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A Survey of Solar Hot Water Heating Initiatives: Lessons for Policy-Makers

By Neil McCormick*

Although a larger consumer of energy than the transport and electricity sectors respectively the heating sector is often neglected in contemporary discussions surrounding the deployment of renewable energy technologies. In this article, the author surveys the approaches that some jurisdictions have taken to encourage the use of solar water heating systems, a promising renewable heating technology The discussion focuses on solar hot water heating initiatives that are novel or representative of greater trends, nameiy those in Spain, the United Kingdom, Australia and the State of Hawaii in the United States. Such initiatives range from building code requirements tied to a building's projected hot water demand in Spain to the trading of renewable energy credits by homeowners in Australia. Canadian incentives forthe use of solar water heating systems are also explored asan example of a jurisdiction that has done little to encourage the use of solar water heating systems. Among other conclusions, the author makes clear that quality control measures should be launched in tandem with any solar heating initiatives and that cash incentives may not be the most effective means to support the deployment of solar water heating systems. In response to the challenges posed by climate change and energy security, cotintries, regions and cities around the world are encouraging the deployment of renewable energy sources. Eor the most part, political discussions on renewable energy technologies have centred on the
Neil McCormick is an associate at Gowling Lafleur Henderson LLP in Ottawa, Ontario, Canada. He can be contacted by e-mail at neil.mccorniick@gowlings.com. This article was written with the assistance of Reed Taubner and the encouragement ofJennifer Mesqtiita.

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electricity sector, leading the European Renewable Energy Council' to describe the heating sector as 'a neglected giant'.^ The use of the term 'giant' is no exaggeration. The International Energy Agency estimates that '[ejxisting buildings require over 40% of the world's total final energy consumption, and account for 24% of world CO2 emissions','^ mostly owing to space and water heating.'' Taken as a whole, other estimates put the heating sector as a larger consumer of energy than each of the electricity and transport sectors respectively.^ In this light, it is surprising that renewable heating technologies have been neglected for so long, since they have the potential to substantially reduce both CO2 emissions and the consumption of fossil fuels. Among the most promising renewable heating technologies is solar hot water heating. Solar water heating has many advantages, notably that it 'do [es] not increase electricity consumption... . [I]t is available nearly everywhere... [and] it is emissions free'.^ Natural Resources Canada estimates that 'a solar water heater can provide enough solar energy to meet about one half of the water heating energy needs for a family of four [in Canada] '.' Despite such advantages, a host of economic and legal barriers impede the widespread adoption of renewable heating technologies, and it is apparent that most new homes and buildings around the world are not equipped with solar water heaters. The purpose of this article is to provide private and public decisionmakers with a non-exhaustive review of recent initiatives adopted around the world that promote the use of solar water heating in buildings, since little has been published on the subject. The survey is focused in several respects. First, it is limited to countries that have adopted solar water heating
1 2 3 4 5 The European Renewable Energy Council is an umbrella organisation representing the European renewable energy industry and various research organisations. European Renewable Energy Council, 'Renewable Heating Action Plan for Europe' (2007) at 3, online: EREC, www.erec.org/documents/publications.html. International Energy Agency, 'Financing Energy Efficient Homes: Existing Policy Responses to Financial Barriers' (2007) at 4. Ibid at 47. European Renewable Energy Council, 'Renewable Heating Action Plan for Europe' (2007), online: EREC, www.erec.org/fileadmin/erec_docs/Documents/Publications/ RES-H_plan_action_12_01_07.pdf European Solar Thermal Industry Federation, 'Heating and Coohng in the Upcoming EU Renewables Directive' (2007), online: ESTIF, www.estif.org/fileadmin/estif/content/policies/downloads/RES-H-C_positionpaper_ESTIF_071109.pdf. Natural Resources Canada, 'An Introduction to Solar Hot Water Heating Systems' at 2, online: NRCan, http://canmetenergy-canmetenergie.nrcan-rncan.gc.ca/fichier.php/ codectec/En/Inventory%20No.%20M27-01-1321E/SOLAR-Intro-SolarWaterHeatingSystems_ENG.pdf ('NRCan').

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initiatives that are novel or representative of greater trends, namely Spain, the United Kingdom, Australia and the State of Hawaii in the United States. These countries or regions within them have, respectively, implemented: a building code requiring new buildings to meet a proportion of their hot water demand through renewable energy sources; a planning scheme mandating the installation of renewable energy generating equipment on new buildings to reduce their predicted CO2 emissions; a renewable energy credit trading system that incentivises homeowners to install solar water heating systems in their homes; and a requirement to install a solar water heating system in new single family homes. Secondly, the analysis focuses on legislation within the jurisdiction, as well as so-called 'flanking measures', such as education campaigns, quality control measures and other support schemes. Thirdly, the lessons that have been learned from these initiatives are explored. Lastly, an emphasis is placed on measures that are currently in place in Canada, as an example of a jurisdiction that has done little to encourage the use of solar heating systems. The article begins with an overview of solar water heating technology, and the general barriers that deter its use. Several important conclusions can be drawn by comparing and contrasting in this way the methods different jurisdictions have adopted. First, in contrast to the Canadian example, the comparator countries, states and cities canvassed in this article have embraced solar water hearting more wholeheartedly, incorporating it into their climate change and energy security strategies. In some instances, it has actually been state and local authorities, rather than the national governments, that have taken the lead in promoting solar water heating, a model that would be readily exportable to Canada or other jurisdictions. Secondly, the case studies also suggest that the methods Canadian jurisdictions have chosen to promote solar water heating - namely cash incentives directed at 'early adopters' - may not be the most effective. While not every initiative launched in the comparator jurisdictions has proven equally successful, their experience shows that mandatory requirements have proven more successful at encouraging people, businesses and industry to adopt solar water heating than financial incentives alone. The survey also illustrates that whatever obligations a jurisdiction adopts must be launched in tandem with quality controls and other flanking measures to ensure that individuals and businesses install quality systems and take advantage of the available incentives. Canada has not been active in either respect, which is especially problematic in a country where knowledge of renewable technologies is less developed than in many other jurisdictions.

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Solar water heating technology and the barriers to its deployment

A typical solar water heating system uses the sun's thermal energy to heat water or some other heat conducting fluid in a solar collector,* usually mounted on the roof of a building. The hot fluid is then circulated through a heat exchanger, where it pre-heats cold water entering the building's conventional hot water heater. In this way, solar water heaters do not replace conventional hot water heaters, but reduce their use of energy, which results in net energy savings. Natural Resources Canada estimates that, on average, a home solar water heating system could save 2500kWh of energy per year.^ In Canada and other jurisdictions, however, a number of barriers deter the installation of solar water heating systems. First, renewable heating technologies often have high upfront costs with long-term rates of return. With respect to solar water heating, the European Solar Thermal Industry Federation (ESTTF) estimates that 90 per cent of the costs of a solar water system are incurred upfront, while the economic benefit of the system could extend over 20 years.'" As a result, 'the lower heating costs in the ftiture tend to be undervalued [by the public] against the investment costs at the beginning'." Secondly, 'the public lacks information about the availability... and benefits of renewable energy technologies'.'"^ Among other factors, this may be explained by the lack of market visibility for the small and medium-sized enterprises that produce and distribute solar water heating systems. Compounding the problem, 'few personnel are trained in renewable energy equipment installation, operation and maintenance'.'^ As a result, many consumers and businesses prefer 'known fossil resources to newer renewable resources'.'" Thirdly, there may be administrative barriers or laws preventing the installation of solar water systems in homes, apartment blocks or other buildings.''' Understanding these barriers helps explain why free markets have been reluctant to adopt solar water heating, and why the comparatorjurisdictions explored below decided to enact policies to promote and even mandate the technology.
8 9 10 European Solar Thermal Industry Federation, 'Solar Thermal Applications and Technology', online: ESTIF, www.estif org/st_energy/technology/introducdon. NRCan, note 7 above, at 2. European Solar Thermal Industry Federation, 'Key Issues for Renewable Heat in Europe (K4RES-H) Financial Incentives for Solar Thermal - WP3, Task 3.4 Contract EIE/04/204/S07.38607' (2006) at 9, online: EREC, www.erec.org/projects/finalisedprojects/k4-res-h/kcy-issue-4.html. Ibid. Richard Otdnger and Rebecca Williams, 'Renewable Energy Sources for Development' (2002) 32 Envd L 331 at 339. Ibid at 340. Ibid. European Solar Thermal Industry Federation, 'Best Pracdce Regulations for Solar Thermal' (2007) at 6. ('Best Pracdces'), online: ESTIF, www.estif org/policies/solar_ thermal_regulations.

