Caribbean Solar Finance Programme, Credit Union Lending Officers' Training Manual: Lending for Consumer Applications of Solar Hot Water Systems in St. Lucia, 9-2005

CARIBBEAN SOLAR FINANCE PROGRAMME

Credit Union Lending Officers’ Training Manual Version 01

LENDING FOR CONSUMER APPLICATIONS OF SOLAR HOT WATER SYSTEMS IN ST. LUCIA

Prepared by: 

Global Sustainable Energy Islands Initiative & The St. Lucia Co-operative League Limited

FOREWORD St. Lucia faces unique challenges challenges associated with the generation generation and use of electric energy. The island nation depends, almost exclusively, on the combustion of imported diesel fuel for the generation of electricity. A significant portion of the the nation’s foreign exchange earnings earnings are used to pay for such imported fossil fossil fuels. This high level of dependence on imported imported fossil fuel, when combined with the economic rents extracted by the monopoly position held by the generation and distribution utility, result in a very high cost of electricity to residential consumers on the island. The average household in St. Lucia currently pays approximately EC$ 0.688 per kWh for electricity, which includes a base charge of EC$ 0.654 per kWh plus a fuel surcharge of EC$ 0.034 through which the electric utility is permitted to pass on increases in the price of fossil fuels directly to consumers. The structure of the fuel surcharge exposes exposes island residents directly to the the inherent volatility volatility in the market price for fossil fuels. Turbulence in the the Middle East and weather-related damages to the oil production capacity in the United States have recently led to a dramatic increase in the price of fossil fuels and therefore consumers of electricity in St. Lucia will most likely soon see a further increase in the unit price of electricity on the island. Many of the middle and low income households in St. Lucia who use hot water heating systems harness electric water heating elements or electric point heaters to meet their hot water requirements. Given an average hot water water consumption of of 20 gallons per person per day, these electric water heating methods can consume up to 6 kWh per day to heat water for a family of  four. Heating water with electricity is a costly costly practice given the high high rates per kWh paid by domestic consumers on the the island. The market potential for solar solar hot water systems (SHWS) to replace electric point heaters in St. Lucia has been recognized in studies, and many wealthy residents and vacation vacation home owners have purchased and installed SHWS. However, little has been done to make such systems available and affordable to low and middle income households on the island. One of the foremost barriers to increasing access to SHWS for the low and middle income segments of the population population in St. Lucia is the high high upfront costs of these these systems. Although SHWS provide households with an economical alternative to meeting their hot water needs in the medium-term, as there is no fuel and few maintenance costs associated with these systems, the initial cost of a SHWS SHWS is high when compared compared to conventional heating heating alternatives. Companies supplying SHWS and banks on the island have periodically offered short-term credit options to finance the purchase of SHWS. SHWS. However such credit packages packages have not been sufficient to defray the high upfront costs of these systems to the point that monthly repayment rates equal the installed and electric costs for conventional water heaters. In addition, such financing has not been made available through institutions trusted by target segments of society. Middle and low income customers require medium-term financing to make SHWS affordable and prefer to access such credit through their credit unions where they meet their other banking needs. The United Nations Industrial Development Organization (UNIDO), the Organization of  American States (OAS), and the Energy and Security Group (ESG) – working in partnership with the St. Lucia Co-operative League Limited and the Sustainable Development & Environment Unit in the Ministry of Physical Development, Environment & Housing of the Government of St. Lucia – are implementing the Caribbean Solar Finance Programme (CSFP). CSFP is designed to increase access to SHWS for low and middle income households in the Eastern Caribbean by measurably reducing the constraints on, and increasing the capacity for financing of SHWS by

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the credit unions that service the credit needs of the target population while at the same time helping build awareness among the membership of the credit unions as to the benefits of SHWS. CSFP is executed through three program elements: a Training Course for Lending for SHWS for  Officers in Credit Unions, a Wholesale Consumer Credit Facility offering a low-cost long-term loan facility to credit leagues for on-lending to members of constituent credit unions to support the purchase of SHWS, and a Consumer Awareness Campaign designed to raise awareness of the benefits of SHWS among the credit union members. The Training Course for Lending for SHWS for Officers in Credit Unions is a core element in CSFP. The Training Course is structured to train finance professionals in credit unions in the methods for analyzing and constructing constructing loans for union members to purchase SHWS. Training in the Course includes a Familiarization Module designed to introduce lending officers to the technical and economic aspects of SHWS, a Finance Module that instructs the credit officers in the methods for lending for SHWS, and a Case Study Module that analyzes the financial viability of purchasing a SHWS versus expenses associated with electric hot water systems used by low and middle income income households in St. Lucia. The goal of the CSFP Training Course is to make lending officers more comfortable with SHWS technologies and more confident in their abilities to assess related financing opportunities. opportunities. The objective is to assist the lending officers officers in moving up the learning curve to the point that they begin asking the right questions and have a context for understanding the answers they receive. The CSFP Partnership is pleased to present this Training Manual on Lending for Solar Hot Water Systems in St. Lucia. Lucia. This Manual is the textbook for for the CSFP Training Course and has been prepared by the CSFP Partnership Partnership and a team of consulting consulting experts. The Training Manual is not meant to serve as a stand-alone document but is rather designed as a reference tool that complements instruction in the CSFP training sessions and builds on the lending procedures developed by each credit union in response to the Wholesale Consumer Credit Facility offered under CSFP and on the demand for SHWS generated by the Consumer Awareness Campaign. On behalf of the CSFP Partnership, we hope this Training Manual and the associated training session may serve as valuable tools in the development of lending operations in the credit unions which open access to SHWS for low and middle income segments of the population in St. Lucia.

Marco Matteini United Nations Industrial Development Organization

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John E.H. Ryan Energy and Security Group & e 3V

ACKNOWLEDGEMENTS First and foremost acknowledgements and thanks are given to the Board of Directors and staff of  the St. Lucia Co-operative League Limited for their willingness to undertake the Pioneer Phase of  the Caribbean Solar Finance Programme (CSFP) and its constituent Training Course, Consumer Credit Facility, and Consumer Awareness Campaign. Campaign. The League’s commitment commitment to CSFP and their intellectual input in the crafting of the Training Course has been remarkable, without such a commitment CSFP would not be possible. possible. Special recognition recognition is given to Mr. Terrence Charlamagne and Ms. Geraldine Lendor for their leadership and wise counsel on all aspects of  CSFP and to Mr. Alexander Joseph for his tireless work on behalf of the League in support of  CSFP. Recognition and thanks are due to the United Nations Foundation for their financial support for CSFP. Thanks are also owed to the Organization of American States – especially to its Trust for the Americas and Office of Sustainable Development and Environment, and to the Sustainable Development and Environment Unit in the Ministry of Physical Development, Environment & Housing of the Government of St. Lucia for their assistance with the development of CSFP. Special acknowledgements are due to Ms. Ayesha Grewal who is a Managing Director of  Environment Energy and Enterprise Ventures Plc. (e 3V) and serves as the Training Advisor to the Energy and Security Group Group (ESG) in the development development of CSFP. Ms. Grewal was the coordinator coordinator and editor of this Training Manual and is the author of its constituent Case Study Module. Acknowledgements are also due to each of the experts who authored the other modules in the Manual. Mr. Mark Thornbloom Thornbloom of the Florida Florida Solar Energy Center Center created the Familiarization Familiarization Module, Mr. Alexander Joseph of the League produced the Finance Training Module, and Mr. Flavien Rudolph, General Manager, Solar Dynamics (EC) Ltd. contributed significantly to Ms. Grewal’s construction of the Case Study Module. Thanks are also due to Dr. Marco Matteini, Program Officer, United Nations Industrial Development Organization (UNIDO) and Mr. John Ryan, a Director for ESG managing finance and policy operations and e 3V’s Chairman and Managing Director, who together, working in close partnership with Ms. Lendor and Mr. Charlemagne, were the architects and are now the managers of CSFP and its its constituent program elements. Dr. Matteini and Mr. Ryan also gave much appreciated guidance and constructive feedback on the design, development, and content of  this Training Manual. Finally and most importantly, thanks are due to all the lending officers in the credit unions in St. Lucia who are participating in the Pioneer CSFP Training Course and will hopefully soon make loans for SHWS to low and middle income consumers in St. Lucia a reality.

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TABLE OF CONTENTS FAMILIARIZATION MODULE ........................................................................................................... 1 Purpose ............................................................................................................................................ 1 Introduction .................................................................................................................................... 1 Solar Hot Water Systems .............................................................................................................. 1 Components of a Typical SHWS .................................................................................................. 2 Different Types of SHWS for Domestic Applications .................. .................. .................. ........... 3 Advantages and Limitations of SHWS ......................................................................................... 6 Technical Risks of Domestic SHWS ............................................................................................. 7 Frequently Asked Questions ....................................................................................................... 16 References and Notes ................................................................................................................... 19 FINANCE MODULE ............................................................................................................................ 20 Purpose .......................................................................................................................................... 20 General and Classification .......................................................................................................... 20 Unit Size and Cost ........................................................................................................................ 20 Eligibility ....................................................................................................................................... 21 Loan Proposal.................................. ................ .................. ................................... ................. .................. ................................... ................. .................. .................. ..... 21 Quantum of Loan ......................................................................................................................... 22 Rate of Interest ............................................................................................................................. 22 Security ......................................................................................................................................... 22 Co-maker or Guarantor .............................................................................................................. 22 Service Charges ............................................................................................................................ 22 Repayment .................................................................................................................................... 22 Other Requirements .................................................................................................................... 22 Assessing the Borrower – Certain Common Check Points ...................................................... 23 Appraisal of a SHWS Proposal ................................................................................................... 24 Sanctioning Authority.................................................................................................................. Authority.................................................................................................................. 25 Disbursement ................................................................................................................................ 26 Checklist for SHWS ..................................................................................................................... 26 CASE STUDY MODULE ..................................................................................................................... 27 Purpose .......................................................................................................................................... 27 General .......................................................................................................................................... 27 Costs Associated with Electric Point Heaters ............................................................................ 27 Costs Associated with SHWS ...................................................................................................... 28 Comparing the Cost of Electric Point Heaters and SHWS ...................................................... 28 Conclusion .................................................................................................................................... 31

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FAMILIARIZATION MODULE PURPOSE

The purpose of this Module is to provide lending officers in the credit unions with a general overview of  the technological aspects of solar hot water systems (SHWS) and to introduce the officers to the technical specifications of the SHWS that will most likely be financed under the Caribbean Solar Finance Programme (CSFP). The Module is also designed designed to serve as a base level reference tool for the the officers when confronted with technical issues in regards to lending in support of target consumer purchases of  SHWS under CSFP. INTRODUCTION

