Electric / Gas / Water Summary of White Paper Findings CPUC SWH Workshop August 26, 2008

Knowledge to Shape Your Future 2 Purpose of White Paper  Report on the status of the CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 3 Methodology  Analyze application data obtained by CCSE for types of systems installed and associated costs  Interview different groups of market players  Program participants and non-participants  Contractors throughout California  Market Actors (NREL, SRCC, CalSEIA, HISEIA, ODOE)  SWH incentive program administrators throughout the U.S.  Manufacturers and distributors of SWH equipment

Knowledge to Shape Your Future 4 Purpose of White Paper  Report status on CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 5 SWHPP Relative to Other SWH Incentive Programs

Knowledge to Shape Your Future 6 Incentive Structure of SWH Incentive Programs

Knowledge to Shape Your Future 7 Summary of Program Administrator Surveys  Key takeaways from interviewing other Program Administrators  Equipment and contractor certification provide increased confidence in SWH systems  Inspections are important  Build and maintain strong relationships with contractors  Program administrators need to be adaptive

Knowledge to Shape Your Future 8 Purpose of White Paper  Report status on CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 9 Residential Participant Survey Results  Out of the 40 interviewed participants, 19 of them had previously owned a SWH.  Residential participants were primarily motivated by environmental concerns and energy savings to install SWH systems.

Knowledge to Shape Your Future 10 Workshop Attendee (Program Non-participant) Survey Results  30 workshop attendees who elected not to purchase a SWH were also surveyed  Primary reasons for interest in SWH were the same as for participants

Knowledge to Shape Your Future 11 Workshop Attendee (Program Non-participant) Survey Results  The most commonly reported factor which would have the greatest influence on the decision to install SWH was a higher rebate

Knowledge to Shape Your Future 12 SWH Market Barriers  Initial installation cost  Lack of knowledge about the technology  Competition between PV systems, energy efficiency and SWH  Difficulty and expense associated with building permits

Knowledge to Shape Your Future 13 Initial Installation Cost  The Problems:  SWH has a high initial cost (average cost is $7,000)  The payback for NG is not as fast as for electric backup systems  Solutions:  Rebate program  Zero or low interest loans  Advice on the timing of the installation

Knowledge to Shape Your Future 14 Lack of Knowledge about the Technology  The Problems:  Most of the general population are completely unaware of SWH “Right now there is no market for SWH because there is no state or public recognition of the benefits of SWH.”  Some of the general population confuse SWH with PV  Builders are reluctant to implement SWH technologies in new construction  Solutions  Statewide marketing campaign  Compare and contrast SWH and PV, including costs  Explain that SWH can act as a hedge against increasing fuel costs  Education and outreach to builders, building permit inspectors

Knowledge to Shape Your Future 15 Competition with PV and Energy Efficiency  The Problems:  There is a statewide incentive for PV and energy efficiency measures but not for SWH “A huge problem is that there are incentives for PV and energy efficiency but not for SWH and this drives the market away from SWH.”  There is limited roof space and money  Solutions  Educate public about the benefits of SWH and costs compared to PV and tankless water heaters  Create incentive program for SWH to put it on equal footing with PV and energy efficiency  Need to consider how PV, energy efficiency, and SWH fit together “There is competition between PV, SWH, and energy efficiency but only to those who do not understand SWH. The three should be done together and be well thought through.”

Knowledge to Shape Your Future 16 Obtaining Building Permits  The Problems:  Permits are expensive  Permits can be difficult to obtain and often require multiple inspections  Every city has different requirements  Solutions:  Target training sessions for city and county building permit inspectors to provide education regarding SWH systems  Cities need to have consistent requirements  Oregon requires plumbing permits for SWH to be under $100 and the state provides guidance to cities that are not knowledgeable about permitting SWH  In Arizona, permit costs are a percentage of the total project cost

Knowledge to Shape Your Future 17 Purpose of White Paper  Report status on CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 18 System Cost Components

Knowledge to Shape Your Future 19 Contractor Business Characteristics  Business characteristics and practices that may affect SWH system installation or repair costs  Portion of business attributed to SWH  Variety of system types being installed  Number of dedicated sales staff  Types of marketing  Number of experienced SWH system installers  Types of training (manufacturer, on-the-job, conference workshops, etc.) and frequency of training  Installing monitoring equipment

Knowledge to Shape Your Future 20 Practices that could Improve Cost-Effectiveness  The small sample of contractors surveyed combined with a variety of business characteristics made it difficult to discern “best practices” for SWH contractors  Practices which could improve SWH cost-effectiveness  Installation of cookie-cutter systems  Implementation of plug-and-play technologies  Increased training of installers  Optimized design/install logistics  Buying and/or selling in bulk

Knowledge to Shape Your Future 21 Purpose of White Paper  Report status on CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 22 Recommendations for a Successful SWH Incentive Program  Incentive Structure  Base incentive on estimated energy savings, but ensure calculation is not too complicated and that the method is transparent  Provide incentives that decline over the life of the program  Offer zero or low-interest loans  Include an incentive for the replacement of parts of existing SWH under certain circumstances  Contractor requirements  Limit number of additional requirements “Contractors need to have a state license in order to install systems. It is not necessary for an incentive program to require anything more than what the state law requires.”  Provide a streamlined approval process for qualified contractors in good standing  Equipment requirements  Require OG-300 certification for residential and OG-100 certification for commercial and industrial  Prove viability by having technology in commercial operation for at least 1 year

Knowledge to Shape Your Future 23 Purpose of White Paper  Report status on CCSE SWHPP  Identify the extent to which the SWHPP design is similar to other SWH incentive programs  Identify current market barriers in California and how to address the market barriers  Provide information on equipment and installation costs and identify unique business practices that may help increase cost-effectiveness  Make recommendations on the design of a statewide incentive program  Outline future evaluation analyses as part of enhanced Interim Evaluation Report

Knowledge to Shape Your Future 24 Further Evaluation Work  Interim Evaluation Report  Additional survey work needed for Interim Evaluation Report  Manufacturer and distributor interviews  Contractor interviews  Contractor confidential cost survey  Residential/commercial non-participants and residential/commercial customers with SWH outside of the San Diego area  Additional analysis needed for Interim Evaluation Report  Market assessment  Business models  Cost-effectiveness analysis  Respond to comments from this workshop  Final Program Evaluation Report  Performance data  Cost-effectiveness analysis  Additional participant and non-participant surveys

Knowledge to Shape Your Future 25 Contact Information  For anyone who would like to provide input on the program please contact me at: Heidi Ochsner Itron, Inc