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Country-specific initiatives to install solar water heating

Spain
INTRODUCTION

In March 2006, Spain adopted a construction code, the Cdigo Tcnico de la Edificacin (the Spanish Technical Building Code or 'CTE'),"' which implemented Directive 2002/91/EC'^ of the European Parliament on the energy performance of buildings.'* The CTE requires new buildings and those undergoing major renovations to meet between 30 to 70 per cent of their hot water demand with a solar heating system.'" The CTE represents a step towards Spain's goal of installing 4.9 million square metres of solar thermal panels by 2010, as outlined in the country's Renewable Energy Plan.'^" Its enactment followed a series of ordinances by other governments, starting with those of Barcelona (2000) and Madrid (2003), which mandated the use of solar water heating systems in new or substantially refurbished buildings. The Catalan Government's Decree on Eco-efficiency is similar, obliging developers to install solar thermal energy systems in all new buildings.'^' It was against this backdrop that the CTE came into force.

CTE
The CTE applies to the construction of all new btiildings, irrespective of their use, in which there is a demand for hot water.^^ In addition, it applies
16 The CTE was adopted by Royal Decree of the Spanish Government, in accordance with the provisions of Act 38/1999 (the Building Act). 17 Directive 2002/91/EC of the European Parliament and of the Council of 16 December 2002. Among other objectives. Directive 2002/91/EC contains requirements to apply minimum energy performance requirements to new buildings and those undergoing major renovations. 18 Martha Roggenkamp et al (ed), Energy Law in Europe: National, EU and International Law and Institutions, 2nd edn (New York: Oxford University Press, 2007), at 1158. 19 European Solar Thermal Industry Federation, 'The Spanish Technical Building Code (Royal Decree 314/2006 of 17 March 2006): English Translation of the Solar Thermal Sections of the Code' (2006) at 1, online: ESTIF, www.estif.org/fileadmin/estif/content/policies/downloads/CTE_solar_thermal_sections_ENGLISH.pdf (CTE). 20 Spain, 'Renewable Energy Plan in Spain 2005-2010' (2005) at 322, online: Provincial Energy Agency of Burgos, www.agenbur.com/docftp/Plan%20Eneigias%20Renovables%202005-2010.pdf 21 See Christoph Peters, 'Solar Thermal Legislation on Municipal, Regional and National Level in Spain: Success and Remaining Barriers' (2007) at 1, online: Government of Catalonia, www20.gencat.cat/docs/icaen/Migracio%20autoinatica/Documents/ ICAEN/Arxius/presentation_estec_2007.pdf 22 CTE, note 19 above, at 7 (art 4(1)).

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to existing buildings undergoing a renovation, if such renovations are compatible with the installation of a solar water heating system or other energy efficiency measures contemplated in the GTE. The GTE, however, contains exemptions for buildings that satisfy their domestic hot water demand through other renewable energy sources, meaning that there is effectively a mandatory requirement to install a renewable heating system.^' There are also exemptions for 'technically simple structures... that are erected on one level only';^'* for 'buildings with insufficient access to the sun; and for buildings under specific historic-artistic protection'.^^ Gity ordinances with more stringent standards will remain in force.^ How much of a building's hot water must come from solar or energy efficient systems (its 'solar fraction') varies between 30 and 70 per cent, depending on three factors. Eirst, the larger the estimated consumption of hot water, the higher the solar fraction must be. Estimates are based on the type of building in question, from single-family homes to launderettes, as well as the building's projected demand for 60G water.^^ Secondly, the solar fraction is affected by the type of 'back-up energy' used to heat the hot water on the premises. Gas or oil-fired hot water heating systems require a lower solar fraction than those heated using electricity. Thirdly, the solar fraction varies according to the level of solar radiation available at the location of the premises. 'The GTE divides Spain into five climatic zones and allocates each province, or in some cases smaller territorial units, to one of these zones.'^^ The more sunlight a given zone receives, the more the buildings must satisfy their hot water demand with solar energy. In addition to mandating the fraction of hot water demand that a system must satisfy, the GTE prescribes technical requirements for its design and installation. These requirements also extend to specific components of the system, such as the solar collector and hydraulic circuit, as well as its maintenance and inspection. According to ESTIE, 'this high level of detail originates from the wish of the government to assure the quality and proper working order of the solar systems and to reduce the possibility of different interpretations, thus creating more legal clarity'.^^ The regional and/or local authorities that have been charged with enforcing the inspection and sanctioning regime, however, may not have the human resources or 'the political will to follow up closely [on] this matter'.^''
23 24 25 26 27 28 29 30 Best Practices, note 15 above, at 42. CTE, note 19 above. at6(art2(2)). Best Practices, note 15 above, at 42. CTE, note 19 above. at 11 (art 15(4)). CTE, note 19 above. at 19 (Section 3.1.1 - Calculation of the Demand). Best Practices, note 15 above, at 43. Ibid. Ibid at 44.

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FLANKING MEASURES

To help implement the CTE, a number of organisations have put educational programmes in place. While information on the subject in English is limited, 'the [Spanish] Ministry of Housing and the different professional unions of architects and engineers have started to offer intensive training courses and conferences in order to prepare and educate professionals on [the CTE]'." Education is important when introducing new technological requirements because there may initially be a shortage of qualified engineers and installers,'^ which may lead to low quality solar water systems. Such was the case of Barcelona after it adopted its first solar water ordinance.

Lessons from Barcelona Barcelona's experience in pioneering solar water heating obligations in Spain is worth referring to as the CTE was only adopted in 2006, and little information on its effect is available. The Barcelona ordinance was approved by the city council in 1999, and came into force in August 2000, to provide builders with sufficient time to adjust to the measure.'-"* In spite of a one-year transition period, 'initially, the practical implementation of the obligation [in Barcelona] was made difficult by the lack of training and practice of installers, architects, building engineers and decision makers in the construction industry'.'"* As a result, 'some of the solar systems installed did not fulfil the requirements of the obligation. In other cases the wording of the regulation was fulfilled, but the solar systems produced less output than expected due to [the] weak installation of works, design or maintenance'.'^ To address these weaknesses, Barcelona revised its ordinance in 2006. In particular, it created requirements for installers to certify the quality of the solar water heating systems. Moreover, the revised ordinance prescribes that a signed contract must accompany maintenance work, which should improve the quality of the service provided.' It is interesting to note that further prescriptions in Barcelona were necessary to improve the quality of solar hot water heating systems. As the CTE was drafted after the first Barcelona ordinance, it is likely that Barcelona's experience influenced its prescriptive approach.
31 Environmental Technologies Action Plan, 'Spain's new Building Energy Standards place the Country among the Leaders in Solar Energy in Europe' (2006) at 2. 32 Best Practices, note 15 above, at 19. 33 Philippe Menanteau, 'Policy measures to support solar water heating: information, incentives and regulations', LEPII/CNRS - Universit de Grenoble (May 2007) at 24. 34 Ibid at 39. 35 Ibid. 36 Ibid.