The idea of collecting the sun’s energy for mankind’s heating needs has been applied in perhaps every culture in history. Solar thermal technologies directly directly use the sun’s heat, typically in a concentrated concentrated form, towards various applications, such as heating water, generating electricity, heating and cooling indoor spaces, cooking, crop drying, drying, and so on. Heating water using a Solar Hot Water Water System (SHWS) is one of the most common applications applications of the technology, and has has been around for centuries. Clarence Kemp patented the first commercial solar water heater in the US in 1891 1. He used the integral collector storage storage (ICS) concept, a principle whose basic basic precepts are still in use today. William Bailey revolutionized revolutionized the industry with the first flat plate plate collector in 1909. In the 1930’s market penetration in Miami was 50%, 50%, 2 and 80% in new homes . As electric and natural gas gas prices dropped and copper prices rose, solar water water heating declined. Today, it constitutes constitutes only a small fraction of the water heating heating market in the US, but it is growing considerably considerably in Europe and other parts of the world. world. While US sales dropped 2% in 2003 2003 3 they grew 22% in Europe 4, where some 15 million ft2 (1.4 million m2) were installed, then tapered off in 2004. Germany leads the world with over 8 million ft2 (750,000 m2) installed in 2004 5. Throughout the Caribbean, SHWS technologies have been well known for decades. Sunlight is a variable fuel resource. As seen in Figure 1, its intensity is impacted impacted by time of day and time of year. This is because because the sun’s rays must pass through more air mass in the morning and evening as compared to noontime. noontime. Further, because of the the tilt of the earth’s axis in its orbit, our sun appears to be higher in the sky during summertime and lower in the winter. Other variables such as clouds, pollution, and dust will decrease the amount of solar energy reaching the earth’s surface. Figure 1: Intensity of Sunlight as Impacted by Time of Day and Time of Year

Sunlight is a distributed fuel resource therefore, the larger the surface area that intercepts and absorbs the sun’s rays, the greater the amount amount of solar energy captured. Also, the more time a given flat flat surface can spend perpendicular to the sun’s rays, the greater the amount of solar energy captured. SOLAR HOT WATER SYSTEMS

A SHWS heats water using the sun’s sun’s energy, rather than electricity or gas, gas, as fuel. A typical SHWS includes a flat plate collector, a well-insulated storage tank, cold and hot water pipes, and other balance1

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of-system components necessary to harness thermal energy from the sun to provide households with reliable, safe, and affordable hot water systems systems for domestic use. Although the sizes of of the systems vary depending on hot water requirements, typically SHWS sizing assumes a usage of about 20 gallons per person per day for domestic applications. The optimum way to collect solar energy for domestic hot water use is either the ICS (Integral Collector Storage) collector or the glazed glazed flat plate collector such as is shown shown in Figure 2. In a glazed flat plate collector, sunlight passes through the glass and is absorbed by a dark metal absorber sheet and converted into heat. The heat moves moves through the absorber sheet and into fluid in a pipe. pipe. As the sun sun heats the the absorber and fluid, they can get much hotter hotter than the surrounding air. However, insulation on on the back  and the sides keeps them from cooling cooling too quickly. The glass also helps trap the the heat inside during the the day, similar to how a car will heat up if left in the the sun all day. The heated fluid leaves the collector collector and goes to a well-insulated storage storage tank where it is stored until it it is needed for use in the house. Then, the hot water leaves the storage tank and is replaced by cold water from the city or a well.

Figure 2: Cross-section of a glazed flat plate collector

COMPONENTS OF A TYPICAL SHWS Solar Collector

The solar collector traps sunlight, converts it to heat, and conveys that heat to a working fluid such as water. Glass and insulation insulation allow water temperatures to to rise quite a bit above air air temperatures. In an ICS collector, the storage tank doubles as the collector. Hot Water Tank

The tank stores the solar solar heated water for later use. It has thick insulation insulation to minimize heat losses and a metal jacket to protect the insulation insulation from damage. Often, an electrical element will be added added to provide backup to the solar heat.

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Piping

Piping conveys the water between the the different components. Due to the high temperatures experienced, experienced, only metal piping (usually copper, sometimes galvanized iron, but always the same material as is found in the collector) should be used used between the collector and tank. Metal piping is also common between the tank and the home, although certain plastics are sometimes used. Pump

Pumps are not found on thermosyphon or ICS systems, but are found on photovoltaic-pumped (PVpumped) active designs. designs. The pump is used to push water around the collector loop. loop. Other

Valves and other components are necessary to safely and consistently provide solar heated water to the home. These are discussed elsewhere in this Module. DIFFERENT TYPES OF SHWS FOR DOMESTIC APPLICATIONS

While SHWS are based all on the same principles, the design of systems differs depending on local climatic conditions, conditions, roof structures, structures, costs, efficiency and size requirements of customers, etc. This section provides information on the typical SHWS installed for domestic applications in St. Lucia. The Thermosyphon Design

One of the most common designs in the tropics is the thermosyphon thermosyphon design. design. It also is perhaps the most straight forward and elegant in its simplicity. It makes use of the buoyancy effect in natural convection to collect the sun’s heat and store it in an insulated tank tank for later later use. The sun’s rays are absorbed by the metal plate, which heats the fluid inside the the collector tubes. As the fluid is heated in the collector tubes, it becomes less dense and rises to the top of  the tank. Relatively cool fluid from the tank  drops down the outside pipe to the bottom of the collector to replace the rising heated fluid. This cycle continues as long as the sun is able to warm the fluid in the collector tubes to a temperature warmer than the fluid Figure 3: A Typical Thermosyphon System

in the tank. When the sun sets sets and can no longer warm the collector, collector, the cycle stops. Because the collector has only glass glass on one side, it cools cools quicker than the tank. tank. The heavier cold fluid stays in the collector, and the lighter heated water stays stored in the tank. Insulation in the back and sides of the collector and the glazing in the collector front allow it to collect heat during the day at temperatures much much higher than the surrounding surrounding ambient air. Insulation around the 3

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whole tank reduces heat loss so the solar heated water can be stored for long periods of time until it is needed. A 40 gallon (150 l) tank will weigh over 330 330 pounds (150 kg), while the weight of the collectors collectors will be about 85 pounds pounds (39 kg) for a single 21 21 square foot collector. collector. The roof structure must be be able to handle this weight. Figure 4: Cut-away View of a Closed Loop Thermosyphon System

In order for the thermosyphon effect to work, the storage tank must always be physically above the collector. People have experimented for decades with different sized pipe, size ratios, vertical vs. vs. horizontal horizontal tanks, tanks, etc. But in each, the tank is always above the the collector. collector. Some designs, like Figure 3, send water from the tank  directly to the collector. collector. This is a very efficient way to collect heat but exposes the small collector tubes to potentially aggressive city water. Others, like Figure 4, 4, use a dedicated dedicated fluid in the collector and transfer heat to the tank  via a heat exchanger. The collector loop uses a dedicated fluid and is a closed loop; that that is, it is not exposed to the the city water. While the heat exchanger means some loss loss of efficiency, the collector and piping are protected. The Integral Collector Storage (ICS) Design

The ICS design is even simpler than than the thermosyphon design. design. It might be considered a very large piece piece of pipe inserted into the hot water supply line. line. Figure 5 shows shows a cut-away view view of an ICS design. This large pipe is placed in an insulated box with a window facing the sun, and acts as the solar absorber and the tank combined, or integrated into one unit. During the day, sunlight passes through the glass and is absorbed by the darkened metal tube, heating the water inside. Figure 5: Cross-section of the Integral Collector Storage Design

As the water sits in the tube, it slowly slowly heats up over the day. The insulated box allows allows it to reach temperatures much higher than the the surrounding ambient ambient air. When there is a demand for hot hot water, the solar heated water leaves the top top of the collector/tank collector/tank and flows to the shower shower or sink. Cold water comes in at the bottom, replacing the hot water. A filled 40 gallon (150 l) ICS system could easily weigh over 550 pounds (253 kg), with a relatively small footprint. Although this improves improves the odds that it will stay put in a hurricane, it also means that the the roof structure must be able to hold hold all the weight through through out its lifetime. lifetime. Because there is only a sheet of  glass between the tank and the night sky, these tanks are not as well insulated as thermosyphon tanks. Hence, they tend to lose lose heat quicker than the thermosyphon tank does. does. This heat loss is a problem in northern climates so this design is not very effective where the night skies get very cool or if there is a significant morning morning load. However, in the the tropics, the ICS design is quite effective. It is best used in

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applications where hot hot water use is in the evenings. evenings. Further, its simplicity simplicity means that there are fewer fewer things to go wrong, so these designs are very durable in areas with non-aggressive water. The PV-pumped Design

This design allows allows you to place the tank at some location other than than the roof. As seen in Figure 6, this design requires a pump to circulate circulate the water from the tank to the the collector and back again. As the sun rises in the morning, it heats heats the water in the collector. It also shines on the the photovoltaic (PV) panel next next to the collector. The PV panel converts the sun’s energy into electricity, and is sized so that when there is enough electric energy to start spinning the pump, then there is enough solar energy to heat the water in the collector. The pump sends relatively cool water up to the collector, pushing the warmed water out of  the collector and down to the tank. tank. This continues as long as there is sufficient sunlight to energize the PV panel. When the sun sets and the pump can not run, the solar collector also cools down. This design allows only the collector to be visible on the roof. Some feel that this is more aesthetically pleasing. Figure 6: PV-pumped Design

As the pump is only circulating water, rather than lifting it, a small pump may be specified which helps reduce cost. An air vent is necessary at the collector outlet and at any other high points in the plumbing, since any air pockets might overwhelm the pump. The pump and PV panel must be properly matched matched or the system will not work as intended. intended. Most designs designs use city water water directly in the collector loop. In areas with aggressive water, the same design could be used with a heat exchanger between the collector and the tank. Other Solar Water Heating Designs

Both the thermosyphon and the ICS design are described as “passive”, since there is no mechanical pump, while the photovoltaic-pumped photovoltaic-pumped design is considered “active”. All three designs designs could be “direct”. That is, water enters directly into the collector. The thermosyphon and the PV-pumped PV-pumped system could also be

