Representatives from the solar power industry and other clean-energy proponents say legislators need to close a loophole that has allowed more than 20 percent of homebuilders to circumvent a state law requiring all new single-family homes in the state to be equipped with solar water heaters.

The law went into effect on Jan. 1, 2010, making Hawaii the first state in the nation to approve a solar water heating mandate. Through the first 11 months of 2010, the state granted 390 variances, or exceptions, to the law, representing 22.5 percent of the 1,733 building permits issued for single-family homes during the same period.

The vast majority of the variances — 383 — were filed by homeowners who chose to install a tankless gas water heater in combination with another gas appliance in lieu of a solar water heater.

The gas water heater option is one of three "justifications" allowed by the Department of Business Economic Development and Tourism for homeowners seeking a variance under the law. Homeowners also can opt out if they are installing a photovoltaic solar power system, or if the installation of a solar water heating system would be impractical because the home is being built in a "poor solar resource" area or the system is too expensive based on a 15-year-life cost-benefit analysis.

"The law needs to be tightened up," said Ron Richmond, manager of business development for Inter-Island Solar Supply, a local wholesale distributor of solar water heating and photovoltaic equipment.

Richmond was one of the industry members who expressed concern when the law was passed that there was potential for abuse.

Jeff Mikulina of the Blue Planet Foundation said that although the variances were excessive, the law did succeed in sharply increasing the number of solar water heating systems installed. Before the law about 35 percent of new homes were built with solar water heaters, compared with nearly 80 percent after the law’s enactment.

Nonetheless, the law "needs to be fixed," Mikulina said.

"The variance is contrary to the intent of law. People are being harmed by it. They are paying too much to be heating water," he said. "But overall, are we in a better place than we were in 2009? The answer is a resounding yes."

Although solar water heaters have been used in Hawaii for decades, they have been overtaken in popularity by photovoltaic electrical generation systems.

"We’ve had pretty explosive growth on the PV side, but flat on hot water," Richmond said.

Many consumers do not realize that heating their water with a solar water heater is more efficient than using a PV system to generate the electricity to power a water heater, said Carilyn Shon, energy conservation program manager for the state Department of Business, Economic Development and Tourism.

"Before you even think about PV, you need (to) think about solar water. It’s significantly cheaper to install a solar water heater than PV," she said.

Shree Sadagopan, head of sales and marketing for Wahiawa-based True Green Solar, said he recommends his customers start out with a solar water heating system — which can cut their electricity bill by 30 to 40 percent — then add on a PV system if they want to "zero out" their electric bill.

Hawaii’s solar water heater penetration rate is the highest in the country per capita, with about 95,000 rooftop systems installed, according to data from DBEDT. With a total housing stock of 362,000 single-family homes, that means about 1 in 4 single-family homes has a solar water heater.

The major impediment to getting solar water heaters on the remaining homes is the fact that about 40 percent of them are rental units, industry representatives said. Landlords often do not want to spend money on a system that will benefit their tenant in the form of reduced electricity bills. And tenants do not want to pay for a system that they cannot take with them when they move out.

While there are an array of reasons why some homeowners have not yet installed solar water heaters, "the biggest problem is the landlord-tenant mismatch," Mikulina said.

Mark Duda, head of the Hawaii Solar Energy Association, said solar water heater installation rates have ebbed and flowed over the years based on factors such as oil prices, incentive programs and shifts in energy policies by different presidential administrations.

Consumers in Hawaii enjoy a range of incentives and tax breaks that can reduce the cost of a $6,620 solar water heating system down to $2,064, according to Hawaii Energy, which has a contract with the Public Utilities Commission to administer the state’s energy conservation program.

Hawaii Energy also recently launched a program with federal stimulus money that provides an upfront rebate of up to $1,000 to cover interest costs for a consumer borrowing money to install a system.