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United Kingdom
INTRODUCTION

In October 2003, the London Borough of Merton adopted a planning policy requiring new, non-residential developments to generate at least ten per cent of their predicted energy needs from on-site renewable energy sources. The first ofits kind in the UK, the 'Merton Rule', as it has become known, has been adopted by some 80 other local planning authorities across the UK,^' with many more authorities considering similar measures.'** Unlike in Spain, the Merton Rule does not appear to have been enacted pursuant to any decree of the European Parliament, and the deployment of renewable energy technologies has been largely a local enterprise.^'' This article focuses on the Merton Rule as implemented in the London Borough of Merton and in the neighbouring London Borough of Croydon.
MERTON RULE

The original Merton Rule forms part of Merton's Unitary Development Plan (UDP), a prescriptive set of guidelines governing a range of subjects, including construction projects in the Borough. The Rule originally stated: 'all new non residential developments above a threshold of l,OOOsqm will be expected to incorporate renewable energy production equipment to provide at least 10% of predicted energy requirements',*" although it has since been expanded to included developments of ten or more homes.'" Croydon's obligation went further than the original Merton Rule in two respects: it included both buildings undergoing renovations and developments including ten or more residential units.''^ National legislation now empowers city councils throughout England and Wales to impose similar requirements,'" and many have followed suit.
37 UK, House of Commons Trade and Industry Committee, Royal Mail Group:
Government Response to the Committee's Ninth Report of Session 2005-06: Eirst Special

38 39 40 41

42

43

Report of Session 2006-07 (HC 230) (London: The Stationery Office Limited, 2007), online: Parliament, www.publications.parliament.uk/pa/cm200607/cmselect/ cmtrdind/230/230.pdf ('HC Report'). 'List of Boroughs' (2008), online: www.themertonrule.org/list-of-boroughs. HC Report, note 37 above, at para 90. London Borough of Merton, 'Unitary Development Plan' (2003), online: Merton, www.merton.gov.uk/merton_unitary_development_plan.pdf ('UDP'). London Borough of Merton, 'What is the Merton Rule?' (2009), online: Merton, www.merton.gov.uk/living/planning/planningpolicy/mertonrule/whatjs_the_ merton_rule.html. Adrian Hewitt, 'The MertonRule 10%(+) Renewable Energy Policy Briefing' (2006) at s 2.2, online: Greenspec, www.greenspec.co.uk/documents/drivers/mertonlO.doc ('Policy Briefing'). Planning and Energy Act 2008 (UK) 2008, c 21, s Iff.

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Compliance with the Merton Rule 'is being measured as having sufficient on-site renewable energy generation equipment to reduce carbon emissions from the building's predicted energy use by at least 10%'.'*'' According to the UDP, qtialifying renewable energy production technologies include: 'photovoltaic energy, solar-powered and geo-therinal water heating, energy crops, and biomass."'^ As a result, the Merton Rule does not exclusively call for the use of solar water heating systetns, since proponents have the flexibility to determine which renewable energy technology or technologies to deploy to meet the obligation. No development may take place until the applicant's plan to reduce predicted CO2 emissions through on-site renewable energy equipment is approved by the local planning authority. To review applications, development control officers 'identify what the predicted energy tise/CO,^ emissions will be, and then [verify] if the developer's proposal meets the target'.""^ To predict the CO^ emissions of a building, a development control officer first uses an established benchmark to estimate its natural gas and electricity consumption, factoring in the type of building proposed. These
benchmarks are ptiblicly available in Integrating reneiuable energy into new developments: Toolkit for ptanners, developers and consultants'*^ (the 'Toolkit').

The estimated energy consumption is then multiplied by a 'carbon factor' to arrive at the predicted CO^ emissions of the building, and the restilt divided by ten to determine the proportion of CO^ emissions that the applicant must propose to cut in its plan. Any proposed energy efficiency measures are also considered, since reducing the 'overall carbon footprint of the btiilding thereby [reduces] the 10% requirement'."** Validating these plans, however, can be difficult and time consuming for development control officers. According to Adrian Hewitt, author of the Merton Rule and former Principal Environment Officer for the Borough of Merton, in practice, the local planning authority instrticts: 'the developer to use [the Toolkit] as a basis for the proposal and then pay [an engineering firm or a select non-profit organisation] to look over it and give it their stamp of approval. On the basis of this approval we will give planning permission."*
44 45 46 47 'Energy vs Carbon', online: www.themertonrule.org/energy-vs-carbon. UDP, note 40 above, at 153. Policy Briefing, note 42 above, at s 2.3(3). Greater London Authority, 'Integradng renewable energy into new developments: Toolkit for planners, developers and consultants' (September 2004). 48 London Borough of Merton, 'How is the Policy Applied?' (2008), online: Merton, w\v\v.merton.gov.uk/living/planning/planningpolicy/mertonrule/how_is_the_ policy_applied.html. 49 Policy Briefing, note 42 above, at s 2.3.

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In the event that a developer claims that the deployment of renewable energy technologies is 'unfeasible' or 'unviable', the local planning authority would 'expect a very comprehensive feasibility study confirming this before accepting the developer's contention'.^" There are a number of reasons why a development may be found to be unfeasible or unviable, for example a scenario where the installation of renewable energy technologies is not technically possible owing to design or engineering constraints; or where it is not financially viable for the developer to install renewable energy technologies.^' In such circumstances, the local planning authority would negotiate a new percentage target with the developer. If the developer's application has been approved, the final step in the Merton Rule is a post-installation inspection of the renewable energy technologies by an enforcement team. If a development is found to be noncompliant, the local planning authority may issue a planning contravention notice to the developer.^^ The developer would then have the opportunity to remedy the breach within a prescribed time period. Eailure to remedy the breach could result in an offence with fines on conviction.'' According to Hewitt, Merton is exploring the option of having developers set aside a bond prior to commencing a project that could only be redeemed 'if after a year the building is performing as expected'.*"*
FLANKING MEASURES

There are few flanking measures to facilitate the implementation of the Merton Rule. At the local level, there are no Borough-sponsored education programmes in Merton or Croydon for architects or engineers to learn best practices for the deployment of renewable energy technologies. On a countrywide basis, the UK has established the Renewables Obligation scheme to incentivise the development of renewable electricity projects.^^ Therefore, to the extent that any renewable energy equipment deployed to satisfy the Merton Rule generates electricity, and meets the requirements of the Renewables Obligation, the installation could be eligible to receive renewables obligation certificates, which can be sold for money. With respect to the residential sector, which is largely outside the scope of the Merton Rule, the Government provides grants to households to offset the costs of deploying renewable energy technologies through the Low Carbon Buildings
50 51 52 53 54 55 Ibid at s 3.1. Ibid at s 3.3. Planning and Compensation Act 1991 (UK), c 34, s 171C(1). Ibidatsl71D(l). E-mail with Adrian Hewitt (12 October 2008). OFGEM, 'Renewables Obligation', online: www.ofgem.gov.uk.

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Programme.^'' In addition, those selling new homes in the UK are required to provide potential purchasers with information on the sustainability of the home under the Gode for Sustainable Homes, which also contains guidelines for those wishing to build greener homes." As a result, compared to Spain, there are few flanking measures that directly support the implementation of the Merton Rule. However, the absence of significant flanking measures is not surprising in this case, given the local nature of the obligation, and the limited resources that local authorities may have to support any flanking schemes.