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configured as “indirect”. “indirect”. In the indirect system, system, there is a heat exchanger exchanger that separates the water water from the fluid that is in the collector. It is possible that systems with pumps pumps using alternating current (AC) be seen in this loan program. program. These designs use a pump pump powered by conventional conventional 110VAC 110VAC or 220VAC electricity, electricity, rather than PV. An advantage of these designs is that the AC pump typically cost less than the PV panel and pump. However, they will not run if there is is a power outage, and they do consume consume costly electricity. This parasitic power reduces the overall overall energy efficiency of the system as a whole. AC-pumped systems may operate on a differential controller controller or with a simple timer. The controller is more reliable than a timer, timer, but requires sensor wiring up to the collector, and introduces increased complexity over the simpler systems described above. There are several solar water heating designs that won’t be seen in this loan program, primarily because they deal with freeze protection. One is the antifreeze system that circulates circulates a glycol in the collector loop. loop. Another is a drain-back system that only pumps water into the collector when there is sufficient sunlight to heat it. Both protect the collector collector fluid from freezing, which is not not an issue in the islands. islands. ADVANTAGES AND LIMITATIONS OF SHWS

SHWS are successfully meeting the hot water requirements of millions of households around the world. However, SHWS may not always be be the optimal technology technology in delivering hot hot water. It is important to consider both the advantages and limitations of SHWS before selecting it to meet the hot water requirements of a particular application. application. Experience has shown that when users have have unrealistic expectations of their SHWS, they are likely to operate it improperly or simply stop using it altogether. The following discussion summarizes the basic advantages and limitations of SHWS to help you know when it is the right choice. Advantages of SHWS

SHWS offer households a reliable, safe, and affordable alternative to meet their hot water requirements for domestic applications. applications. These systems have various benefits benefits over conventional methods methods of heating water for home use. Cost Effective: While the initial capital cost of purchasing a SHWS is almost always higher than an

equivalent sized electric or gas heater, there are no related fuel costs and maintenance costs are typically negligible. In the medium-term, SHWS are usually usually cost effective in displacing displacing the electric electric heating of  water when the price of electricity is very high such as in small island nations like St. Lucia with generation systems based on imported fossil fuels and common use of inefficient electric appliances such as electric point heaters heaters to meet domestic hot hot water requirements. In addition, SHWS for St. Lucia is clearly one of the most effective energy conservation programs in the country as it conserves costly conventional power power that could be used for other purposes. purposes. For instance, one would draw approximately approximately 6 kWh of electricity from the grid per day to provide a family of four with with hot water. Most, if not all of this energy would be saved by installing a SHWS, depending on the size installed. Free, Abundant Fuel: Heat from the sun, the fuel source for SHWS, is a widely available, inexhaustible,

reliable, and free energy source. source. Hence, these systems have no monthly fuel bills. bills. Like electric or gas water heaters, there may be minimal costs associated with maintenance or fee-for-service installations. locally-available resource – the sun. sun. This provides provides  Locally Generated Power: SHWS make use of a locally-available greater energy security and control control of access to hot water. water. It also reduces potential potential hazards associated with transporting fossil fuels or the use of electricity in a water heating system. 6

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 Environmentally Benign: Benign: The use of the sun’s energy to heat water using a SHWS produces no gaseous or

other emissions during operation and offers an environmentally benign alternative to fossil and nuclear sources of energy. Further, the system system operates silently silently and may offer a more visually pleasing alternative to power conduits strung across the landscape.  Effect on National Economy: A large part of export earnings of St. Lucia are used to pay for imported oil

and gas. Installing and using SHWS could substitute substitute the use of fossil fuel-based heating systems, systems, and reduce related expenditures. In addition, capital saved by not building building additional large power power plants can be used for investment investment in health, health, education, economic economic development, and industry. industry. Expanding the application of SHWS to meet the hot water requirements of households creates jobs and business opportunities based on an appropriate technology in a decentralized marketplace. Limitations of SHWS  High Initial Cost: Although residents of St. Lucia pay high prices for grid-based electricity, this cost is

spread over time. The high initial cost of SHWS acts as a barrier for their dissemination dissemination across the the country. Financing is needed to spread spread this high initial cost cost of SHWS over a longer period, thereby thereby making them accessible to low and middle income households in St. Lucia. System Maintenance: While SHWS require relatively little maintenance and up-keep, end-user training in

system usage and limitations limitations is essential to ensure ensure effective operation of a complete complete SHWS. This factor is mitigated by the fact that a maintenance contract is typically included with the purchase of the system. However, any required training could easily be provided by the installer of the SHWS at the time of  installation. Sun Dependent: Just as a gas-powered water heater will not run without gas, a SHWS will not operate

without energy energy from the the sun. Energy from the sun is a diffuse diffuse fuel source. source. Factors such as clouds blocking the sun or shadows cast by vegetation and structures will diminish the system’s output as will incorrect installation; however related limitations can be mitigated by appropriate system sizing and placing. TECHNICAL RISKS OF DOMESTIC SHWS Introduction

This section is meant to define and discuss discuss some of the technical risks associated associated with SHWS. The term “Risk” here refers to the potential of where and when the system might fail to deliver what it is designed to deliver: hot water. This would relate to the the system’s ability to perform perform according to design, design, as well as its ability to deliver over the years, or its reliability. As with any appliance, there are also some safety risks that should should be understood. understood. Related issues are divided into the following following three subsections: subsections: Performance, Safety, and Reliability. There will be some overlap among these topics and subsections. subsections. The best guarantee of performance is certification certification of the SHWS. While there are many high quality nonnoncertified systems on the market, a certified SHWS will have been tested and inspected by a third party to measure performance under specific test conditions. conditions. A performance rating is given that allows allows the model to be compared to other models models certified to the same protocols. protocols. In addition, the system system is evaluated for various safety, durability, and reliability issues. There are a number of solar thermal thermal certification entities entities available. In the US and Canada, jurisdictions jurisdictions will specify either the Solar Rating Certification Corporation (SRCC) or the Florida Solar Energy Center (FSEC) Certification. In Europe, many governments governments require certification following following the European norms norms 7

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or ISO (International Standards Standards Organization) Organization) standards. Other countries are also also active: Brazil has an active testing and certification program and Mexico is considering a testing lab and collaborating with the US and Canada to certify solar systems. Performance Orientation: Selection of the tilt and azimuth (or the orientation relative to south) of a solar collector has

historically been decided based on the optimum orientation for maximum solar energy collection. However, in recent years tilt and azimuth have often been chosen on the basis of aesthetics or even wind load resistance characteristics. As detailed above, SHWS are designed to heat water by using sunlight as the fuel, rather than electricity, propane, or natural gas. gas. Solar energy is a distributed energy resource. resource. This means that it is evenly distributed over an area and must be collected into into one central place (the tank) in order to be useful. The greater the amount of sunlight the solar collector can intercept, the more heat it will collect and deliver to the tank. It can be shown that the best orientation for a fixed, non-tracking flat plate solar collector to collect the most energy over a year is to be oriented toward the equator and at a tilt equal to the latitude of the location. The discussion discussion here will relate to the northern northern hemisphere. Thus, with St. Lucia being at 13-14 degrees latitude in the northern hemisphere, a solar collector will collect the most energy if it is pointing south and tilted at an angle of 13-14 degrees off horizontal. horizontal. This would correspond to a roof pitch of just under 3 in 12. If a relatively large winter load is expected, then the optimum direction is still south, but the optimum installation angle is as much as ten to fifteen degrees greater than latitude. As can be seen from Figure 7 for Orlando Florida (latitude 28 degrees), the higher tilt will allow the collector to collect more energy in the winter when the sun is lower in the sky. Figure 7: Optimal Angle for a Solar Collector in Orlando

An example of a large winter load might be a school kitchen or gym showers that would have no load in the summer, or a hotel that hosts only winter winter tourists. In St. Lucia, optimum winter-based tilt tilt angles would be between 23 and 29 degrees off horizontal. If a relatively large summer load is is expected, then the optimum optimum tilt for St. Lucia would be be 10 degrees. In general, most collectors should be tilted at least ten degrees off horizontal so that rain will not puddle on the glass. Also, most thermosyphon systems systems will require a minimum minimum slope of the collector as specified by by the manufacturer. This minimum minimum slope ensures that the thermosyphon thermosyphon effect will function function properly. A large summer load might be seen in a vacation home, or a summer camp.

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Rack mounting might be used to tilt the the collector to the correct angle. Most manufacturers provide rack  mounts designed for their system. system. This type of mount is necessary if one is installing installing on a flat roof as seen in Figure 8. However, it might also also be used to tilt a system on a sloped roof as well. Rack mounting might be necessary if the system must be placed on the north roof, as seen in Figure 9, or if the roof slope is too great to justify a stand-off mounting. Figure 8: Rack Mounted Solar Collectors on a Flat Roof 

Although tilting the collector to latitude provides the optimum energy collection, many installers and homeowners opt to take a slight performance penalty and mount the collector parallel to the roof plane. A performance penalty of 6% is taken for tilts offoptimum by as much as 20 degrees. This loss of performance might be recovered by specifying a system with a slightly larger (for example 6% larger) collector. Figure 9: Rack Mounted Solar Collectors on a Slanting Roof 

In the interest of aesthetics and sometimes even for better wind resistance, collectors may be mounted just off the roof surface in a stand-off mounting mounting as seen in in Figure 10. A stand-off mount mount should have at least two two inches (five centimeters) of of clearance between the the bottom of the collector collector and the roof. This will keep leaves leaves and debris from building up in between the collector and roof surface. Some installations are even even integrally mounted mounted with the roof. These collectors become part part of the waterproof  roof membrane. Integrally mounted mounted collectors collectors must be properly flashed to the surrounding roof material or they will allow damaging damaging leaks. If they are properly installed installed on structurally sound roofs, integrally mounted solar systems are both aesthetically pleasing and could be more wind-resistant relative to a stand-off mount or rack  mount. However, with with proper design and installation, all mountings discussed will in principle withstand hurricane-force winds up to specified design wind speeds. Figure 10: Stand-off Mounted Solar Collectors on a Slanting Roof 

What if an installer were to put put a solar system on an east-facing or west-facing west-facing roof? Just as with tilt, any variation in azimuth that is not south will result result in a slight performance penalty. A solar system on a west roof will be exposed to less sunlight throughout the day, as compared to an equivalent south-facing system. So, it will collect less heat over the year. Studies have shown that there is a 40% decrease in performance for azimuths of 90 degrees off-south off-south as shown in Figure 11. Again, this orientation-related orientation-related collectable energy loss could could be compensated for by an increase in the collector collector size. Some argue that placing a collector on the west roof is better than on an east roof, since the solar energy is collected in the afternoon when the air temperature is warmer, and since the rate of heat lost from the collector decreases as the difference between collector collector temperature and air temperature decreases. decreases. Warmer outside air allows allows less loss from a heated collector. This argument may be true; however, however, if an area is prone to afternoon storms, then the west roof is not preferred over east or south. North facing collectors collectors are not recommended. While this is not not as great an issue as one approaches approaches the equator from northern latitudes, north-facing collectors do not collect a significant amount of solar energy 9

