Solar energy: Beyond the propaganda
Are you thinking of ‘going solar’? JEFF SALTON looks past the propaganda to present a practical and realistic overview of the sector, addressing installation options and processes, costs, and returns on investment.
As energy prices leap rather than creep higher, most property owners are asking: “How can we save money on our electricity bills?” Many facility managers with energy-conscious clients or tenants are now fielding these sorts of questions for the commercial properties they manage. This article is intended to arm you with the knowledge you need to be able to respond with a greater understanding of the solar photovoltaic (PV) market and should go a long way towards managing your clients’ expectations about reducing their energy bills.
The solar installation industry has many ‘snake oil salesmen’. In recent months, countless advertisements have appeared in the daily press, on TV and via telemarketing making some factual and many fanciful claims about reducing or totally removing your electricity bill.
Unfortunately, the technologies involved in most solar installations, while similar, differ between the make, size and wattage of the solar panels that sit on the roof, and the power inverter – a wall-mounted device that converts the DC electricity captured by the panels into useable 240V AC power.
It’s not simply a ‘one size fits all’ system that can be sold door-to-door or even over the phone. You should be wary of salespeople representing a companies that install only a limited range of panels and inverters, most of which are based on price points rather than solutions.
Designing a system that meets your objectives, budget and site characteristics requires a technical approach and intimate knowledge of the products available in the marketplace. Sourcing a solar designer and installer with these considerations in mind will ensure your system provides you with the best solution for your needs.
The country of manufacture and the type of installation can be promoted as a good thing – or bad – depending on which salesman you speak with. It’s a bit like comparing mobile phone plans – it can do your head in!
During my research, one phone call I received from an installation company promised me a zero energy bill – before the company even asked how much I was spending on electricity. After digging deeper (meeting with them and other solar power providers), it eventuated that the system they recommended – at a cost of around $10,000 – would only halve my ‘large’ bill; apparently, I didn’t have enough roof space on the ‘sunny side’ of my house to accommodate enough solar panels required for a zero bill!
Luke Adams, from Adams eco Electrics in Melbourne’s inner northern suburbs, advises facility managers to do their research. A great way to begin is to obtain at least three quotes for the same sized solar power system at the same site. This will give you a good understanding of each company’s approach, level of service and technical know-how. The Clean Energy Council provides excellent information about the process and what your minimum expectations should be. This is also a great way to familiarise yourselves with the differences between systems.
“The best person to speak to about the design of your system is an accredited solar designer/installer, not a salesman,” says Adams.
“Read the ads, look up the websites, speak to a few companies and building owners who have installed solar. Find out why they recommend or choose a certain panel over another, and be careful of companies that do not specify a brand. They will often go with the cheapest available products and skimp on quality. Consider after sales service, too. If the company you choose has its own installation team you have a much better chance of a quick response if something goes wrong,” he says.
MONEY FOR ‘NOTHING’
To be honest, Adams says some people are shocked when they find out how much a solar system costs for how relatively little it saves in dollars… in the short term (a standard domestic 1.5kW system provides around $1.30 of electricity per day for a cost of around $3000). But, when signed up to the premium feed in tariff (PFiT – see Table below), this figure is sometimes doubled or even tripled. Depending on your location, your energy usage and the available tariff, a smaller system can often pay for itself in less than two years.
As sure as the sun rises in the east and sets in the west, energy prices will continue to rise. Hence, the sooner you install a solar system, the sooner the return on investment (ROI). In fact, with each rise in energy costs, your ROI gets closer.
However, without generous government rebates, solar PV systems would be beyond the reach of many companies and individuals.
TECHNOLOGY & DEVELOPMENT
Waiting for more efficient technology to come to market is a consideration made by many consumers. But solar PV systems aren’t like computers that double in output every 18 months for around half the cost. Nevertheless, prices for solar power systems have fallen dramatically over the past three years. A medium-sized solar power system could range from $3–10 per watt. In the past, systems ranged between $8–15 per watt.
The major technological developments in solar power system design lie with the inverter. In recent times, inverters have become more responsive to environmental change (like intermittent cloud cover, etc), increasing system efficiency and power generation.
Attention has also turned to solar modules. Commercially available products that are used as an integrated part of the building fabric give us a taste of what is to come.
Advice from the solar industry suggests that new technology does have improved efficiency, but it will come at a price. The date of further improvements and the commercialisation of laboratory ideas is something no one can confirm. Sure, improvements will come to market. But playing the waiting game costs money.