LESSONS LEARNED

Prior to the adoption of the Merton Rule, detractors of the policy argued that it would drive away developers because of the added costs and difficulties of deploying renewable energy equipment. This has not been the case. As of 2007, some 60 developments in Merton and Groydon have been built in accordance with the Merton Rule.^^ On the whole, the additional capital required to install renewable energy technologies has not been overly prohibitive. Gompliance with the Merton Rule may add no more than three to five per cent to total building costs according to some estimates, with costs running at about two-anda-half to three per cent for new residential properties.^ In addition, according to the Borough of Merton, 'companies building in Merton have seen the policy as providing them with an opportunity to "get ahead of the game in designing, constructing and marketing low carbon buildings for the future"'.'^

Australia
INTRODUCTION

In response to concerns over climate change, the Gommonwealth of Australia introduced the world's first nationally mandated renewable energy target, known as the 'Mandatory Renewable Energies Target' (MRET) in 2001. Implemented through a number of statutes at the federal level, the effect of the MRET is to 'place a legal liability on wholesale purchasers of electricity
56 Department of Energy and Climate Change, 'Low Carbon Buildings Programme (LCBP) Phase 1', online: www.lowcarbonbuildings.org.uk. 57 Communities and Local Government, 'The Code for Sustainable Homes: Setting the standard in sustainability for new homes' (2008), online: www.communities.gov.uk/ documents/planningandbuilding/pdf/codesustainhomesstandard.pdf. 58 Energy Savings Trust, 'Energy in Planning and Building Control: An Introduction' (2006) at 3, online: www.energysa\'ingtrust.org.tik/business/content/download/179769/435541/ file/energy_in_planning_and_building_control_onepage.pdf. 59 Policy Briefing, note 42 above, at ss 3.3(2), 5.1. 60 HC Report, note 37 above, at para 93.

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to proportionately contribute towards the generation of an additional 9500 gigawatt hours (GWh) of renewable energy annually by 2010'.^' To reach that target, the MRET introduced a renewable energy certificate (REC) trading scheme whereby wholesale purchasers and retailers ofelectricity subsidise the cost of qualifying renewable energy technologies by purchasing RECs from renewable energy producers, which include homeowners with prescribed solar water heating systems.

MRET
The MRET is implemented through several statutes, namely: the Renewable Energy (Electricity) Act 2000^^ (the 'Act'), the Renewable Energy (Electricity) (Charge) Act 2000''' (the 'Charge Act') and the Renewable Energy (Electricity) Regulations 2001^* (the 'Regulations'). The Act sets a series of interim targets over the 2001-2010 period incrementally to reach the target of producing 9,500GWh of renewable electricity by 2010. After 2010, the target of 9,500GWh remains unchanged until the MRET is discontinued in 2020.''' Under the Act, when 'liable entities' - that is wholesalers and retailers ofelectricity - buy electricity rather than producing it, they attract liability,'''' which they can discharge by surrendering RECs, or by paying a prescribed shortfall charge. The RECs can only be produced by eligible accredited renewable energy generators and are equivalent to one megawatt hour (MWh) of renewable energy generation. A variety of energy sources and their accompanying systems are eligible, including solar, hydro, wind and various biomass sources.''' While most RECs are created by electricity generators, they may also be created for solar water heating systems depending on the amount of electricity they displace.**^ As a result, the liable entities create the demand for RECs and the accredited renewable energy generators create the supply, creating a market. Therefore, by purchasing RECs to surrender, the liable entities subsidise the cost of renewable energy projects.
61 Commonwealth of Australia, 'Renewable Opportunities: A Review of the Operation of the Renewable Energy (Electricity) Act 2000' (2003) ('Renewable Opportunities'). 62 (Cth). 63 (Cth). 64 (Cth). 65 Ibid at 3. 66 Australian Government, Office of the Renewable Energy Regulator, 'Australia's Renewable Energy Certificate System' (2005), at 2 ('Energy Certificate System'). 67 Renewable Opportunities, note 61 above, at xv. 68 Gwen Andrews, 'Market Based Instruments: Australia's Experience with Trading Renewable Energy Certificates' (Workshop on Good Practices in Policies and Measure, 2001) at 3.

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The number of RECs that the liable entity is required to surrender is determined by multiplying a prescribed renewable power percentage by the total energy acquired by the liable entity that year. The renewable power percentage is set out in the Regulations and increases every year until 2010, along with the interim targets specified in the Act.''^ The Charge Act provides that the liable entity must pay a shortfall charge equal to A|40 for each REC that it does not surrender to the Renewable Energy Regulator. Further, the 'payment of shortfall charges incurred by liable parties are not tax deductible, and so the shortfall charge is equivalent to around [A] $57 for corporate entities'. According to a report tabled in 2008, some 98.35 per cent of liable entities complied by surrendering their RECs in the period from 2001 to 2006, and 99.45 per cent of liable entities discharged their liability by surrendering RECs in 2007." The price of an REC is set by the market and not prescribed by the Renewable Energy Regulator. As such, the price has fluctuated from as low asA$12 in November 2006, as a result of an oversupplyofRECs,'-^ to A$37.50 as of September 2007, when the opposition government speculated about increasing MRET targets." Owners of solar water heating systems may sell their RECs on the open market or through an agent. The number of RECs that an owner of a solar water heating system may receive depends on the amount of electricity their system conserves, but water heaters listed in the Act typically receive ten to 35 RECs over their life.''' A system is only eligible if it meets the certification standards prescribed in the Regulations,'^ and all of its RECs are awarded at the same time, provided that an application is made to the Renewable Energy Regulator within one year of the system's installation. According to the Australian Government: 'commonly, the RECs provide a discount of over [A]$800 on the up front cost of the average solar hot water system'.'"

69 Energy Certificate System, note 66 above, at 3. 70 Renewable Opportunities, note 61 above, at 4. 71 Australian Government, Office of the Renewable Energy Regulator, 'Increasing Australia's Renewable Electricity Generation' (2008) at 14. 72 'Report to Office of the Renewable Energy Regulator' (October 2007) at 15. 73 Green Markets, 'REC price mellows: $35.75 small drop from highs reached two weeks ago; dramatic rise after Fed opposition announcement to increase MRET' (2007), online: Green Markets, http://ginaikets.wordpiess.coin/2007/09/25/rec-piice-mellows3575-small-drop-fiom-highs-reached-two-weeks-ago-drainatic-rise-after-fed-oppositionannouncement-to-increase-mret. 74 Energy Certificate System, note 66 above, at 6. 75 Renewable Energy (Electricity) Regulations 2001 (Cth), s 3A. 76 Australia, Department of the Environment, Water, Heritage and the Arts, 'Solar Hot Water Rebate Program: Applicant Information Booklet' (2008) at 1.