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even in St. Lucia. If a collector must be placed on a north-facing roof, roof, then it must be rack mounted so that it faces south as seen in Figure 9. Some customers may insist that their system system be placed on the north roof facing north. In this situation, situation, one manufacturer requires that that the customer sign a waiver stating stating that performance is no longer guaranteed. Figure 11: Change in Performance Based on Azimuths

Shading: Since a solar system collects the sun’s

energy, it needs to have access to that energy. As such, shading of the collector should be minimized. Shading may occur from nearby buildings, other solar systems or equipment on the roof, or trees. trees. When evaluating a site, site, remember that trees grow. grow. A tree that is a small sapling when the solar system is installed may grow to shade the system over its 15 to 20-year lifetime. The solar system may need need to be moved or the tree trimmed, to maintain performance. System Sizing: Sizing hot water storage to a

given load requires a bit of knowledge about the consumer. The FSEC sizing procedure is based based on either the number of people or the number of  bedrooms. It assumes a usage of about 20 gallons per person per day, or about 22 to 25 gallons (83 to 95 l) per bedroom per day, which which ever is larger. It assumes a hot water delivery delivery temperature of 122°F 122°F (50°C). Jacuzzis or hot tubs would require require additional storage. Helioakmi assumes assumes a very cool cool delivery delivery temperature of 113°F (45°C) and a lower consumption of 9.25 to 21.15 gallons (35 to 80 l) per person per day, but they consider clothes washing and dishwashing separately. Most manufacturers have already determined correct collector/storage collector/storage ratios for their their markets. General rules of thumb for the Caribbean are 1.5 to 2 gallons of storage for each square foot of collector, or a 2:1 ratio. For example, an 80-gallon (303 l) tank would would be well-matched with a 40 ft2 (3.7 m2) collector. Or, some US contractors assume 20 square feet (2 m 2) each for the first two people in the house, and 8 ft 2 (0.7 m2) for each additional person. However, most established manufacturers manufacturers have determined by trial and error the correct ratio that keeps a customer happy. happy. One very successful model in St. Lucia Lucia has a ratio of  2.4:1. What if the solar system is undersized? In theory, the solar system will operate more efficiently, efficiently, since all of the solar energy collected is being used, used, and less is being lost during during storage. However, the electric or gas backup will be be used more. The customer will see less of a reduction reduction in his electric (or gas) bill. If the backup is shut off, the customer customer may experience hot water outages. This will certainly certainly result in in complaints to the solar company about not enough hot water. What if the solar system is oversized? In theory, one would have paid for more solar equipment than needed. The system will will tend to reach stagnation stagnation temperatures more often. Most systems are designed designed to withstand stagnation stagnation temperatures indefinitely. indefinitely. However, the pressure-temperature pressure-temperature relief valve may start to open regularly, causing a nuisance. nuisance. Or, the water exiting from the relief valve valve might be misinterpreted to be a leak. Very high water temperatures temperatures in an oversized system could could result in dangerous dangerous scalding problems at the fixture, if proper anti-scalding measures are not taken. See below for the importance of  anti-scalding measures. measures. However, over-sizing assures that the customer customer will have sufficient sufficient hot water, 10

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even with the back-up heater turned off. It allows the customer to increase loads in the future, perhaps if  more family comes to stay. Experience has shown that that many customers do increase their their hot water use after installing a solar water heater when they know it is “free” solar heated water that they are using. Note that most US sizing calculations calculations including FSEC assume an annual solar solar fraction of 50-75%. That is, the solar system contributes contributes 50-75% of the load over the year. A 75% annual solar fraction implies implies that the solar system meets 100% of the load in the the summer and 50% in the winter. Historically, this has been done because of the higher higher cost of solar equipment and very very low cost of fossil fuels fuels in the US. A 75% solar fraction assured that the solar system was never oversized or unused, optimizing the solar investment. This sizing assumption assumption may change as both electric electric and gas costs rise. Most calculations calculations done in the tropics assume 100% solar-supplied heat, or at least most of the load is supplied by solar with backup only part of the the time. This would mean that most of the time the system is oversized. Solar Dynamics assumes solar will provide 99% of the load; Helioakmi estimates 70-100% of the load is solar supplied. From a marketing standpoint, standpoint, it makes more sense to supply supply a larger portion of the load with with solar heat. Today’s collectors are made from materials that can withstand withstand stagnation stagnation temperatures, the incremental material cost of a larger system is not significant, installation cost is about the same, and antiscalding measures protect the consumer. consumer. If one is to err in sizing, perhaps one should err on the oversized side. Safety Proper Piping Material: There are several acceptable piping materials, depending on the location in the system. Only metal piping piping should should connect the the collector to the tank in a thermosyphon system. Metal piping is also strongly recommended between the collector and tank in PV pumped systems, in fact it is required for certified systems. The metal piping should be of the same material as the collector. Generally, copper tube is used, used, since most collector waterways waterways are made of copper. Copper tube of Type M or thicker is recommended.

Collectors and tanks could get quite quite hot under stagnation stagnation conditions. Although some plastics plastics like CPVC (chlorinated polyvinyl chloride), polybutylene, and some polypropylenes are rated for hot water service in a home, they are not rated for the potential high temperatures that could be experienced in the collector and solar tank. Although CPVC has a pressure rating rating of 400 psi (2.8 MPa) at 73°F (23°C), it falls to 100 psi (689kPa) at 180°F (82°C). There is a potential that plastic pipe might soften and rupture rupture at very high temperatures, causing dangerous release of hot steam or fluid. Sometimes CPVC plastic pipe is used in the the rest of the hot water plumbing after the solar system. system. It tends to be cheaper and easier to work with than copper, it does not corrode when exposed to chemicals commonly found in water systems, and it functions as a defacto dielectric break between different metals in the system. CPVC is acceptable and allowed in many many building codes for house house hot water piping. However, the first few feet of piping leaving tanks and any piping near exhaust flues (for systems with gas backup) should be metal, not plastic. Note that CPVC is a tan color. White PVC (polyvinyl chloride chloride plastic pipe) is for for cold water use only and should never be used in the hot water plumbing loop. loop. Other plastics such as polyethylene and ABS are also only rated for cold water use, and some grades are for low pressure use only. Scalding Risk: Scalding risks have received a lot of attention in the US in recent years. According to the

National SAFE KIDS Campaign, scald burn injury caused by hot liquids or steam is the most common type of burn-related injury among young children 6. The elderly and and handicapped handicapped are also at risk due to their slower reaction time. time. There are claims that water can scald scald at temperatures as low as 110°F (43°C)7. Some studies have shown that it takes 10 minutes to receive a third degree burn at 120°F (49°C), it only 11

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takes 30 seconds at 130°F (54°C), and one second at 160°F (71°C) 8. In response response to this safety concern, 9 most US building codes now mandate some form of scald protection . Even though many codes codes now now require protection at fixtures, SRCC requires a mixing valve in any certified system. The first and best protection against scalding is precaution, especially with the very young or the feeble. However, anti-scald and mixing valves are also a strong protection protection against against scald scald accidents. accidents. As can be seen from the sample in Figure 12, mixing valves have an inlet from the cold water supply (or city water), an inlet from the hot water supply (or tank), and an outlet to the hot water load in the house. A temperature sensor checks the outlet temperature and mixes cold water with the hot so that the outlet temperature does not exceed the set point. Figure 12: Mixing Valve Used to Protect Against Scalding

In over-simplified terms, an anti-scald mixing valve has been tested to certain test standards, it is listed, and it fails closed. A simple mixing valve is usually usually much cheaper but it is not tested or listed and it may fail open. Many non-US markets do not not yet consider scalding to to be a preventable danger.  Relief Valves: Without protection, a domestic hot water heater whose thermostat has failed would see a

continuous rise in temperature and pressure from the expanding water. This temperature and pressure would continue to rise rise until the pressure exceeds exceeds the pressure capacity of the tank. tank. If the tank bursts, the superheated, pressurized water water would instantly boil boil and expand with explosive explosive force. To prevent such catastrophic failures, water heaters are required by code to be protected for both over pressure and over temperature conditions. conditions. This applies to electric, electric, gas, and solar water heaters. Certified systems must have pressure relief valves installed on all portions of the system that can be isolated and heated. Relief valves must be set below below maximum design design pressure of all components. For components exposed to city city pressure, the pressure relief is usually set to 150 150 psi (1.03 MPa). Valves are usually installed on the tank and include a temperature temperature relief to avoid over-temperature situations. situations. Outlet of the relief valve must be plumbed plumbed to a safe place. Relief valves help protect the the system from overtemperature and over-pressure situations that may damage or rupture components.

Figure 14: Two Pressure-only Relief Valves Figure 13: A Temperature-pressure Relief Valve 12

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A pressure relief valve is required in all portions of the system that can be isolated. Most solar water heaters have the pressure-only relief valve for the collector loop installed at the collector. Again, special care should be taken to ensure the hot overflow from this valve does not come into contact with people or pets; some codes specify how this should be accomplished. The discharge pipe must be large enough to safely handle the overflow overflow volume. A temperature-pressure relief valve or T&P T&P valve is shown in Figure Figure 13, and two pressure-only relief relief valve designs are shown in Figure 14. Note the handle at the top for checking the valve. Also note the lack of a temperature temperature probe on the pressure-only pressure-only relief valve. Proper Mounting: Solar systems are usually usually mounted on roofs. roofs. The hurricane-resistance hurricane-resistance concerns that

will be addressed below not withstanding, withstanding, it is essential that the system be properly secured. The tank can weigh several hundred pounds, and the collector collector is not very very lightweight either. Improperly secured systems could roll roll or slide off the roof and cause damage to people and property property below. Awningmounted systems should should of course also be securely mounted. It is usually sufficient to mount groundgroundmounted systems on concrete piers. Ground-mounted systems have significantly reduced wind-loading concerns but much higher higher concerns for damage from everyday risks. risks. Also, they may consume consume valuable space in the yard. Tempered Glass: Certified systems must must have glazings glazings that are tempered tempered or non-shattering. non-shattering. Tempered

glass is stronger than regular float glass and when it does break, it breaks into small pebbles that are relatively harmless compared to the sharp shards of broken float glass. glass. Non-shattering or laminated glass has a clear plastic film adhered to the the glass that holds the the pieces together when it breaks. breaks. It is the kind of  glass found in automobiles. automobiles. Collectors are not only exposed to winds winds and flying debris during storms, storms, they are also exposed to everyday hazards like wayward tree branches and cricket balls. Sub-par Materials: In addition to not performing up to specification, sub-standard materials could

sometimes lead to to unacceptable safety risks. “Bargain” parts may not meet minimum minimum international international standards. Sometimes even reputable reputable manufacturers may export export poor quality quality parts to faraway faraway foreign markets in the hopes that the customers will find it too difficult to return defective pieces to the factory. This practice is bad business and reflects very poorly on the reputation of the factory, but it does happen. For example, brass fittings or copper pipe might fail at pressures lower than even the pressure relief valve setting. This could result result in a dangerous dangerous rupture in the the system. St. Lucian manufacturers and assemblers should take care to order parts from reputable vendors, and should vigorously follow-up on shipments of  defective parts. Another safety issue is lead-free solder. solder. Lead is considered hazardous to health, and lead in any any form has been banned from potable potable water systems in the US and many parts parts of Europe. The lead ban includes the the solder used to make copper pipe pipe joints. The traditional “50/50” “50/50” lead/tin solder should should not be used. Rather, “95/5” or “97/3” tin/antimony solder must be used by plumbers and installers. Reliability

“Reliability” relates to how well the system system will continue to provide provide service through the years. Failure or degradation of components may not be safety issues, but they may mean lower performance as the system ages. Maintenance issues will also be considered.  Material Compatibility: Compatibility: Material compatibility is an important issue in avoiding premature failure of solar

systems. In particular, incompatible incompatible materials such as steel and copper should not be in the the same plumbing circuit. circuit. Sometimes it is unavoidable, unavoidable, such as copper piping returning to a steel tank. tank. Then, dielectric unions should be inserted inserted between the two metals. This helps to reduce galvanic corrosion.

