American Solar Network Module

• Introduction
• The Background of Albert C. Rich
• The Skylite System
• Brief Review of the Solar Water Heater Industry
• Problem Statement
• Solar Water Heating patent

• Exhibit I:Solar As It Should Be Pamphlet
• Exhibit II: Summary of Energy Use and Costs
• Exhibit III: State and Utility Incentives in 1993

• Bibliography

A printed version of this case may be ordered from the Darden Case Bibliography.

Introduction

"The average home water heater emits over a ton of hydrocarbon pollutants into the atmosphere each year, as much as the average car! A solar water heater can prevent over 1,400 lbs. of these pollutants from being emitted."

Rich also claims that,

"If 50 percent of the homes in the United States had a solar collector, it would eliminate 12 large nuclear, coal, and oil generating plants."

He is clearly committed to his invention and has sunk most of his own resources into it. He asserts that,

"Henry Ford had a vision of an automobile for every family, and I have a vision of a solar water heater for every family."

As of December, 1992, however, A.C. Rich is a long way from being able to accomplish this goal--so far that he must consider moving or going out of business.

The Background of Albert C. Rich

In July of 1977, at the age of 27, Rich took a job at a summer camp in Colorado, where he was asked to help install a solar water heater for the camp pool. He said he 'lit up' at the thought of doing this. Driven by the desire to achieve, he attended Principia College in Illinois and obtained a degree in Political Science. Rich decided to work in the solar energy field because he saw it as one solution to problems like global warming. During his college years, he became active in the environmental movement, organizing and participating in senior seminars and conferences. His exposure to environmental issues at school, as well as the mid-70's oil crisis, further developed his interest in solar power and the environment.

After graduation in 1979, Rich started selling a solar water heating system designed by his father-in-law. Rich was dissatisfied with the design, but his father-in-law didn't want to improve it, so he and Rich parted ways. It was at this time that the U.S. Government implemented the Energy Efficiency Tax Credit that encouraged energy conservation and the development of alternative energy sources. Al Rich saw the tax credit as an opportunity to capitalize on his expertise, so he founded his own solar services company, A.C. Rich and Sun, in July,1979. Under the name A.C. Rich and Sun, he contracted with another dealer to sell solar water heating systems. While he founded A.C. Rich and Sun, Rich also worked as a consultant and trainer for companies entering the solar market. Some of his work included installing the first two solar systems for the United States Navy, and holding professional solar sales and installations seminars.

In 1981, Rich became the district manager for Sears Solar at the Herndon, Virginia branch. Over the next four years, he succeeded in making the Herndon office the top producing sales branch of the company in the United States, selling a volume of $2.5 million annually. He was in charge of the management and training of 53 employees from all areas of the company, ranging from sales to installation. In 1985, however, the tax credit that had given such a boost to the solar industry expired, causing Sears Solar to be one of over 5,000 companies to close its doors. However, A.C. Rich and Sun continued to operate. It was one of the remaining four percent of solar companies to stay in business after the tax incentives were removed.

In order to stay working in the solar industry, Rich started servicing the solar water heating systems that were installed during the tax credit era. The work made him acutely aware of the problems with existing solar water heaters. They were over-priced, unattractive, and cumbersome. He says, "Just from a marketing standpoint I had to decide how I could sell solar. Basically, solar energy had been built and designed by engineers. They had no concept of what the customers wanted, they just produced what worked. And they certainly did work. But the market wasn't that happy with how they looked or their cost, so you had to come up with an artificial subsidy." In 1987, Al Rich decided to use his expertise to design and market a new domestic solar water heater, one that would be less expensive and pleasing to the eye. Actual work began on the "Skylite" water heater in 1988 in the name of the company A.C. Rich and Sun. His second company, American Solar Network, Ltd. (ASN), was incorporated on February 2, 1989 in order to further develop and manufacture the "Skylite" system.

The Skylite System

An overview of Rich's system can be seen in the "Solar Skylite Water Heater" diagram in the "Solar As It Should Be" pamphlet in Exhibit I.

The numbers below refer to parts of this diagram. The "Skylite" works in conjunction with a conventional water heater in order to supply hot water to the home. Water is heated using the solar system primarily. However, during long stretches of cloudy days or during high levels of hot water use, the conventional water heater will fire so that adequate supply is maintained.

The Skylite does not directly heat the water a family uses; instead, it has its own separate water supply. This is known as a 'closed-loop' system. The water is heated in a set of light, plastic panels on the roof (1). When the water in the collectors on the roof is warmer than the water in the tank (4), a differential (2) triggers a pump (3) which circulates the heated water around the tank (4). Inside the tank is the water the household uses to wash dishes, take showers, etc.; this household water is transferred to the regular hot water tank, where it can be heated to the desired household temperature.

Rich's system includes a timer and a drainback tank (5) so that water can be drained out of the system at night. Part of his patent includes a 'floating valve manifold' which allows the water to fall into the drainback tank whenever the pump is not operating, thereby preventing the water from freezing in the exposed pipes during cold weather, a problem in many other passive solar designs. When the pump starts up again, a floating ball rises and closes the L-shaped joint which would have allowed the water to fall back into the drainback tank; the water instead is forced into the solar collector. (For more details on this and other aspects of Rich's system, see the copy of his patent. He also patented vents in the solar panel which release steam when the water gets too hot.

Rich's goal was to make the system cheap and easy to maintain, and, in his opinion, he accomplished this. He used plastic instead of glass on the panels to make them easy to install and remove. He used EPDM rubber in his collectors because this material was light, flexible, and could withstand freezing. Rich also designed the solar panels to look like skylights, so they would enhance the appearance of the house on which they were mounted.