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FLANKING MEASURES

At the state level, the State of Victoria's building regulations require all new homes in the state, as well as those undergoing renovations, to include a range of energy efficiency and water-saving measures in accordance with the state's '5 Star' standard. Under the 5 Star programme, a home must make use of either a solar water heater or draw toilet water from a rainwater tank.'' Other flanking measures popular among state governments, as well as the national government, are the consumer rebates programmes designed specifically to encourage consumers to adopt solar water hearting. The states of Victoria,'^ Western Australia,'^ South Australia,*" New South Wales*' and Queenslands^ all offer one. To qualify, some states require that the system be eligible for a prescribed number of RECs (see, for example. South Australia and New South Wales), and the Queensland rebate depends on the consumer also qualifying for a solar hot water rebate. Under the national solar hot water rebate programme, homeowners who installed a solar water heating system on or after 3 February 2009 can apply for a A$l,600 rebate. To qualify, the system must: 1. be eligible for at least 20 RECs; 2. be installed by a qualified person; and 3. replace an existing electric hot water system.**
77 Victoria, Building Commission, 'Environmental Best Pracdces' online: Building Commission, www.buildingcommission.com.au/www/html/390-environmental-best-pracdse.asp?. 78 Victoria, Sustainability Victoria, 'Victorian Solar Hot Water Rebate Guidelines for Applicants and Suppliers' (2009), online: resourceSmart, www.rcsourcesmart.vic.gov.au/ documents/Solar_Hot_Water_Rebate_Guidelines.pdf. 79 Western Australia, Sustainable Energy Development Office, 'Solar Water Heater Subsidy' (2006), online: Sustainable Energy Development Office, www.sedo.energy.wa.gov.au/ pdf/solar_guidelines.pdf 80 South Australia, Department of Transport, Energy and Infrastructure, 'Solar Hot Water Rebate Scheme' (2009), online: Energy Division, www.energy.sa.gov.au/rebates_and_ grants/solar_bot_water. 81 New South Wales, 'Department of Environment and Climate Change, 'NSW Climate Change Fund: Hot Water System Rebate Applicadon Form' (2009), online: Department of Environment, Climate Change and Water, www.environment.nsw.gov.aii/resources/rebates/09350HWRebBR.pdf. 82 Queensland, Office of Clean Energy, 'Queensland Solar Hot Water Program' (2009), online: Department of Employment, Economic Development and Innovation, www. cleanenergy.qld.gov.au/queensland_solar_hot_water_program.cfm. 83 Australian Government, Department of the Environment, Water, Heritage and the Arts, 'Energy Efficient Homes Package: Solar Hot Water Rebate' (2009), online: Department of the Environment, Water, Heritage and the Arts, www.environment.gov. au/energyefficiency/solarhotwater/index.html.

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Another national programme is the 2008 Green Precincts Eund, which was endowed with A$15 million to encourage water and energy savings projects. The funds have helped several communities to equip demonstration precincts with solar water heating systems.^"*

LESSONS LEARNED

The last comprehensive review of the MRET took place in 2003,*'* so it is difficult to review the extent of its success. As of 2003, the market for solar water heaters in Australia had grown by 30 per cent per year since the commencement of the MRET, from 19,000 to 33,000 systems,'*'' but it is difficult to apportion this gain between the scheme and other government initiatives, such as cash subsidies. Moreover, the MRET has faced some criticism for its 'flattened' target of 9,500GWh for the 2010 to 2020 period, as well as the scheme's 2020 end date. Eirst, it was predicted that stifficient capacity would be installed to meet the 9,500GWh target by as early as 2007,*' meaning that investment in new renewable energy projects was expected to decline after that point. Secondly, since most renewable energy projects have high upfront costs and require a minimum payback period of 15 years to be cost effective,*^ discontinuing the REC programme in 2020 will ctirtail the payback period below the minimum threshold needed to encourage investment.*^ A final criticism of the MRET is that by requiring liable entities to purchase RECs, some additional electricity costs are placed on electricity users. While higher electricity prices may encourage conservation measures, energy intensive industries may be disproportionately affected."" That being said, the MRET has successfully compelled Australian electricity providers to increase the amount of renewable energy they provide, which has probably helped incentivise the adoption of solar water heating. And it did so using market forces.

84 Australia, Department of Environment, Water, Heritage and tbe Arts 'Tackling Climate Change: Creen Precincts Fund' (2009), online: Department of Environment, Water, Heritage and the Arts, www.environment.gov.au/water/publications/urban/pubs/ green-precincts-factsheet.pdf 85 Renewable Opportunities, note 61 above. 86 Ibid at 14. 87 Ibid at xvii. 88 Ibid. 89 Ibid. 90 Ibid at xviii.

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State of Hawaii
INTRODUCTION

Exploring the various solar water heating initiatives in the United States on a state-by-state basis is beyond the scope of this analysis. Instead, the article focuses on the State of Hawaii, which has adopted a number of approaches to create the largest mass market for solar water heating systems in the United States.^' Interestingly, the state's solar water heating initiatives were primarily born of economic considerations. Unlike other states, Hawaii is almost completely dependent on imported petroleum to meet its transport and electricity generation needs^^ and, therefore, its economy is particularly vulnerable to petroleum price increases and supply disruptions."** Prompted by such concerns, the state has encouraged the deployment of solar water heating systems, and it has made them mandatory for all new homes with effect from 2010.^'' This analysis explores the regime that is currently in force. It briefly details the incentive scheme to encourage the installation of solar water heating systems, in the form of income tax credits, that were in place prior to the mandatory requirement for new homes.

HAWAIIAN REGIME TO ENCOURAGE SOLAR HOT WATER HEATING

As early as 1976, the Hawaiian legislature enacted state income tax credits to facilitate private investment in renewable energy systems.'^"* Before such tax credits were recently discontinued for solar water heating systems, individual or corporate taxpayers could claim a tax credit under Hawaii's Income Tax Law against their state income tax for the installation of eligible solar water systems, which were installed after 30 June 2003.^^ Such tax credits could be claimed for up to 35 per cent of the cost of the system or $2,250, whichever was less. The Income Tax Law further provided that no residential home developer could claim the tax credit for systems installed and placed in

91 Sara Parker, 'Solar Hot Water Set To Go Mainstream with California's AB 1470', RenewabteEnergyWorld.com (17 October 2007), online: RenewableEnergyWorld.com, www.renewableenergyworld.com/rea/news/story?id=50298. 92 NSCL Energy Program, 'Findings on Hawaii Gasoline Prices and Policies' (2003) at 1. 93 US, SB 644, A Bill for An Act Relating to Energy Resources, 2008, Hawaii, s 1 ('Bill for an Act'). 94 'Hawaii Solar Mandate First in the Nation', Hawaii Reporter (30 June 2006), online: Hawaii Reporter, www.hawaiireporter.com/story.aspxpa6d06dbe-0f6b-461f-89b0-2d26d6be30b9. 95 Bill for an Act, note 93 above. 96 Income Tax Law, HRS 235-12.5(a) ('Income Tax Law').

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service as of 2009.^' For a commercial property, the installation of a system could amount to 35 per cent of the cost of the system or $250,000, whichever was less. The income tax credits for single-family residential properties were discontinued in light of the mandatory requirement to install a solar hot water heating system beginning in 2010. In July 2008, the Hawaiian legislature enacted A Bill for An Act Relating to Energy Resources^** (the 'Bill'), which came into force at the same time. The Bill amended Hawaii's existing renewable energy-related legislation in three significant ways: 1. 2. 3. it discontinued the existing income tax credit for the installation of solar water heating systems on single-family homes after 2009; it created an obligation to install a solar hot water heating system on any new single-family home starting in 2010; and it mandated the creation of standards for those systems.

With the enactment of the Bill, Hawaii became the first and only Ainerican state to make the installation of a solar water heater mandatory for newly constructed homes. The Bill amended Chapter 196 of the Hawaii Revised Statutes, subtided 'Energy Resources', to provide: 'On or after January 1, 2010, no building permit shall be issued for a single-family dwelling that does not include a solar water heater system that meets the standards issued... unless the energy resources coordinator approves a variance."^" Variances may be granted if an architect or engineer attests that: 1. 2. 3. 4. the installation is impracticable owing to poor solar resources; the installation is cost prohibitive, in that it will take longer than 15 years for the system to pay for itself; a substitute renewable energy system is installed; or the home uses a 'gas-tankless instantaneous water heater that provides hot water only as it is needed'.'""