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reliability of a system. While even a System Maintenance: A good warrantee is one tool to determine the reliability well-written warrantee is useless if the company is out of business, the vendors involved in this loan program have been in business long enough to determine determine what is a reasonable reasonable warrantee. Warrantees usually run three to five years and cover manufacture manufacture defects. Some may cover parts and labor, but may be voided if the system is improperly installed, if it is not installed by an approved installer, or if the system is abused. Most materials in properly properly installed certified systems are designed designed to provide troublefree service long after the warrantee has expired. expired. However, some materials may require maintenance maintenance or periodic replacement. replacement. Typical design design lifetimes lifetimes of collectors collectors might be 20-30 years. Some claim pumps will last 20 years, years, others claim 5 to 10 years. years. More delicate valves such as automatic air vents or or relief  valves that are exercised too often may need replacement after just a few years. One material that may fail quickly is the the insulation covering covering the pipes. Over several years, the sun’s ultraviolet (UV) rays will degrade insulation, insulation, drying it out and turning it to powder. powder. Insulation of hot pipes is not as critical to performance performance in warm St. Lucia as it is in northern climates. climates. However, loss of  insulation does mean loss of collected solar solar heat. Also, disintegrating disintegrating insulation can be be an eyesore, or expose hot pipes. There are coatings coatings and coverings available. available. Aluminum and and plastic coverings last last a very long time but are relatively relatively expensive. UV-resistant paint is less less expensive, but may not give give as professional of a look. Also, paints tend to need re-coating after several years. Another option option is if the installer were to offer to replace damaged insulation in critical places after a period of time, perhaps as part of a maintenance package. Valves could be a source of problems after several years of operation, especially in locations where the water quality is poor or aggressive. aggressive. Corroded valves may fail or develop leaks. leaks. Calcified valves may become inoperable or become plugged. plugged. This might stop stop the system from operating. operating. Or, in the case of of a pressure relief valve, it might might impair the valve’s ability ability to perform its function. All valves should be checked periodically to assure assure that they are functioning as intended. intended. The inspection might might be done by the homeowner, or it might be done by the company as part of a maintenance package. Installers should offer offer customers a maintenance package. This might be included included as part of the sale price, or it might be offered as an optional add-on to sale. It is useful to check the system every few years to be sure that it is still functioning functioning properly. properly. This could include include checking the insulation insulation for deterioration, checking valves for operability and/or calcification, checking the sacrificial anode for depletion, and changing out or replacing any of these parts that might no longer function function efficiently. It is also important to flush the tank periodically periodically to remove any sediment buildup. buildup. While some tank manufacturers require require that this be done semi-annually or even quarterly, annual flushing schedule or even bi-annual may be sufficient. Any maintenance plan should be clear on frequency of visits, what is inspected, inspected, and who pays for parts or components that need replacement.  Hurricane-Resistant  Hurricane-Resistant Mounting: Hurricane-resistant mountings are another good measure of reliability.

These mountings go beyond those discussed earlier that just assure a system will not slide off a roof. Hurricane resistance is something that is being considered among the architects and engineers of the region, after last year's year's storms leveled so so much of Grenada and and Haiti. A hurricane-resistant mounting mounting must be able to stand up under hurricane force winds. winds. It is possible to conduct wind-load wind-load testing to ASCE standards and calculate how much wind a particular system and mounting will withstand.

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Figure 16: J Bolt Mount Figure 15: Spanner Mount

These tests and calculations also determine how the collector will fare, examining the glazing, frame walls, and connecting connecting bolts as well well as the roof mounting mounting technique. technique. However, these calculations calculations are beyond the scope of this this training course. course. Further, there are some basic mounting mounting designs that will be a significant improvement over what is currently done in the field. Two of these are shown in in Figures 15 and 16. Note that both the the spanner mount and the J bolt mount require that an installer enter the residence to get access to the underside of the roof deck and the rafters. Previously, installers usually usually only had access to the yard and the roof, possibly entering entering a kitchen or pantry to hook up the hot water line. These new mountings also require increased installation installation time, and may add to the cost of installation. installation. Further, on rafters that are exposed to the living living space, the mountings mountings will be visible. This might be undesirable for high-end residences, residences, but there are ways to minimize (not eliminate) the "eye sore". And finally, a hurricane-resistant hurricane-resistant mounting is not of much value if the roof and rafters are not securely attached to the walls, and the the walls to the foundation. foundation. This might be taken into consideration when specifying hurricane-resistant mountings on weak roofs. If the mounting is on a flat concrete roof, the ideal mount is to tie into the metal reinforcing rod during new construction. On existing concrete roofs, roofs, it could be necessary to drill through through the masonry and fix a plate on the underside of the concrete.

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FREQUENTLY ASKED QUESTIONS

1. Will I get hot water from my SHWS in the morning?

Yes, if your system is properly designed and and installed. If you had a cloudy day yesterday, or you used up all the hot water last night, it may take more more time to get hot water water from your SHWS. However, if your system comes with a back-up electric heater, turn the element on 15 to 30 minutes before you need the hot water. A thermosyphon or PV-pumped system usually will keep your water hotter overnight than an ICS, but in the islands ICS will usually provide satisfactory service.  2. How much time is needed for water to reheat after I have used all the hot water from from the system?

It depends on the collector/tank ratio and whether it is a good sunny day, but a good system can recover in two to four hours of good sunlight.  3. Does the SHWS require new or special special plumbing to connect the the hot water taps to the system? system?

The installer will cut into the the cold water supply to your existing existing hot water heater. He may choose to remove the existing heater if it is in bad condition. condition. The SHWS either replaces the existing existing water heater or is placed upstream of the existing water heater in the piping piping path. There is no other disturbance to the house plumbing.  4. Can I use hot water from the SHWS for my washing machine? machine?

Absolutely yes! Solar heated water is often plumbed straight to clothes washers washers and dish washers, since a mixing valve is not necessary. necessary. Using solar heated water greatly greatly improves the cleaning power of many soaps and detergents. However, if you intend to use hot water from your SHWS to wash wash clothes, dishes, and so on, make sure the company supplying the system is aware of this so the SHWS can be accordingly sized.  5. How does cloud cover effect the the efficiency of my SHWS?

If you walk into the shade or if a cloud goes by, your skin feels cooler relative to standing in the hot sun. In the same way, the heat-collecting process slows when sunlight is diminished with clouds or shading. As long as the collector is hotter than the tank and maximum tank temperatures have not been reached, the system will collect heat. 6. Can I increase the capacity of my SHWS later if required?

Yes, if you find that you are consistently running out of hot water or if your family has increased, the installer may install a larger system, may add a second system, or may just add another collector to assure sufficient hot water supply. 7. What maintenance does the system require?

Like electric and gas water heaters, the tank should be flushed periodically to remove sediment and the sacrificial anode will need to be replaced replaced periodically. Some delicate valves such as air air vents or pressure relief valves many need replacement if they function function too often or are in areas with with aggressive water. The insulation on pipes will degrade degrade over time. Many companies will offer offer a maintenance agreement to to periodically check your system for proper operation. 16

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8. What is the difference between a solar hot-water panel and solar PV panel?

A solar hot water panel converts sunlight sunlight to heat. It has a liquid in it (usually water) and pipes going in and out if it. A solar PV panel converts sunlight directly into electricity. electricity. There is no liquid, liquid, but it will have two wires coming from a junction box on the back.  9. What is the space requirement requirement for installing a SHWS? SHWS?

The footprint of an SHWS depends on the size installed. installed. For a 4 or 5 person household, a thermosyphon 2 system might take up 40 or 50 ft . This is larger than most skylights skylights but smaller than a large satellite dish. 10. What dangers are associated with using a SHWS?

The tank dangers are the same as with an electric or gas water heater: proper pressure and temperature relief valves must be installed and functional or the system will risk exploding in an over-pressure situation. The collector dangers are the same as with any roof-mounted roof-mounted equipment: it must be properly attached to the structure to avoid danger to people below, or to avoid blowing away in a hurricane. 11. Do I have to get my water tested (for sediment, minerals, etc.) before I can install a SHWS?

If you or your neighbors have not had trouble with scaling, corrosion or sediment in your hot water before, then there should be no need to be concerned for for a SHWS. If scaling or corrosion has occurred, then an indirect, or closed-type closed-type of design may be a good choice. If you plan to use water from an untested untested well or unknown source, the water should be checked for these things and for potability, regardless of  whether or not you install a SHWS. 12. What is the life of the different components of the SHWS?

If properly installed in areas without aggressive aggressive water, the collector life can exceed 10 or 15 years. Good pumps and valves may exceed this lifetime. Some valves may require changing changing after three to five years. years. If properly maintained, tanks may also also last as long as the collector. collector. By comparison, electric and gas water heaters may last between five and ten years. 13. What is the cost of the different components of the SHWS that I may have to replace over time?

Air vent valves, T&P valves, sacrificial anodes and electric heating elements may cost less than EC$ 30, some tempering valves may be under EC$ 130, 130, and most pumps will be under EC$ 270. 270. An unscheduled service call will cost more than the actual cost of the component replaced, to cover the cost of the technician and the site visit. visit. A maintenance contract is a good good way to anticipate unforeseen unforeseen repairs. 14. How is the SHWS protected from pressure-related bursting?

