). Further, to see any meter reliability problems, a physical meter reading can be adopted to monitor thermal output from 2015 to 2019, followed by automatic meter reading through the mobile phone system. It should also be noted that the ER/NCKU is conducting field measurements of thermal output for two larger-scale SWHs. Data from the monitoring devices have been sampled and transmitted synchronously to the host computer at the ER/NCKU through the internet.
Market of SWHs with the revised schemes
Two scenarios in the residential sector were proposed in this study. Assuming a flat rate of construction for new buildings in the next decade, the ΣA
SC (=ΣA
SC, new + ΣA
SC, replacement) under both scenarios is shown in Figure 5. It can be seen that there is a big drop (30% off) in the ΣA
SC upon the termination of the current subsidy program in 2015, followed by a slow recovery. Many installers and dealers could go out of business upon termination of the subsidy program, and the ΣA
SC would be less than 0.1 million m2 in 2025. Under the second scenario, it can be seen that there will be a minor increase in the ΣA
SC from 2015 to 2019 and a 15% drop in 2020. In 2025, the ΣA
SC will be 15% more than that under the first scenario. Therefore, the second scenario is strongly recommended to ensure a sustainable SWH industry in Taiwan, including a professional network of local installers/dealers.
In the commercial sector, small and medium enterprises (SMEs) make up the majority of Taiwanese companies, comprising nearly 98% of the enterprises in Taiwan (SMEAMOEA 2013). Most SMEs suffer from insufficient capital to support their commercial activities. Therefore, economic viability is considered to be a key determinant of the dissemination of SWHs for industrial process heat applications. Based on the life cycle savings of SWHs, the payback period in terms of operation cost and effective energy savings over conventional heating fuels could be approximately 5 to 6 years (Pan et al. 2012). Thus, other than the direct subsidy to end users, the ESCO business model can be adopted by providing capital financing to ESCOs with SWHs installed in the commercial sector. In addition, a study that used a fixed FIT for SWHs in the UK was conducted by Abu-Baker et al. (2014). In terms of heating value of electricity (3.60 MJ/kWh), the same FIT for PV systems (NTD/kWh) can be granted for SWHs in terms of thermal output (NTD/kWth) in Taiwan. Upgrading system design or more innovative technologies for effective energy savings can be expected, resulting in a shorter payback period. Further, a significant amount of research and development work on photovoltaic/thermal (PVT) technology for both hot water and electricity production has been done since the 1970s (Chow 2010; Othman et al. 2013; Dubey and Tay 2013). Thermal and electrical energy can be produced by these systems at the same time. Therefore, this proposed that performance-based subsidy can also be applied for PVT systems and will help to match suitable products and systems with the best potential market.