Given their breadth, the exceptions could dilute the effect of the Bill. The Bill also amended Chapter 269 of the Hawaii Revised Statutes, subtitled 'Public Utilities Commission', to require the Public Utilities Commission of the State of Hawaii to adopt standards for solar hot water heaters in the State. According to the Bill, such standards had to include, but not be limited to: 'specifications for the performance, materials, components, durability.

97 98 99 100

Ibid235-12.5(g). Bill for an Act, note 93 above. Bill for an Act, note 93 above, at s 2. Ibid.

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longevity, proper sizing, installation, and quality""' for solar hot water heating systems. The standards were finalised on 30 November 2009 by a decision and order of the Public Utilities Commission of the State of Hawaii. In addition to the mandatory obligations found in the Bill, Hawaii, like many states, offers support through a public benefits fund, in this case the Hawaii Energy Efficiency Program. A utility bill surcharge supplies the fund, which legislation insulates from the possibility of government expropriation.'"2 The Program is self-administered by the Hawaii Energy Efficiency Program to fund energy saving initiatives, such as solar water heating rebates offered by some of the State's major utilities,'"^ namely the Hawaiian Electric Company (HECO), the Maui Electric Company (MECO) and the Hawaii Electric Light Company (HELCO). If certain conditions are met, each utility will offer its customers one-off rebates of $1,000 for installing solar water heaters,'"" which also helps the utilities meet their obligations of generating 20 per cent of net electricity sales by 2020 from renewable energy sources under the State's renewable portfolio standard. The renewable portfolio standard mandates how much green energy Hawaiian utilities must provide.'"^ The Hawaii Energy Efficiency Program provides prospective customers with a list of participating contractors who 'have agreed to comply with the program's rigorous standards regarding equipment use and installation' and the utility performs a 'post-installation inspection to ensure that the system was installed to proper standards'.""' Both HECO and MECO also offer low-interest or interest-free loans to customers. On the island of Maui, MECO extends loans sufficient to install a solar water heating system, provided that customers provide a 35 per cent down payment, but loan payments are based on expected monthly
101 Ibid at s. 3. 102 HRS 269-121 (2006). 103 DSIRE, 'Hawaii Energy - Solar Water Heater Rebate ' (2009), online: DSIRE, www.dsireusa.org/solar/incentives/incentive.cfm?Incentive_ Code=HI06F&re=l&ee=l. 104 Hawaii Energy Efficiency Program, 'Frequently Asked Questions' (2009), online: Hawaii Energy, www.hawaiienergy.com/faqs. Commercial customers may also be eligible for rebates valued according to the estimated annual energy savings their systems will yield at the time of installation. In a separate offer, the Kaua'i Island Utility Cooperative (KIUC) offers a rebate of $800 for its residential customers for the installation of solar water heating systems, and 50 to 80 per cent of cost for its commercial customers. Furthermore, in partnership with a credit union, the KIUC also provides interest-free loans for the purchase of solar hot water heating systems. 105 Income Tax Law, note 96 above, at 269-92(3). 106 Database of State Incentives for Renewables and Efficiency, 'HECO, MECO, HELCO - Energy Solutions Solar Water Heater Rebate,' online: DSIREUSA, www.dsireusa.org/ library/includes/incentive2.cfm?Incentive_Code=HI06F&state=HI&CurrentPageID=l &RE=1&EE=1.

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savings."" On the island of Oahu, HECO provides low-interest loans for the installation of solar water heating systems to 'income-qualified' homeowners in partnership with the City of Honolulu.'"^

FLANKING MEASURES

The State of Hawaii provides a number of flanking measures to support the installation of solar water heating systems. The Department of Commerce and Consumer Affairs offers speciality licences for solar contractors, such as the solar hot water systems contractor and solar heating and cooling systems contractor, which require four years' experience in the field and various trade exams.'"'-' In addition, the state has a law voiding any covenant, declaration or other binding agreement that would prevent a person from installing a solar energy device."" The law requires homeowners' associations and condominium associations to adopt rules to facilitate the placement of solar water heating systems.'" To further support homeowners, the State of Hawaii initiated the 'Solar Water Heating Pay as You Save' pilot programme whereby a residential customer may purchase a solar water heating system without any upfront costs. Instead, the cost of the system is paid over time through the customer's electricity bill. Lastly, beginning in 2007, the State has co-sponsored the 'Build and Buy Green Conference and Expo' for builders, engineers and architects to learn more about 'green' building options."^ At the federal level, a number of tax breaks are available to individual consumers and businesses looking to install solar water heaters. The Energy Policy Act of 2005 and the Energy Improvement and Extension Act of 2008 establish a 30 per cent tax credit towards the cost of residential

107 Maui Electric Company, Ltd, 'Maui Solar Roofs Inidative Loan Program', online: MECO, www.mauielectric.com/portal/site/meco/menuitem.ed4aed221358a44973b5c 410c51 Ob 1 ca/?vgnextoid=f94c5e658e0fc01 OVgnVCM 1000008119fea9RCRD&vgnex tch annel=5dcde43de0c82110VgnVCM1000005c011bacRCRD&vgnexd'mt=default&vgnextr efresh=l&level=O&ct=ardcle. 108 HECO, 'Honolulu Solar Roofs Inidative Loan Program', online: HECO, www.heco.com/ portal/site/heco/menuitem.508576f78baal4340b4c0610c510blca/?vgnextoid=b28c5e6 58e0fc010VgnVCM1000008119fea9RCRD&vgnexd'mt=default. 109 Hawaii, Department of Commerce & Consumer Affairs, 'Licensing Area: Contractor: Frequently Asked Quesdons' (2008), online: Department of Commerce & Consumer Affairs, bttp://hawaii.gov/dcca/arcas/pvl/boards/contractor. 110 HRSat]96-7(a). 111 Ibid at 196-7(b). 112 Hawaii, Department of Commerce and Consumer Affairs, 'Build and Buy Green Conference and Expo' (2008), online: Department of Gommerce and Consumer Affairs, http://hawaii.gov/dbedt/info/energy/efficiency/bbg/bbg-07/index_html.

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or commercial solar electric or a solar water heating systems until 2010."' When public utilities offer energy conservation subsidies, moreover, those subsidies are non-taxable.""* Businesses that qualify for a tax credit may also, in the alternative, apply to the treasury department for a grant covering 10 to 30 per cent of the cost of a solar water heater. They may not apply for both incentives."^
LESSONS LEARNED

With some 80,000 units as of 2008,"" the State of Hawaii currently has the highest per capita number of solar water heating systems installed in the United States. One in five Hawaiian homes has one. The state, however, has been sending mixed signals about where it would like to go from here. On the one hand, it launched the Solar Hot Water Heating Pay as You Save pilot programme in 2006 because, in the legislature's opinion, 'the renewable energy technologies income tax credit and electric utility rebates... [had] not been enough of an incentive to overcome [high] up-front costs'."' The requirement that new homes include solar water heating systems after 2010 was also an acknowledgment by the legislature that more stringent measures than income tax credits and utility rebates were necessary. But, on the other hand, Hawaii discontinued the income tax credit and introduced the exemption for installing a gas-tankless water heater, which could result in fewer systems being installed. As a result, it will be interesting to follow the consequences of the Bill after 2010.

