Financial measures Serbia should offer for solar hot water systems

Abstract

Hot water consumption is an important segment in the energy consumption in households, especially in Serbia, where majority of households heat water with electric immersion heaters. Having in mind that 73% of electricity in Serbia is generated in lignite-fired power plants, we arrive at an interesting situation that the thermal energy of coal is first transformed into electric energy and then back to thermal energy of water in households. Obviously, these transformations yield a very inefficient use of the energy embedded in coal. A more appropriate alternative is installation of solar hot water (SHW) systems in households. The current number of installed SHW systems in Serbia is negligibly small -only about 0.1% of all households. Serbia has recently adopted feed-in tariffs for generating electricity from renewable energy sources (RES), as part of its obligations from the Energy Community Treaty, but it did not provide any incentive for household SHW installations. It is generally accepted that best form of SHW incentive is a direct subsidy to reduce high upfront costs. The aim of this work is to suggest the level of the subsidy which Serbian government should offer in order to reach the level of SHW deployment comparable to that of more developed countries. We first perform a financial analysis of SHW installation in the southern Serbian town of Niš with RETScreen, and then use contingent valuation survey among household owners in Serbia to determine the subsidy level which would substantially increase their willingness to install a SHW system. We conclude that 20% subsidy is justified already by CO2 mitigation potential of SHW systems, while 50% subsidy, which lowers equity payback period to 5.6 years, generates most interest among household owners.