Temperature-pressure relief valves are required on any plumbing loop that can be isolated and has a heating source. This includes the tank and the collector if it can be be isolated from the tank. A pressureonly valve may also be required on the collector to keep the valve from opening unnecessarily during normal stagnation conditions.

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15. Can I install a SHWS on an existing structure or do I have to build new structures for the SHWS?

Yes, SHWS usually goes on an existing existing roof. Most manufacturers have sufficient sufficient mounting materials to to install SHWS on all types of roof structure found in St. Lucia including shingle, tile, flat concrete, or metal. Sometimes it is installed as an awning awning above a window or in the yard. yard. Some large systems systems have been used as shades for car parks. 16. I have an electric hot water system. system. Can I use any part of that system system with a new SHWS?

Yes. You can install your SHWS as a backup to your existing water heater, heater, or you might choose to install a SHWS as a replacement to your your existing electric heater heater when it fails. The installer will take this into account when he sizes your your system. If you are replacing your electric electric heater, he might recommend a larger SHWS or one with an electric backup. Some people with electric backups have have turned off the electric and have reported more than sufficient hot water for their needs. 17. Can I move my SHWS from one location to another?

Yes, but just like any other major appliance (such as an air conditioner or even large refrigerator), it will require a qualified technician to safely and properly remove it from your roof and install it at your new location. Be sure that the technician caps the plumbing, plumbing, seals any roof penetrations, penetrations, and disconnects any electrical connections if used.

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REFERENCES AND NOTES

1.

A Golden Thread, p. 117, by Butti and Perlin, Cheshire Books, Palo Alto CA, 1980.

2.

ibid, p. 152.

3.

US Department of Energy’s Energy Information Administration, as reported in  Energy Design Update, December 2004, p. 7 4. French periodical Systemes Solaires report “2004 EurObserver Barometer on Solar Thermal Energy”, as reported in  Energy Design Update Update December 2004, p.8 5.

Sun & Wind Energy 1/2005, p.8

6. 2004.

National SAFE KIDS Campaign (NSKC) Burn Injury Fact Sheet, Washington (DC): NSKC

7. Comment by Redwood Kardon, http://www.codecheck.com/q_a_tpr.htm

c

1998,

opinion

writer

for

CodeCheck.com

at

8. “Domestic Hot Water Scald Burn Lawsuits: the Who, What, When, Why, Where, How” Bynum, Petri, and Myers, Seminar and Technical Paper for Annual ASPE Meeting, Indianapolis, Indiana, October 25-28 1998. via http://www.tap-water-burn.com/pamphlet/abstract.htm 9. 2003 International Plumbing Code, Section 424.3 ( www.iccsafe.org www.iccsafe.org)) requires mixing valves at shower heads complying with with ASSE1017 and limited limited to 120°F (49°C). Other references apply. NOTE: All Figures taken from “Solar Water and Pool Heating Heating Manual July 2004” 2004” (Draft), prepared by Florida Solar Energy Center, Cocoa Florida; unless otherwise noted. Credit to Mark Thornbloom for photos in Figures 8, 9, and 10.

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FINANCE MODULE PURPOSE

This Module of the Manual is designed to introduce lending officers in credit unions in St. Lucia to the approaches and methods relevant to financing the purchase and installation of solar hot water systems (SHWS) under the Caribbean Solar Finance Programme (CSFP). While each credit union may have its own specific guidelines related to the financing of SHWS broad guidelines with respect to loans for SHWS under CSFP are briefly discussed below. GENERAL AND CLASSIFICATION

Loans for SHWS fall under the same category category as general personal or consumer consumer durable loans. As such, general eligibility criteria, the minimum amount required as a down payment by the member versus the maximum loan sanctioned by the credit union, loan proposals and application procedures, security and guarantees, appraisal procedures, disbursement, service charges, and repayment procedures will be similar to those established by the credit union for general consumer loans. UNIT SIZE AND COST

Briefly reviewing and summarizing the material presented in the Familiarization Module, a typical SHWS includes a flat plate collector, a well-insulated storage tank, cold and hot water pipes, and other balanceof-system components necessary to harness thermal energy from the sun to provide households with reliable, safe, and affordable hot water systems for domestic use. Typically, SHWS are sized based on the number of people who would be drawing hot water from the system. In general, the systems are sized sized based on the assumption assumption that each individual in the household will consume 20 gallons gallons of hot water, at a temperature temperature of 122°F (50° C), per day. In addition, most manufacturers have already determined determined correct collector to storage storage ratios for their markets. markets. General rules of thumb for the Caribbean are 1.5 to 2 gallons of storage for each square foot of collector, or a 2:1 ratio. For example, an 80-gallon (303 liter) tank would be well-matched with a 40 ft 2 (3.7 m2) collector. Or, some US contractors assume 20 square feet (2 m 2) each for the first two people in the house, and 8 square feet (0.7 m2) for each additional additional person. However, most established established manufacturers have determined by trial and error the correct ratio that meets customers’ requirements. The table below provides the approximate prevailing cost per unit of three different sizes of SHWS that are commonly installed in St. Lucia: Table 1: Approximate Cost of Three Different Sizes of SHWS Commonly Installed in St. Lucia: Customer Base 2-person Household 4-person Household 6-person Household

Unit Size 35-50 gallon tank and 15-20 square foot or 21-25 square foot collector 65 or 66 gallon tank and 25 to 35 square foot of collector* 75 or 80 gallon tank and 35 to 40 square feet of collector

Cost (in EC$) $2,670 – $3,200 $3,340 - $3,740 $3,870 – $4,400

* The customer can increase the collector area for an additional $280 to $370 depending on the size selected.

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Tank sizing starts at about 15 - 20 gallons per person, with no less than about 35 gallons simply because smaller tanks are not available. This sizing baseline would be revised based on the salesperson’s assessment of the customer’s lifestyle lifestyle and available tank sizes. For instance, the salesperson may suggest suggest an increased storage capacity for high school children, people who entertain a lot, or houses with extra shower heads to meet relatively relatively higher hot water requirements. requirements. Lower storage capacity may be suggested suggested for retirees, vacation homes, homes, etc. The ratio of gallons gallons to people declines as the number number of people requiring hot water from the SHWS SHWS exceeds two. While the Storage to Collector Collector ratio (in gallon per square feet) for the Caribbean is about 1.5 - 2.0 (2 gallons per square foot), it is important to allow the salesperson some flexibility flexibility in sizing a system system within these these guidelines. While one may think that a salesperson would want to sell the largest model the customer will buy, there is a strong incentive to properly size the the system. If it is too small it will not be able to meet the customer’s hot water requirements, resulting in repeated repeated complaints and a possible call-back under under warrantee. If it is too large, the relief valves will open too often, again resulting in a call-back possibly under warrantee. For additional information on the technical aspects of SHWS, please refer to the Familiarization Module of this Manual. ELIGIBILITY

The loans to support union members’ purchase of SHWS under CSFP are to be treated as special loans and will be offered only to members falling into the low and middle middle income categories. A household is treated as a “low income” household if the monthly monthly income of the household household is EC$2,500 or below. A “middle income” family is one where the total monthly income to the household is between EC$ 2,500 and EC$ 4,000. In general, in order to qualify for a loan for a SHWS from a credit union, the low or middle income applicant must, first and foremost, be a member of the constituent credit union and must have sufficient savings that are not hypothecated in support of another loan or pledged as surety for a loan to another member. In addition, the individual individual must have been a member of the the credit union for the minimum amount of time stipulated stipulated by the union. The applicant’s share balance must be adequate to cover cover the prescribed percentage of the loan required for hypothecation, hypothecation, failing which he must provide other security to cover the value of the SHWS. Further, the applicant applicant must have definite sources of income for repayment of the loan and must be creditworthy. Applicants must own a property or must have a long-term lease on a property in order for the loan to be approved. Alternatively a loan may be granted to a customer customer for purchase of SHWS to be placed on their parent’s home. An applicant who is merely renting renting from month to month does does not have a stable enough domicile to be granted a loan to purchase SHWS. Consideration will be given to members that are servicing another loan from the credit union at the time of applying for a loan for a SHWS. In order for that member to be granted the loan for the the SHWS, her/his existing loan and related repayments must be on schedule schedule and in good standing. If the existing loan is delinquent, the request for the SHWS loan will be denied. LOAN PROPOSAL

The loan application shall be submitted submitted in the form prescribed by the credit credit union. The applicant shall furnish all the necessary information as required by credit union.

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QUANTUM OF LOAN

While credit unions differ with regards to the amount of share capital the member must have to support the loan, on average the minimum requirement requirement is 33.33%. The loan from the credit union would cover cover 100% of the installed cost of the unit, including cost of accessories and the warranty, if not included in the base price, as per the proforma invoice or quotation. RATE OF INTEREST

The credit unions may charge interest not to exceed a rate of six (6) percent (%) per annum on all SHWS sub-loans accessed by middle middle income households. The credit unions may charge interest not not to exceed a rate of four (4) percent (%) per annum on all SHWS sub-loans accessed by low income households. Middle income clients are defined as households earning equal to or greater than EC$ 2,500 monthly but less than EC$ 4,000 and low income clients are defined as households earning below EC$ 2,500 monthly. SECURITY

If the member applying for the loan has a minimum un-hypothecated share capital of 33.33%, additional security may not be be required. However, in the absence absence of such, the applicant applicant may be asked to secure secure a co-maker or provide acceptable acceptable collateral before accessing accessing the loan. Acceptable forms of collateral collateral for these loans could include the SHWS financed by the loan, allocation of a portion of the member’s salary as repayment of the loan, certificates of share holding in public or private limited companies, business assets, cash surrender value of insurance policies, and so on. When accepting a particular form of collateral, the lending officer must take into account the nature of the asset with respect to its liquidity, possible depreciation in the value of the hypothecated asset, and other factors that could impact the union’s ability to recover the value of the loan through sale of the collateral in the event of default. CO-MAKER OR GUARANTOR

A credit worthy co-maker (preferably a third party) good for the loan amount may be included in the loan transaction as a guarantor. guarantor. This would apply apply in cases where the member’s member’s share capital is less less than 33.33% of the loan. The third party must be a member of the credit union, union, in good financial standing, and with an adequate debt debt to income ratio. In general, the eligibility eligibility criteria for the third third party are the same as for the member. SERVICE CHARGES

Service charges applicable to the SHWS loan will be determined by the internal policy of the credit union to which the member applies for the loan. REPAYMENT

The loan is to be repaid in periodic installments over a period of one to five years depending on the source of income of the borrower. Interest shall be paid monthly or as mutually mutually agreed upon by the member and the credit union and accordingly be debited to the loan account. OTHER REQUIREMENTS

Other requirements for a SHWS loan include: 22

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  





A salary slip certified by the applying member’s current employer Insurance certificate for the property in question Proforma invoice or quotation from the manufacturer or supplier who will provide and install the SHWS for the cost of the system including all accessories and installation A certificate stating that the system has been installed in compliance with recommended performance, reliability, and safety practices Where the loan is required to be secured by mortgage, the applicant shall also submit the original title deed of the property, encumbrance certificate, legal opinion, property valuation certificate, and other supporting documents

ASSESSING THE BORROWER – CERTAIN COMMON CHECK POINTS

To frame a proposal proposal quickly, quickly, the lending officer should meet with the the applicant. The assessment standards will vary from person to person, depending upon the size of the proposed loan, experience of  the loan official, dealings of the potential potential borrower, and so on. It is advisable that the officer meet the borrower directly and not through through any agency or third person. Such a meeting provides an opportunity opportunity to collect first hand information information for discussion. discussion. It also helps the loan loan officer check the various statements statements and figures furnished in the loan application. application. The following brief should should help the loan officer prepare the related proposal efficiently. The background of of the borrower should should be evaluated when assessing the loan loan proposal. Some of the common questions to be asked include:   







Who is the borrower? What are his/her sources of income? If she/he has not previously taken a loan from the credit union, how has she/he met her/his credit requirements (if any) till date? Does she/he have outstanding financial commitments to any other institutions or individuals and why has she/he not approached the union for credit requirements? If she/he has taken a loan from the credit union in the past does her/his repayment record meet the union’s policies? In the case of a new borrower, the loan official should collect the requisite details, and check the applicant’s credit worthiness through credit check provider.