113 26 USC 25D (Personal); 26 USC 48 (Commercial, known as tbe Business Investment Tax Credit or 'ITC'); Energy Improvement and Extension Act of 2008, Pub L No 110-343, 103, 106, 122 Stat 3808 (2008) (Extended the term of the credits and removed their dollar caps). See also Solar Energy Industries Association, 'Federal Solar Tax Credits Extended for 8 Years, US Poised to Become Largest Solar Market in the World' (2008), online: SEIA, http://seia.org/cs/news_detail?pressrelease.id=217. At the federal level, there are also tax provisions designed to promote renewable energy by providing for the favourable depreciation of qualifying property: see 26 USC 48 (a) (3)(A);26USC168(k). 114 26 USC 136. 115 United States, Department of the Treasury, 'Payments for Specified Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009: Program Guidance' (2009), online: Department of the Treasury, www.treas.gov/ recovery/docs/guidance.pdf 116 Hawaii, Department of Business, Economic Development & Tourism, 'Solar Thermal (Solar Water Heaters)' (2009), online: Department of Business, Economic Development & Tourism, http://hawaii.gov/dbedt/info/energy/renewable/solar. 117 US, SB 2957, A Bill for An Act Relating to Energy Resources, 2008, Hawaii, s 13.

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Canada
INTRODUCTION

Ganadian jurisdictions have introduced a number of voluntary programmes to encourage investment in solar water heating. Given the lack of knowledge of, and enthusiasm for, renewable energy in Ganada, as well as abundant cheap, carbon-intensive fuels, there is some question as to tbe long-term effectiveness of this approach. Itwould not be a stretch to say that what would pass for little more than a flanking measure in other jurisdictions forms the core of the Ganadian regime, with an over-reliance on ad hoc subsidies as opposed to legally mandated commitments to solar water heating. The following analysis considers measures at the federal, provincial and local levels. At the provincial level, many provinces do not have incentives or initiatives to encourage the deployment of solar water heating systems. As a result, the provincial component of the analysis will centre on the Province of Ontario. The analysis will also highlight measures at the local or municipal level in Ontario. At present, there are no flanking measures to canvass, nor are there any 'lessons learned' to explore, as there has been no comprehensive study of the solar water heating initiatives in Ganada.

FEDERAL INCENTIVES

The Government of Ganada offers financial incentives through Natural Resource Ganada's ecoEneigy Retrofit programme for smaller projects and ecoEnergy for Renewable Heat programme for large ones. The ecoEnergy Retrofit programme has three branches: one targeting home owners; one targeting commercial/institutional buildings (such as schools and hospitals); and one targeting small to medium-sized industry. The homes branch provides grants of $5,000 to homeowners who install a solar water heating system that meet GAN/GSA standards."^ To qualify for a grant, the homeowner must first have the home's energy use assessed by an energy adviser certified by Natural Resource Ganada. The ecoENERGY Retrofit Incentive for Buildings offers up to '$10 per gigajoule of estimated energy savings, 25 per cent of eligible project costs or $50,000 per project'."'^ Again, applicants must obtain an energy audit. Einally, the programme's industry
118 Natural Resources Canada, 'Grant Table for ecoENERGY Retrofit- Homes' (2009), online: Natural Resources Canada, http://oee.nrcan.gc.ca/residential/peisonal/ retrofit-homes/retrofit-qualify-grant.cfm. 119 Natural Resources Canada, 'Commercial and Institutional Organizations: ecoENERGY Retrofit Incentive for Buildings' (2009), online: Natural Resources Canada, http://oee. nrcan.gc.ca/commercial/financial-assistance/existing/retrofits/index.cfm?attr=O.

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branch also offers a 25 per cent incentive, up to a maximum of $50,000 per application, and |250,000 per business. To qualify, NRCan must first approve the business for funding, and the two must enter into a formalised contribution agreement.'^" For larger projects, businesses and institutions may apply to the ecoEnergy for Renewable Heat programme, which entitles recipients to a maximum grant of $400,000 per installation or $2 million for multiple installations. The incentive is calculated as follows: |[(the 'performance factor' of the solar collector') x (the size of the collector area)] x (an incentive rate)).'^' If a funding recipient sells the heat from the solar water headng system and recovers 150 per cent of the system's cost within five years of installation, it is obliged to repay the grant.'^^ The programme is scheduled to end in 2011. The federal government also offers an incentive for businesses'^' to deploy solar water heating systems in the form of an accelerated capital cost allowance rate. The Government of Canada explains the capital cost allowance as: 'a deduction for tax purposes that recognizes the depreciation of capital property. The [capital cost allowance] rate for an asset determines the portion of the cost of the asset that can be deducted each year.''^"* Systems acquired after 22 February 2005 and before 2012'^^ qualify for a capital cost allowance rate of 50 per cent.'^'^ To put this in context, the capital cost allowance rate for a building is ordinarily ten per cent and that of a passenger vehicle can amount to 30 per cent.'^' Practically, this means that a business may deduct 50 per cent of the cost of the solar water heating system per year on a declining balance basis. As a result, the accelerated capital
120 Natural Resources Canada, 'ecoENERGYRetrofit Incentive for Industry' (2009), online: Natural Resources Canada, http://oce.nrcan.gc.ca/industrial/financial-assistance/retrofit/index.cfm?attr=20. 121 Canada, 'ecoENERGYfor Renewable Heat' (2009), online: ecoACTION, http:// ecoaction.gc.ca/ccoenergy-ecoenergie/heat-chauffage/index-eng.cfm. 122 Canada, 'ecoENERGYfor Renewable Heat: Commercial Deployment Incentive Terms and Conditions (CDI-2008)' (2008), online: ecoACTION, http://ecoaction.gc.ca/ ecoenergy-ecoenergie/heat-chauffage/v2008/conditions-eng.cfm. 123 The Government of Canada is currently offering a 15 per cent income tax credit for the 2009 tax year to homeowners who spend between CND$l,000 and |10,000 on home renovations that conserve energy. The credit applies to all expenses incurred between January 2009 and February 2010, and has a maximum value of CND$l,350. EcoENERGY grants do not affect the value of the tax credit: Canada Revenue Agency, 'Home Renovation Tax Credit (HRTC)' (2009), online: Canada Revenue Agency, www. cra-arc.gc.ca/tx/ndvdls/sgmnts/hmwnr/hrtc/menu-eng.html. 124 Canada, Department of Finance, The Budget Plan 2007: Aspire: To a Stronger, Safer, Better Canada, Annex 5 (2007), online: www.budget.gc.ca/2007/pdf/bp2007e.pdf. 125 Income Tax Regulations, CRC, c 945, Schedule II, Class 43.2. 126 IbidatssllOO(a)(xxlx.2). 127 Canada Revenue Agency, 'Classes of Depreciable Property', online: www.cra-arc.gc.ca/ tx/bsnss/tpcs/slp-lnc/rprtng/cptl/dprcbl-eng.html.

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cost allowance may translate into a shorter payback period for the system. In addition, businesses may qualify fully to deduct the development costs of eligible renewable energy projects, such as site preparation costs, under the Canadian Renewable and Conservation Expense (CRCE) of the Income Tax Act.'^** The CRCE may be carried forward indefinitely for deduction in later years, and the deduction may also be renounced in favour of shareholders who have entered into flow-through share agreements.'^^