AVOID THE HYPE
As you would expect, salespeople from solar installation companies have one goal – a sale. One I met had sold home insulation until the Federal Government stuffed up that industry and he was forced to get out.
Most salespeople quote from a folder full of charts and tables that tell them how many kilowatt hours a solar system of a certain size can generate, how much it costs and what their projected energy savings are for you.
However, Adams warns that most solar PV system installations differ from one job and site to the next.
“We prefer to conduct a site inspection and energy assessment first,” Adams says, adding that he realised early in his solar career that he would have to offer more than the larger companies who buy their units in bulk and sell them at a discounted price to gain more sales.
Instead, Adams and partner Jacqui Edge, who operate the business together, offer an end-to end solution that, depending on the size of your project, can typically span 6–18 months from the decision to commence to the review and assessment of your bills and post-installation system.
“After conducting the energy assessment of the premises and analysing the past 12 months or so of energy bills, we get a better understanding of how energy is being used and evaluate where the owners or occupants can conserve power, even prior to the solar PV installation,” Edge says.
“Luke then inspects the site to assess the best panel location, inverter location and the electrical capabilities of the facility.”
Adams: “I’m still amazed at some of the systems I see,” he says, shaking his head. “At a glance, they must be losing 10 percent or more efficiency from being poorly installed. That adds up to hundreds or thousands of dollars in lost energy savings over a system’s lifetime.”
TYPICAL FINANCIAL PAYBACK
Available daylight hours, roof orientation, difficulty of installation (time and equipment) and energy requirements are just some of the variables that contribute to the financial payback timeframe.
Typically, Luke says a commercial system will have a payback period of 5–10 years, which depends greatly on the building’s energy consumption levels. Note: this does not account for depreciation, amortisation or any other business accounting. He adds that the value of ROI may be much less depending on your business structure and ability to claim deduction for capital improvements.
“In many commercial applications the power generated will be consumed before any power is exported. This will mean that a high feed-in tariff will have little bearing on a system’s ROI.
“A system that is 10kW in size will generate an average of 40kW/hrs a day. Multiply the 40kW/hrs a day by your electricity price (approximately 20 cents per kilowatt hour). This will save you $8 worth of power a day, or approximately $3000 per year. If the buy price for the system is $30,000, then you are looking at a 10-year payback period (based on current electricity prices).
“A system that is designed to export power (meaning that its generation is greater than the consumption at the premises, at that moment) will greatly increase the ROI. A system that exports power can halve this payback period because the energy companies will buy back power at roughly three times what you pay to buy it from them (under the present system, but check with your energy supplier. Currently, the export tariff is 60–66 cents per kW/hr).
Adams says that solar power is just one of the many ways of reducing your running costs and energy bills. “We advise our clients about all aspects of energy efficiency – sometimes the biggest changes can be made by looking at the behaviour of people within a building. We may advise lighting changeovers, sensors, monitoring, display, solar hot water; and in larger buildings, the use of a co-generation, tri-generation or geothermal power systems.
THE FINE PRINT
Building Energy Efficiency Disclosure Act 2010
The Building Energy Efficiency Disclosure Act 2010 was implemented through the Commercial Building Disclosure (CBD) program in October 2010. The requirement of this Act is to obtain, register and display a Building Energy Efficiency Certificate (BEEC) before initiating any sales or leases of an office building or tenancy, and includes:
- a NABERS energy rating (required for all government tenants)
- a tenancy lighting assessment (benchmarked against best practice)
- general energy efficiency guidance.
Building Code requirements
At present there are no legal requirements for existing buildings to reduce their energy, install a renewable energy power system, or display their average daily energy consumption (yet). However, the NABERS rating will complement Green Star ratings, established by the Green Building Council of Australia. This disclosure system is designed to encourage the installation of a renewable energy system in conjunction with other systems and practices, and to establish a valuable feedback loop to building designers, developers, tenants and owners.
If the company you own or work for is looking to reduce its environmental footprint for economic reasons, carbon abatement reasons, or just because you want to help ‘save the planet’, then solar power can make a significant difference – it can also provide an excellent marketing opportunity.
Local Government requirements
The size, location, and visual impact of the proposed solar power system will determine whether council requires a planning permit to be submitted. Before proceeding with any installation contract, check first with your local council’s planning department.
