“Use mandates to boost established markets, but not to build up new once”

“Use mandates to boost established markets, but not to build up new ones”

Ten years after Hawaii’s Solar Hot Water Mandate was issued the Hawaii Solar Energy Association won a lawsuit to weed out a fatal flaw of the regulation that required all new single-family homes to install a solar water heater since 2010 unless one of four variances can be met. The flaw was that instant gas water heaters could count as a variance as long as two gas appliances were present in the home. This led to over 7,000 instant gas water heaters in newbuilt homes between 2008 and 2018, in a state with a clear renewable portfolio standard that aims at 100 % renewable energies by 2025. Solarthermalworld.org spoke will Will Giese (see photo), Executive Director of the Hawaii Solar Energy Association (HSEA), about the failures and successes of 10 years of mandate in Hawaii. 
Photo: HSEA
 
What made you start a lawsuit?
Giese: In 2018 in my first year as HSEA director I tried on the legislative level with the legislator to fix the law, but I did not succeed as it had happened to all the previous directors of HSEA who tried the same thing. I then started preparation for a lawsuit and contacted a law firm. At the beginning we did not think that we will win at all. We though that it might be more likely that we would lose. Our original strategy was to bring the issue to the legislator in the  following year and force them to make a decision. But we had very good lawyers and very compelling arguments and so we won the lawsuit in 2019. 
 
What were your arguments in the lawsuit? 
Giese: We criticised that DBEDT (stands for Department of Business, Economic Development & Tourism), the agency responsible for approving the variances, dealt with this issue just by checking that the paper work was complete. DBEDT did not check whether the variance complied with the state environmental and renewable goals, nor did it comply with the original intent of the law as passed in 2009. The judge agreed with our arguments and made clear in his judgement in April 2019 that “it was the intent of the legislature that the variances (…) will be rarely, if ever, exercised or granted because the burden of proof will lie with the applicant to demonstrate that a solar thermal system, regardless of location or circumstance, is not cost effective in the contact of a 30-year mortgage term”. 
 
We were able to analyse that 30 % of all new single-family houses were equipped with a gas water heater in the last ten years, and this is for sure not “rarely, if ever”. The only way to find this out was by studying the permitting reports. For example, we analyzed all new homes in our county of Oahu and compared this number with the variances that were approved in the same year. 
 
How is the administrative situation now after the decision of the judge? 
Giese: What the judge basically said in April 2019 was that he gave the issue back to the administrator, DBEDT, to revise the rules in the way that they comply with the ruling and the original intent of the law and this is where we are now. We have formed a working group and we expect that by the end of the year, we will have new administrative rules that DBEDT will publish for a public review. 
 
Are you satisfied with this situation?
Giese: Actually this is not the whole story. While negotiating in the working group, DBEDT decided not to approve a large number of variances. We observe that all variances that have been approved since April 2019 are either for solar PV or heat pumps, but none for instant gas water heaters. So the lawsuit had an immediate positive effect on the solar water heating market. 

But this is not all. We also convinced the City and  County of Honolulu, to pass a county-level law that adapted the state-level solar mandate into a city ordinance, but with one major adaptation. The country-mandate also applied to town halls and condominiums . 
 
Overall - how do you assess 10 years of solar water heater mandate in Hawaii?
Giese: First, I think that a mandate like in Hawaii would not work on markets that are not already established. In general my opinion is that you should use mandates to boost established markets, but not to build up new markets. For instance, if a state like Wisconsin passes a mandate for solar thermal systems on all new homes, this would be difficult to achieve since they aren’t as cost effective in that climate zone and there is virtually no solar thermal market in Wisconsin. Second, it is almost impossible to figure out in advance the way how a mandate will be abused. Because a mandate removes consumer choices and mixes with the market, any competitor that you offend with this mandate will spend a lot of time and effort to find a way to undo that mandate, as we have seen in Hawaii. I do not really know how many instant gas heaters we would have had without the mandate, but I am pretty sure that it would have been less than we actually got in the last 10 years. 
 
Who was the offended competitor in Hawaii?
Giese: Over half of the variances for gas water heaters were submitted by one guy and he worked for a US home developer from the mainland. The building developers which are based in Hawaii mostly comply with the mandate. But as the developers from the mainland built thousands of homes a year, his abuse had a strong effect on the market. 

The problem in Hawaii is that some developers look at what the cheapest cost to them is to build a house, not what will be the cheapest cost to the homeowner over the life of a mortgage. While an instant gas heater might be cheaper upfront, over time you end up spending more on gas bills over the life of the system. This is not so with solar water heating.
 
Can you assess the impact of the mandate on the deployment of solar water heaters in Hawaii?
Giese: A conservative estimate is that one out of two single-family houses have a solar water heater across all islands of the state. Some system resellers even estimated that up to 70 % of the houses heat water with the sun. In all, it is hard to assess the impact of the solar mandate, since there is also a lot of positive market pressure on the retrofit market, too. 

We have still a federal tax credit of 26 %, a state tax credit of 35 % or USD 1,250 - whatever is lower– and a rebate programme which was recently increased from USD 500 to 1,200 during the Corona crises. This altogether lowers the price of a retrofit solar water heater from USD 6,000 to 7000 USD to several hundred USD.
 
The interview was conducted by Bärbel Epp
 
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