The loan officer should also look into aspects particular to SHWS when assessing the application, including: Has the time required to install and initiate operation of the equipment been clearly specified? Is the SHWS being procured from a reputed manufacturer/supplier? Have provisions for adequate after-sales been made? Have arrangements for the supply of spares in case of defective materials been made? The following general aspects must also be examined: 

  

What is the amount of loan required, and are cost estimates included in the application reasonable as per standard rates? What will the loan mean to the borrower from the cash-flow point of view? When and how will the loan be repaid? Where will the funds come from for repaying the loan? 23

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  





Will the SHWS help the borrower in reducing expenditure and increasing savings to repay the loan? Does the borrower have a basic idea about the possible net savings/profit, after the installation? Does the borrower have the necessary technical skill to handle the SHWS and its maintenance or does she/he need any managerial training? Has she/he properly assessed the special features, such as hot water consumption throughout the year, and so on? What is the warranty on the SHWS?

If necessary, arrangements may be made to brief and train prospective borrowers about handling and maintenance of the SHWS. Such training could could be provided provided by the SHWS SHWS supplier at the time of  installation of the system. All documents required by the credit union are to be submitted along with the application. APPRAISAL OF A SHWS PROPOSAL

On receipt of the loan proposal for financing a SHWS, along with the credit union’s regular requirements, the loan official or any other designated officer may select to undertake a pre-sanction spot inspection of  the location of the site where the unit is to be installed and discuss the details of the proposal with the applicant. In appraising the loan, the officer should take into consideration the technical, financial, economic, and managerial aspects along with the client’s ability to repay the loan. Technical Aspects

It is strongly recommended that that only tested and certified systems are financed under CSFP. As such, the manufacturer or his/her authorized dealer should produce a copy of the test report issued by the Solar Rating Certification Corporation, Florida Solar Energy Center Certification, or an equivalent solar thermal certification entity, certifying that the SHWS being supplied to the member conforms to the specifications prescribed by the certifying certifying entity. The financed SHWS should also be under warranty warranty for the duration of the loan, if not longer. While the SHWS typically come with a warranty of about three to five years, the lending officer should ensure that the manufacturer/dealer supplying the system offers Annual Maintenance Contracts (AMC) covering supply of spares and services if the warranty does not cover the system for the duration of the loan. The exact terms, including including frequency of visits visits or payment options, options, of the AMC should should be agreed upon between the system supplier and the end user. The precise system requirement and design will be determined by the end-user in discussions with the manufacturer/authorized dealer. These measures will establish the technical feasibility feasibility of the system. Financial Aspects

The financial benefits of SHWS should be computed taking into consideration the savings on electricity consumption from the national utility company and related electricity bills, expenses on other alternate devices such as electric electric powered water heaters, and the the like. Although the initial initial capital cost of the system is relatively high when compared to the cost of an electric point heater, SHWS are cost effective over time as there are no associated fuel costs and maintenance costs are relatively lower. In addition, the intangible benefits such as reduced dependence on high-cost, imported fossil fuels; improvement in 24

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environmental conditions and reductions in pollution levels; and other similar benefits should also be considered. As the initial investment in the system is relatively high the payback period of the loan should ideally be relatively longer. Nevertheless the loan official official should verify that the the investment is financially financially viable over the term of the loan. The Case Study Module presents presents a financial work-up analyzing analyzing the financial viability of a loan taken in support of purchasing a SHWS versus expenses associated with an electric point heater typically used by low and middle income households in St. Lucia. Economic Aspects

St. Lucia spends a large large portion of its foreign foreign exchange earnings earnings to pay for imported fossil fuels. The country is all but exclusively exclusively dependent upon the imported imported oil and gas to generate electricity. As a result of the high landed cost of these fuels and the monopoly position of the generation and distribution utility, low and middle income households households in St. Lucia pay approximately EC$ 0.688 per kWh consumed. consumed. This high per unit cost results in a high cost paid to meet domestic hot water requirements by using electric point or tank heaters. heaters. Households can reduce reduce these expenditures, expenditures, and the country’s country’s dependence on volatile international fossil fuel markets by supplementing the electric point heaters with SHWS. Managerial Aspects

SHWS technology is relatively simple simple and the system system is comparatively comparatively maintenance free. This fact coupled with a warranty and/or an AMC should be sufficient to ensure the proper functioning of the system with minimal management of the SHWS. Repayment Capacity

The scope of this Training Course is limited to the financing of members’ purchase of SHWS for domestic applications. applications. As the income generation capacity of such loans loans is by nature limited, repayment capacity should be gauged based on the potential client’s existing income and expenditure levels, and the cost savings associated associated with the installation installation of the SHWS. As such, the lending officer officer should adopt a holistic approach and consider the entire budget of the applicant to gauge her/his repayment capacity relying on viable and known sources of income as is the norm in case of most personal or consumer durable loans. However, the lending officer should should take into account the potential potential savings to the family that would accrue as a result of switching from gas powered or electric point heater to SHWS. SANCTIONING AUTHORITY

After the credit proposal is thoroughly appraised establishing establishing its bankability, sanction is accorded with the applicable terms and conditions of the credit union. union. The lending officer must first interview interview the applicant and then sign the loan form for approval approval and attesting such. such. The application is then then reviewed by the credit committee. Where necessary, the loan application application will be forwarded to the the board of directors, who will discuss it and approve it by affixing their signatures thereon. If the loan is not approved, the lending officer should communicate the reason for the rejection to the applicant. The member may resubmit the application application depending upon upon the reasons behind the decline decline of  the initial loan proposal. proposal. If it is a situation that requires minor minor adjustments such as the provision provision of a document or additional additional signatures then the applicant applicant can take the required corrective measures. measures. However if the rejection arises from a situation that truly disqualifies the applicant, applicant, for instance, if the applicant is a high income earner or has a loan that is delinquent, then it will be rejected. 25

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DISBURSEMENT

Upon approval of the application, application, the lending officer intimates intimates such to the member. The loan is finalized once the member fulfills the required terms and conditions; executes the underlying documents; and posts the related guarantee, if required, in a manner acceptable to the credit union. A cheque is then written in the name of the supplier for half the value of the loan. The member confirms the order for the SHWS by paying the 50% deposit deposit for the system. The balance 50% is paid by the member to the the supplier upon installation of the SHWS to the satisfaction satisfaction of the member. This balance amount is also paid paid via a cheque from the credit union written in the name of the supplier. CHECKLIST FOR SHWS

The summary checklists and tips provided provided below are only illustrative and not exhaustive. exhaustive. The guidelines provided are general in nature and not a substitute for the practices followed by individual credit unions. The application form and other documents, the appraisal systems and checkpoints relevant to the type of  loan, and other requirements as prevailing in the credit unions must be followed when evaluating loan applications for SHWS. Application Particulars

Has the applicant/end-user furnished all the particulars in the application forms prescribed by the credit union? Is the applicant an existing or new member of the credit union? If she/he has previously taken loans from the credit union, what is her/his credit record? If she/he is a new customer, who are her/his existing bankers/financiers? bankers/financiers? What is her/his track record at the other financial/lending financial/lending institutions? User Aspects

How are hot water requirements requirements currently met in the household? household? What is the approximate approximate hot water usage? How many family members are in the household? household? How many bedrooms are there in the the house? Will opting for for a SHWS be financially beneficial beneficial for the applicant? applicant? Does the alternative save save the expenditure on purchase of gas or electrical consumption? consumption? If so, how much is the saving in terms of EC$ compared to the cost of the SHWS? Technical Aspects

Has a proper estimate been prepared with regards to the cost of installation and the cost of the existing system? Does the system sizing sizing seem appropriate? Is it as per the requirements requirements of the end-user or estimate (pressure?) by the supplier? Are adequate after-sale service and repairing repairing facilities available locally? What is the availability availability of spare parts? Have adequate number of years of warranty been made available by the supplier? Economic Aspects

What is the anticipated savings from the proposed activity? Is the net surplus available sufficient to repay the loan after meeting household expenses? Are the cost estimates well within the average in the area? 26

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CASE STUDY MODULE PURPOSE

The previous two Modules in this Manual are designed to provide lending officers in the credit unions with data and a theoretical framework to assist in the evaluation of loan applications to support members’ purchase of solar hot water systems (SHWS). This section builds on on the data and theory presented in the first two sections and presents a case study illustrating the financial viability of a SHWS given the availability of a loan to purchase purchase the system. A comparison is then made between the the financial viability of installing a SHWS in comparison to an electric point heater. GENERAL

Many low and middle income households in St. Lucia use electric-powered systems to meet their hot water requirements. On average, a household in St. St. Lucia pays approximately approximately EC$ 0.688 per kWh for power consumed, resulting resulting in a relatively high cost for heating water for domestic domestic applications. Further, while efficiency ratings vary across different electric hot water systems and depend on factors such as distance of the hot water tank from the tap or shower head, typically only about 90% of the electricity paid for is actually consumed in heating water. While SHWS provide a technologically as well as financially viable alternate to electric hot water systems, the high upfront cost of SHWS prevents many low and middle income households on the island from purchasing such systems. Offering financing to support the purchase of SHWS could help households defray the high upfront cost of purchasing SHWS, thus making the systems more affordable to low and middle income families. This Module examines the financial viability of SHWS relative to electric point heaters for residential use in St. Lucia and explores the potential monetary savings associated with financing alternatives for such systems to be offered through the credit unions under the Caribbean Solar Finance Programme (CSFP). COSTS ASSOCIATED WITH ELECTRIC POINT HEATERS

