Business case for solar has never been clearer: Solgen
It took a while but business has twigged to solar. The commercial solar sector grew by 45% last year, on the Clean Energy Council’s estimation, with 230MW of systems between 100kW and 5MW installed, up from 128MW in 2017.
Sounds impressive, but that’s still only 0.8% of the green energy generated in Australia, so the secret to cutting power bills is yet to reach many, many business managers.
“There is plenty of runway in this space,” says David Brown, the CEO of the company which topped the ranks for commercial installations in 2018, Solgen Energy Group.
Commercial and industrial energy users are seeking alternatives to high electricity bills – and they are doing their homework. They want to weigh up the various ownership options, including power purchase agreements.
The PPA market has been picking up over the past year or two, says Solgen chief commercial officer David Naismith. “In the past the industry did a poor job of selling PPAs – they had very long terms, some were a bit opaque in terms of what people were signing up for – whereas now the business case for solar is extremely clear and the financing gateways sitting behind it are a lot more transparent,” he says.
PPAs in the balance
“[Today] you’ve got sophisticated customers, a very clear, robust business case and very transparent financing and funding lines, which makes it a lot easier for customers to understand.” A PPA that takes away the ambiguity about price volatility and locks in cost is “a compounding, strong argument”.
Naismith says Solgen is focusing on shorter term PPAs. After all, if the business case for a solar system is for payback between 4 and 6 years, why sign up for 20 years under a PPA?
“This is where the whole transparency element comes in,” he says. “Our clients understand the business case for on-balance-sheet solar, so how do we mimic that in terms of a financing arrangement that allows them to achieve a similar deal.”
The difference in cost per kilowatt-hour between purchasing a system on balance sheet or via a PPA is marginal, he says. “Once you apply a business’s weighted average cost of capital … it’s pretty much the same.”
The business case
Early adopters of solar were local, state and federal government bodies, where the business case came second to the rollout of renewable energy. The next phase was early adopters, where the business case was in balance with other criteria. Meanwhile, the return on solar has weakened as the LGC spot price has dropped – and returns from some older projects have not been as rosy as hoped for. Today the business case for solar is much more compelling, however, and LGCs are almost irrelevant.
As the market has grown, Brown has seen the personality of clean energy as a business proposal shift from an environmental emphasis to cold economics. “Proposals documents in the market four or five years ago were heavily balanced towards the green benefits, whereas most of our conversations now are with CFOs,” he tells EcoGeneration during a visit to Solgen’s Sydney HQ. “Most of them are being launched for commercial reasons.”
“Clients are looking for a hedge,” Naismith says, and a client who agrees a contract price in a PPA for energy for 5-10 years which may make up 30% of their load will create certainty and get closer to corporate social responsibility benchmarks.
Solgen won’t say it loud and clear, but as the market matures the sales job also gets incrementally easier. Finally people are talking the same language, and models of PV systems which are sent to clients can be pulled apart and compared with a prospective buyer’s own models. “This is where we’re getting so much traction in the corporate space because there is no smoke and mirrors; it’s very real in terms of the benefits we can provide.”
Is Brown worried that another strong year of growth will put a strain his company? “It is growing quickly,” he smiles. “It is creating challenges around growth, largely around talent. You need to ensure you’re ahead of the curve.”
Batteries not charged
Everyone is under the gun, including the networks and the Australian Energy Market Operator. “They’re facing the same challenges we are around growth,” Brown says. The costs of dealing with the grid are increasing, connection costs are increasing, compliance costs in some areas are increasing – but it’s all to be expected. As demand has increased so too have the costs of connecting systems to the grid.
As for the excited expectations for battery storage, we’re still waiting. Storage is still in the “pilot” category, in Solgen’s view. “Really the only use for storage at the moment is behind the meter, where you’re time-of-use shifting,” says Naismith. “That has very limit financial return, if any, for the customer.”
The breakthrough will come, he says, when storage can provide more than one value stream. The big opportunity is to use batteries to dispatch power so that demand charges can be reduced. “That’s a big tick in terms of being able to extract value,” Naismith says. Not until batteries provide guaranteed returns will they be included in proposals to Solgen clients. “That’s where it will get to once we have more interconnectivity with the grid.”
How large is too large
When Solgen kicked off 11 years ago a 10kW system was considered commercial-scale. Now, says Brown, the company typically works on rooftop projects between 100kW and 5MW, invariably through the PPA route. Strong client partnerships have built up over the years and some are graduating to corporate PPAs. That may open up a route into larger projects, he says, to supply PPAs and additional renewable energy requirements – but there is no plan for a shift into the world of utility-scale solar plants.
“We’re very clear about where our key market is and we’re probably more clear about where we are not,” Brown says. “To go out and start developing projects of a large scale has never been something on our agenda.
“We’re more likely to follow our existing clients and their customers than build a 100MW farm. [Utility scale] has its challenges … failures in that space resonate through the whole industry.”