ONTARIO INCENTIVES

At the provincial level, the Government of Ontario encourages the owners of homes, commercial properties, industrial buildings and institutions to install energy saving technology. For homeowners who take advantage of the federal government's ecoEnergy Retrofit rebate, which has a maximum value of $5,000, the Government of Ontario will match that amount through its Home Energy Savings Program (HESP), which has a maximum contribution level of $1,250 for solar water heaters.'-^*' For the owners of commercial, institutional buildings, Ontario's Solar Thermal Heating Incentive Program (OSTHI) will again match the federal government's contribution (in this case, the funds issued through the ecoENERGY for Renewable Heat programme). Ontario's contribution has a ceiling of $80,000.'" The Government of Ontario will also refund the retail sales tax that homeowners or builders pay to install solar energy systems on residential premises before 2010.'^^ According to the Government of Ontario, the rebates typically range between $170 and $204."'
128 Income Tax Act, RSC 198.5, c 1 (5th stipp), ss 66.1(6). 129 Government of Canada, Canada Gazette, 'Regulations Amending the Income Tax Regulations (Capital Cost Allowance - Forestry Bioenergy Equipment)', online: www. gazette.gc.ca/archives/pl/2006/2006-06-10/html/reg2-eng.html. 130 Ontario, Ministry of Energy and Infrastructure, 'What is the Home Energy Audit Program?' (2009), online: Ministry of Energy and Infrastructure, www.mei.gov.on.ca/en/ energy/conservation/?page=homeenergy-sav-prog. 131 Ontario, Ministry of Energy and Infrastructure, 'Ontario Solar Thermal Heating Incentive Program (OSTHI), FAQs' (2009), online: Ministry of Energy and Infrastructure, www.mei.gov.on.ca/en/energy/conservation/?page=OSTHI-faqs. The Ontario Power Authority offers an additional incentive of up to $240 per square metre of solar collector that owners of commercial buildings install: Ontario Power Authority, 'Commercial Sector - Programs, Incentives, Rebates: ERIP - Alternative Energy Measures for Service Hot Water', online: OPA, http://business.everykilowattcounts.com/com/alternativeenergy-measures.php?aeni=service-hot-water. 132 Ontario, Minisu-y of Revenue, 'Solar Energy Systems Rebate Program' (2009), online: Ministry of Revenue, www.rev.govon.ca/english/refund/sesr. 133 Clean Air Foundation, 'Solar Hot Water Heating Incentives', online: Go Solar, www.gosolarontario.ca/en/incentives_gs.asp.

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LOCAL INITIATIVES

Eour initiatives at the local level are worth exploring. First, the City of Toronto enacted a by-law to facilitate the deployment of renewable energy equipment in the city. The by-law provides that the distribution of solar energy using pipes shall be a permitted use within all zones of the City of Toronto.'*'' It overrides a number of existing by-laws that impeded the production and distribution of renewable energy. Secondly, Toronto offers special financing for the installation of solar water heaters and other energy saving measures. The city's Sustainable Energy Fund provides interest-free loans to finance up to 49 per cent of a given efficiency improving project, with a cap of $1,000,000 per project.'*'^ The province has also directed funding to a pilot project in select areas of Toronto where homeowners can apply for $1,000 incentives to install solar hot water heaters.'*'^ Thirdly, some utility providers offer solar water heaters at discounted rates. Both Bullfrog Power'*' (an electricity retailer) and Utilities Kingston'*** (a municipal utility) offer homeowners who obtain an energy audit the option of installing or renting solar water heaters at discounted rates. And, fourthly, the town of Perth, Ontario, conducted a solar mapping project to determine how many homes could be retrofitted to deploy solar water heating systems - 74 per cent, as it turns out.'*'-'

Conclusion
This survey of solar hot water heating initiatives reveals the variety of approaches that different jurisdictions have adopted to encourage the use of renewable energy systems in general or solar water heating systems in particular. The active role that these jurisdictions, in addition to many more not surveyed here, have taken in creating a market for such systems.
134 City of Toronto, By-law No 218-2008, A by-law to permit the producdon and distribudon of energy from specific renewable devices and cogeneradon devices (5 March 2008), ss 2(2). 135 Toronto, Energy Efficiency Office, 'Sustainable Energy Funds (SEF)', online: Sustainable Energy Office, www.toronto.ca/energy/pdf/SEF_fact_sbeet.pdf. 136 Toronto, Solar Neighbourhoods, 'Understanding Costs and Incentives', online: Solar Neighbourhoods, www.solarneighbourhoods.ca/incentives.php. 137 Bullfrog Power, 'Bullfrog Power, together with Enbridge Gas Distribudon and EnerWorks, launch the new Solar Water Headng Program', online: Bullfrog Power, www.bullfrogpower.com/solar (offer available undl the end of 2010). 138 Udlides Kingston, 'Solar Domesdc Hot Water System Rentals', online: Udlides Kingston, www.udlideskingston.com/heaters/solar.html ('When a solar domesdc hot water system is rented in combinadon with a convendonal hot water heater from Udlides Kingston, the rental rate is reduced'). 139 Clean Air Foundation, 'Frequently Asked Quesdons' (2009), online: Go Solar, www.gosolarontario.ca/en/faq_gs.asp.

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and including them in their responses to climate change or energy security concerns, provides an important lesson for policy-makers. Besides the diversity of approaches that have been adopted abroad, it is also worth noting the roles that different levels of government have played. Barcelona, Madrid and the London Borough of Merton, for example, have created renewable energy obligations in the absence of national action. In this light, every level and order of government in a country should feel empowered to facilitate the adoption of renewable energy sources, regardless of the steps other levels and orders have taken to that end. Based on the surveyof solar water heating initiatives, what are some of the measures worth emulating? Eirst, the mandatory nature of the obligations in Spain, the London Borough of Merton and Hawaii should be followed. It seems clear that, given their high upfront cost, mandating the inclusion of a renewable energy system in a new building or residence will result in greater adoption rates for such systems than financial incentives alone. Wliat is more, it is far easier and cheaper to deploy a solar water heating system in a building still under construction than in a completed one,'"*" which is perhaps why the Spanish, Merton and Hawaiian obligations are all triggered at the planning stage. Generous and consistent incentives can have a similar effect in that they counter the upfront costs associated with renewable energy. But another advantage to mandatory obligations is that they create certainty. Einancial incentives are stibject to the availability of public funds and the price and value of RECs may fluctuate. In fact, subsidies could have the perverse effect of driving down REC prices, decreasing the public's incentive to install solar water heaters (and the Australian REC scheme is scheduled to end altogether in 2020). Mandatory obligations, on the other hand, remove from a builder's calculus concerns regarding the availability of, and eligibility for, a stibsidy. They also remove from consideration the possibility that carbon-intensive energy will drop in price, obliging builders to consider solar water heating at the planning stage, rather than as an afterthought. In fact, mandatory obligations are the single best way of creating a marketfor solar water heating systems, especially where consumers are not fully aware of the benefits of the technology. Secondly, any scheme that is adopted should include quality assurance measures to ensure that systems are built to appropriate standards. This conclusion is supported by the Spanish example where, in the absence of quality control measures, low quality solar water heating systems were installed in the 1980s. Low quality systems not only lead to sub-optimal energy savings.
140 Best Practices, note 15 above, at 13.

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JOURNAL OF ENERGY & NATURAL RESOURCES LAW Vol 28 No 2

2010

but can also contribute to a lack of public confidence in the technology in general, and lower compliance rates with government obligations. The shape of such quality assurance measures could come in the form of prescriptive technical guidelines, as in Spain. Some form of a post-installation inspection of the system would also be beneficial. Thirdly, appropriate flanking measures are required to facilitate the adoption of any kind of solar water heating requirement. It is important to provide some form of education programme to builders and other construction professionals to familiarise them with solar water heating requirements. The Hawaiian certification of solar contractors and the intensive training courses offered by the Spanish Ministry of Housing are two such measures worth emulating. Education programmes for the public would also be useful where consumers are not familiar with the technology. With such measures in place, ajurisdiction could stimulate the market for solar water heating systems to the point where it reached critical mass and became self-sustaining. At this point, government subsidies would no longer be necessary. At the very least, any Ganadian jurisdiction that implemented such measures would mitigate its reliance on fossil fuels and curb GO2 emissions. As Ganadian policy-makers ponder responses to climate change and energy security, they should be mindful of solar water heating systems and the initiatives already under way in other jurisdictions.

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