On average, a family of four would purchase a 3.3 kW point heater at a cost of approximately EC$ 95 to meet the household’s domestic hot water requirements. requirements. After accounting for system system losses, this unit unit consumes about 6 kWh kWh of electricity on a daily basis. Assuming a cost of EC$ 0.688 per kWh, kWh, and a daily consumption of 80 gallons of hot water for each day of the year, the household pays about EC$ 4.13 per day, or EC$ 126 per month, or about EC$ 1,507 per year in electricity charges to heat water using an electric point heater. Table 2 below presents the the total costs associated with with purchasing, installing, installing, and operating a typical electric hot water system. Table 2: Cost of Purchasing, Installing, and Operating an Electric Point Heater

One Year Three Years Five Years

Upfront System Cost

Total Energy Costs

95 95 95

1,507 4,520 7, 5 3 4

Total Cost of of   System

1,602 4,615 7,629

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COSTS ASSOCIATED WITH SHWS

On average, it is estimated that each individual in a typical household will consume about 20 gallons of  hot water, at a temperature of 122°F (50° C), per day. It is recommended that an average family of four four install a SHWS with a 65 gallon tank tank and a 7 x 5 ft collector. This system would be sufficient sufficient to provide the household with 80 gallons gallons of hot water on a daily basis. The cost of this this system, inclusive of  of  installation and a three to five year warranty, is about about EC$ 3,600. There are no fuel costs associated associated with the system, and as warranties are usually provided for a three to five year period, operational costs are taken to be nil. As such, the only costs associated associated with the SHWS over the term of the warranty would be those related to the repayment of the loan taken to finance the system. The CSFP loan for the SHWS offered by the credit unions to their members would cover 100% of the installed cost of the system; carry an interest rate of 4% to 6% on a declining balance basis, depending on whether the member is from a low or middle income family; and have a term of three to five years. The analysis presented in this Module assumes that the member is from a middle-income family, and that the applicable interest rate is thus 6% on a declining balance basis. basis. Based on these assumptions, the total costs associated with installing and operating SHWS over a one to five year period, including the interest payments against a loan taken from the credit union for the system, are provided in Table 3 below: Table 3: Total Cost of Financing, Installing, and Operating a SHWS

Principle Payments

Interest Payments

Total Cost of   System

3,600 3,600 3,600

117 333 549

3,717 3,933 4,149

One Year Three Years Five Years

Given the interest rate applicable on these loans are charged on a declining balance basis, the associated average monthly installment payments range from about EC$ 310, EC$ 109, and EC$ 69 for a loan taken over a one, three, or five year term respectively. COMPARING THE COST OF ELECTRIC POINT HEATERS AND SHWS

While the upfront cost of a SHWS (approximately EC$ 3,600) is substantially higher than that of an electric point heater (EC$ 95), over time, the savings associated with the SHWS makes such systems the financially prudent choice. The high cost per kWh of electricity paid by households households in St. Lucia coupled with the fact that the SHWS have no associated fuel and few maintenance costs make the solar systems a viable, competitive option for domestic consumers in St. Lucia. Graph 1 below presents a comparison of the costs associated with installing and operating an electric point heater with four different options for purchasing a SHWS; i) without any loan, ii) with a one-year loan, iii) with a three-year loan, and iv) finally with a five-year loan. In comparing the cost effectiveness of the two technologies for residential consumers in St. Lucia, this analysis assumes that the member takes a loan from the credit union for 100% of the installed cost of the SHWS at an annual interest rate of 6% on a declining balance basis to finance the purchase and installation of the system. system. It is further assumed that the costs of installing installing and operating the electric point heater are not financed, and that operational costs associated with the point heater are taken to be constant 28

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at EC$ 126 per month, which represents the electricity charges paid by the household to operate the system. Graph 1: Comparison of Costs of Electric and Solar Hot Water Systems 5,000

4,000

3,000       $       C       E

2,000

1,000

0 0

12

24

36

48

60

Month SHWS (1 Year Loan)

SHWS (3 Year Loan)

Electric System

SHWS (Without any Loan)

SHWS (5 Year Loan)

As is apparent from the graph, while over the five-year analysis period all four options for the purchase of  the SHWS present a financially prudent choice over the electric point heater, the financial burden of the purchase of the SHWS differs substantially substantially for the household based on the the option selected. Thus, while a low or middle income member of a credit union interested in purchasing a SHWS may not have the financial flexibility or disposable income to afford to pay the entire cost of a SHWS at one time, she/he could defray the high upfront cost over a one to five year period by taking a loan offered by the union under CSFP to support the the purchase. By making the purchase purchase of the SHWS affordable through through offering such loans, the credit unions make SHWS accessible to a relatively larger number of low and middle income families. Further, by providing providing a loan for a period period of more than one one year, a credit union could could reduce the expenditure related to hot hot water effective immediately. As such, not only would this this benefit the household that purchases the system, but further would reduce the risk of default as incremental income to repay the loan would not be required. Table 4 below presents the monthly costs and cumulative savings associated with purchasing a SHWS under the four options mentioned above as opposed to purchasing and operating an electric point heater. If the household were to purchase the SHWS without a loan from the credit union, it would take about 28 months before the related cash-flows cash-flows become positive. If the household took a one-year loan from the the credit union top finance the purchase of the SHWS, the cumulative cash flows will be negative till the 29 th month. Loans to support the purchase of the SHWS taken over a three to five year period would result result in net savings to the household household starting in the the first month. This arises primarily primarily due to the high costs associated with using electricity to operate the electric hot water system.

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Table 4: Monthly Costs and Cumulative Savings Associated with Purchasing a SHWS

M o n th

Electric Hot Water System

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

221 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126

Monthly Costs and Cumulative Savings Solar Hot Water System No Financing One-Year Loan Three-Year Loan Cumulative Cumulative Cumulative Cost Savings Cost Savings Cost Savings

3,600 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

-3,379 -3,254 -3,128 -3,003 -2,877 -2,752 -2,626 -2,501 -2,375 -2,249 -2,124 -1,998 -1,873 -1,747 -1,622 -1,496 -1,370 -1,245 -1,119 -994 -868 -743 -617 -492 -366 -240 -115 11 136 262 387 513 638 764 890 1,015 1,141 1,266 1,392 1,517 1,643 1,769 1,894 2,020 2,145 2,271

318 317 315 314 312 311 309 308 306 305 303 302 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

-97 -288 -478 -666 -852 -1,037 -1,221 -1,403 -1,583 -1,762 -1,939 -2,115 -1,990 -1,864 -1,739 -1,613 -1,487 -1,362 -1,236 -1,111 -985 -860 -734 -609 -483 -357 -232 -106 19 145 270 396 521 647 773 898 1,024 1,149 1,275 1,400 1,526 1,652 1,777 1,903 2,028 2,154 30

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118 118 117 117 116 116 115 115 114 11 4 11 3 11 3 11 2 11 2 11 1 11 1 11 0 11 0 10 9 109 108 108 107 107 106 106 105 105 104 104 103 103 102 102 101 101 0 0 0 0 0 0 0 0 0 0

103 111 119 128 138 148 158 169 181 193 206 219 232 246 261 276 292 308 324 341 359 377 395 414 434 454 475 496 517 539 562 585 608 633 657 682 808 933 1,059 1,184 1,310 1,436 1,561 1,687 1,812 1,938

Five-Year Loan Cumulative Cost Savings

78 78 77 77 77 77 76 76 76 75 75 75 74 74 74 74 73 73 73 72 72 72 71 71 71 71 70 70 70 69 69 69 68 68 68 68 67 67 67 66 66 66 65 65 65 65

14 3 1 90 2 39 2 87 3 36 38 5 43 4 48 4 53 4 5 84 6 35 6 86 7 37 7 88 8 40 8 92 9 44 9 97 1, 0 5 0 1 ,1 0 3 1 ,1 5 7 1 ,2 1 1 1 ,2 6 5 1 ,3 1 9 1 ,3 7 4 1 ,4 2 9 1 ,4 8 4 1,540 1,596 1,652 1,709 1,766 1,823 1,880 1,938 1,996 2,055 2,113 2, 1 7 2 2, 2 3 1 2, 2 9 1 2, 3 5 1 2, 4 1 1 2, 4 7 1 2, 5 3 2 2, 5 9 3

M o n th

Electric Hot Water System

47 48 49 50 51 52 53 54 55 56 57 58 59 60

126 126 126 126 126 126 126 126 126 126 126 126 126 126

Monthly Costs and Cumulative Cumulative Savings Solar Hot Water System No Financing One-Year Loan Three-Year Loan Cumulative Cumulative Cumulative Cost Savings Cost Savings Cost Savings

0 0 0 0 0 0 0 0 0 0 0 0 0 0

2,396 2,522 2,647 2,773 2,899 3,024 3,150 3,275 3,401 3,526 3,652 3,777 3,903 4,029

0 0 0 0 0 0 0 0 0 0 0 0 0 0

2, 2 7 9 2, 4 0 5 2, 5 3 0 2, 6 5 6 2, 7 8 2 2, 9 0 7 3, 0 3 3 3, 1 5 8 3, 2 8 4 3, 4 0 9 3, 5 3 5 3, 6 6 0 3, 7 8 6 3, 9 1 2

0 0 0 0 0 0 0 0 0 0 0 0 0 0

2,063 2,189 2,314 2,440 2,566 2,691 2,817 2,942 3,068 3,193 3,319 3,444 3,570 3,696

Five-Year Loan Cumulative Cost Savings

64 64 64 63 63 63 62 62 62 62 61 61 61 60

2, 6 5 5 2, 7 1 6 2, 7 7 8 2, 8 4 1 2, 9 0 3 2, 9 6 6 3, 0 2 9 3, 0 9 3 3, 1 5 6 3, 2 2 0 3, 2 8 5 3, 3 4 9 3, 4 1 4 3, 4 8 0

CONCLUSION

While over time, SHWS are financially beneficial for households relative to electric point heaters, the high upfront cost of these solar systems is often a limitation to their purchase by low and middle income families. However, if financed over a period of two years or or more, the monthly repayment against against a loan taken by a member from a credit union to support the purchase of a SHWS would be lower than what the household was previously previously paying for heating water using using an electric point heater. As such, credit unions could potentially play a pivotal role in opening the market for SHWS for low and middle income families in St. Lucia.

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