Brief Review of the Solar Water Heater Industry

The 1973 energy crisis made the United States realize its dependence on natural resources, particularly fossil fuels. Because of the Middle-East oil embargo, oil prices quadrupled, forcing Americans to rethink their ideas on energy and conservation. In 1978, the U.S. Government and many states decided to implement tax credits for anyone who installed a solar water heater prior to January 1, 1985. Federal income taxes allowed a credit of 40% off the entire solar domestic water heater expenditure, up to a maximum credit of $4000. (A tax credit is a reduction in the total amount of taxes owed to the IRS. It generally saves more than a deduction, which is applied only to the taxable income, not the total amount owed.) This difference resulted in a significant reduction in cost to consumers. Due to increased energy awareness, and the government tax credit, approximately 950,000 active solar systems and 200,000 passive solar systems were installed during this period of remarkable growth in the solar industry. (An active system seeks to produce electricity from the sun with which to heat the water, and a passive system uses solar energy to heat the water directly.)

After the end of the era of federal tax credits, American consumers on the whole were disenchanted with the high-priced, unattractive solar water heaters that were available. The poor reliability and prohibitive cost of these systems, coupled with rapidly declining fuel prices, spelled the demise of a vast majority of companies selling solar water heaters. Fuel prices had dropped from those experienced in the mid-70's, and the country became apathetic to matters concerning the conservation of natural resources.

Rich kept his company alive during this difficult period by taking out a second mortgage on his home, scrambling for backers, and obtaining grants from states like New Hampshire, which provided him a $14,900 grant under its Appropriate Technology Project in 1991. Although still based in Virginia, he installed his solar water heating system in several homes in New Hampshire as part of a model project and documented that it saved on heating bills.

Problem Statement:

Given the limited amount of time you have to look at this case, it is not practical to conduct a thorough analysis of all of the components of A.C. Rich's system; however, it is possible to imagine how McDonough would begin to consider Rich's system in terms of his design criteria. Is Rich's design attractive? Does it produce any wastes that are not biodegradable? How long will it last, and what will happen to it after its effective life is over? Do you see any ways in which it could be improved?

Regarding cost specifically, consider that Rich's goal was to manufacture 4,000 systems a year in Virginia, which would drive the cost of each system to about $1,000, if no subsidies were available. In December of 1992, he was actively pursuing the possibility of moving from Virginia to an area where subsidies could greatly reduce the cost of his system (see Exhibit III). Otherwise, he would have to give up his dream of putting his passive solar technology on thousands of houses.

Summarize your sense of Rich's design and his business prospects by deciding whether he should abandon this project, move to a different location, or stay in Virginia (see Exhibit III).

Exhibit I: Solar As It Should Be Pamphlet

Exhibit II: Summary of Energy Use and Costs

A.C. Rich estimates that the "Skylite" will save between 55% and 80% of the energy used by a conventional electric water heater.

Exhibit III: State and Utility Incentives in 1993

During the period between 1986 when the federal tax credit was dropped, and the early 1990's, the fledgling solar industry suffered heavy losses. However, as environmental issues once again return to the forefront, more and more states are taking the initiative and offering incentives for environmentally friendly solar technologies such as A.C. Rich's water heater. The following table summarizes the pertinent tax incentives of twenty-seven states in 1993.

Note: Tax exemptions are based on the cost of the system. Therefore, a sales or property tax will not be levied on the cost of the system. A tax deduction is the percentage of the cost of the system that can be subtracted from your taxable income. As stated previously, a tax credit is a reduction in the total amount of taxes owed to the IRS. 

In addition to the state incentives for solar technology implementation, several utility companies have resorted to Demand Side Management Programs (DSM) (See Exhibit IV, "Electric Utilities and Energy Efficiency" by the Energy Efficiency and Renewable Energy Network). The goal in DSM is to reduce demand, specifically peak demand, in order to mitigate the necessity of building additional costly power generation facilities. Utilities are required to supply power to all the customers in a specified area. Therefore, when demand exceeds maximum capability, a new plant has to be built or the utility must find a way to reduce demand. Several utility companies around the nation offer incentives to consumers for demand reducing technology such as solar water heaters. A summary of the programs that directly cut the purchase cost of a solar water heater are shown below.

Note: Grant programs immediately reduce the purchase cost of the system, while rebate programs return a percentage of the purchase cost to the consumer once a system has been purchased.

Grant Programs: Atlantic Electric in Pleasantville, New Jersey - up to $500. Northern States Power in Minneapolis, Minnesota - up to 50% of cost.

Rebate Programs: Eugene Water and Electric in Oregon - performance-based from $200 to $400. City of Austin (Texas) - up to $250. Madison (Wisconsin) Gas and Electric - performance-based from 10 - 50% of cost. Sacramento (Calif.) Municipal Utility District (SMUD) - $1,000 as of 1991. 

Bibliography:

Allred, Johnny, et al. An Inexpensive Economical Solar Heating System for Homes. Washington: U.S. National Aeronautics and Space Administration, 1976.

Plante, Russell H. Solar Domestic Hot Water. A Practical Guide to Installation and Understanding. New York: John Wiley and Sons,1983.

Shirley, Larry E. and Jodie D. Sholar. "State and Utility Financial Incentives for Solar Applications." Solar Today. Volume 7, No. 4 pp. 11-14 (July/August 1993 issue).

Solar Energy Research Institute, Engineering Principles and Concepts for Active Solar Systems, New York: Hemisphere Publishing Corp.,1988.