When you install a solar power system, the rate agreement you currently hold with your electricity retailer will be renegotiated. The off-peak and peak rates will change, as well as the feed-in-tariff, as each retailer has a different ‘deal’.
Any excess electricity you produce and do not use can be paid in cash or credited to a company account, depending on the electricity retailer policy.
Guidance should be sought from the company designing and installing your system to assist in finding the best deal.
Australia is divided into various regions, and different electricity wholesale companies manage supply to each region. Each company has various limitations and requirements regarding the size of the renewable power system that can be connected to the infrastructure and the grid. Assessments are based on a property-by-property basis with consideration to:
- grid infrastructure in the immediate and local area
- your average electricity usage, and
- probable quantity of electricity to be exported.
Systems no more than 100kW (or 1 megawatt (MW)), with a total annual electricity output less than 250MWh, are classified nationally as Small Generation Unit (SGU).
Affordability – rebates and offsets
Small-scale Technology Certificates (STCs)
The government has recently altered the rebate scheme. They have divided renewable energy power stations (such as solar) into two camps: the Small-scale Installations and Large-scale Renewable Power Stations.
Small-scale Installations are renewable energy systems no more than 100kW with a total annual electricity output less than 250MWh. Large-scale Renewable Power Stations apply to systems greater than 100kW producing greater than 251MWh.
For the purpose of this article we will discuss Small-scale Installations and the rebates available for them.
Small-scale Technology Certificates are traded between renewable energy providers and those who must reach a quota each quarter. A renewable energy system classified as a solar power, grid-connect, small-scale generator, is eligible for the Federal Government rebate of 5x the normal system’s STC* value (1:5), for up to 1.5kW of the size of the system. For systems greater than 1.5kW in size, beyond the first 1.5kW STCs are produced and sold at the normal ratio of 1:1.
Residential properties, community groups and small businesses are eligible for this rebate.
The number of STCs is relative to the amount of available sun hours. There is a variation in the amount of STCs generated between systems located at different sites around Australia.
What are the values of STCs and LGCs?
The value of STCs changes daily and is relative to market supply and demand. Be sure you understand clearly the offer your solar company is making with regard to the value of your rebate and responsibilities in case of price fluctuation.
The STC price is capped at $40, and can be sold in two ways:
1. at market price, or
2. at the ORER-managed trading house.
Since their creation in January this year, the STC market price has been between $32-$36. This price changes daily.
The trading house offers a fixed price of $40 per STC. There is not expected to be much demand for these until the end of the quarter when purchasing companies need to meet their STC quota.
What will this mean to the cost of systems?
For small-scale technology certificates, the maximum rebate available (5x multiplier) is up to 1.5kW. For the remainder of the system you will generate STCs valued at 1:1. Depending on the funding arrangement you have with your designer and installer, and the value of the STCs, your STC rebate (up to 5x 1.5kW) will be valued between $4200 and $5300.
Premium Feed in Tariff (PFiT)
If you plan to produce more than the building consumes, negotiate a buy back rate with your electricity retailer. Some retailers may pay 6 cents per exported kilowatt hour above the premium feed in tariff (60 cents). These earnings are available as cash or credit to your account.
Green Building Fund
Forward a case study to the Green Building Fund for consideration. (Although single projects generally fall outside the fund’s charter, a wide range of projects has been accommodated.)
When will subsidies cease?
The Table below outlines the plan for subsidies to be reduced over the next three years. In December 2010, the rebate was reduced sooner than originally planed due to the enthusiastic uptake of the program. It is anticipated that this trend could continue as the industry demonstrates steadfastness and vigor.
Premium Feed in Tariff (PFiT) (ref. www.powercor.com.au PFiT)
For instance, in Victoria, customers with eligible installations are paid for the excess energy put into the electricity grid excluding what is consumed at your home or premise. Net metering is required to facilitate this type of payment. This is in contrast to gross metering, which measures all the energy generated without taking into consideration what is used in the customer’s home or premise.
Adams warns that solar PV customers should ensure their payback calculations are based on the net output of their building or premises after deducting their own load consumption, rather than the total capacity of the solar panels and/or inverter.
To be eligible, customers must be a resident, small business or community group installing a PV installation with a maximum capacity of 5kW. There is also a Statewide cap on the capacity of the scheme of 100MW, limiting access to the scheme to early application only. Customers can elect to be paid a PFiT by the electrical distributors of $0.60 per kilowatt hour via their electricity retailer for the net energy they produce that is fed into the electricity grid.