Gem Energy Australia can now offer 100% guaranteed cash flow positive investments for businesses looking at going solar.*
Commercial solar panel installations are becoming increasingly more popular for those businesses that are looking to improve their sustainability and profitability.
In the past solar panels have been an expensive investment with a financial payback period that many would have considered too long.
Due to dramatically increasing electricity prices in recent years and falling solar panel prices commercial installations have now become more than viable.
In 2010 a 50kW solar system would have cost in the region of $150,000 or $3,000 per kW of solar panels installed. In 2014 prices were seen as low as $60,000 or $1,200 per kW of solar panels installed. The growth can clearly be seen from this graph below showing the amount of kW of solar installed per year since 2001.
A lot of credit can be given to the Australian government for encouraging such growth with a large contribution towards the cost of installing solar. Although the government rebate initiatives for installing solar have changed in recent years the rebate or otherwise known as STCs (small-scale technology certificates) still remains in place and can fund anywhere from 30-50% of most solar projects. This STCs initiative is regularly under review and there is an increasing amount of political pressure to reduce or eliminate the scheme altogether.
With power prices increasing over 50% in the last 5 years, falling material costs and continuing government incentives commercial solar panel installations are now in the ‘sweet spot’ in terms of low prices and high yields.
Whilst solar has taken off dramatically in the residential market place it has been slow in the commercial market which can largely be put down to a lack of understanding on how it works, understanding the financial viability, funding the project and approvals to connect the solar power system to the power network. The latter becoming harder and harder due to an excess of solar already on the network.
How it started and where the market is today
Since the start of the ‘solar boom’ the government rebate schemes have changed considerably. This has left a lot of people confused about how solar really works and how much it should cost. In the early days of solar there were lucrative financial incentives paid to businesses and homeowners to install solar and feed the solar power back into the grid. These rates were as high as $0.66 per kWh in NSW and the cost of power was approximately $0.20 per kWh. This scheme was known as a ‘Gross Metered Feed In Tariff’ where every kWh of electricity produced from the solar panels is fed back into the grid. In 2012 this scheme was scrapped and the current rates for selling to the grid are around $0.06 so less than 10% of what it was previously. When the $0.66 tariff was introduced solar panels cost more than twice what they do now so investors needed something attractive to take the risk as a pioneering investor and this is exactly what the government needed to kick-start the solar industry. Once the industry started to take off and become competitive they reduced the tariff once they realized that falling solar panel prices, fierce competition between retailers and increasing electricity prices would provide enough organic incentive for people to invest in solar.
The new tariff of $0.06 works under a ‘Net Metered Feed In Tariff’ which means that residential and commercial customers only feedback the excess solar electricity that are producing and not using. The bulk of the solar electricity that is being made by the solar panels will be fed directly into the electrical appliances at the property. This means that when the solar panels are producing electricity the property is not buying power from the grid. This is how the electricity consumption profile would look for a property under the net metered scheme.
The Orange line represents the production curve of the solar as the sun passes over the solar panels. The Blue line is what their old power usage would look like without solar and the Grey line represents their new electricity consumption profile which is what they will get billed on.
This is essentially how a ‘Net Metered’ commercial solar installation works. During the day, when the solar panels are producing power the savings are made by not having to buy the expensive power from the grid. The is the value of avoided costs.
Upfront capital requirements
Historically, solar has been a difficult asset to purchase as it has not been viewed as an asset that you could secure finance against so you needed to have the cash available in the business. Or, you could secure the investment against the business. Although commercial solar finance has been slow to gain traction with banks most large banking organisations including ANZ, CBA, Macquarie and NAB readily offer solar finance packages. Rates can be as low as 5% per year when secured against the property of the business or anywhere from 8% to 11% when unsecured.
The most popular finance options considered are the Chattel Mortgage for Solar Panels and the Rental Finance for Solar Panels. Each have their own merits and some companies will prefer the Chattel Mortgage whilst others might prefer a rental or hire purchase agreement, particularly those that had a lot of debt on their balance sheet.
On either of these finance terms you can get 100% finance meaning no out of pocket expenses and terms from 1-7 years allowing repayments to be tailored to a monthly budget. Balloon payments can also be added onto the back end.
The financial viability of the system will vary from business to business but returns are usually no less than 15% per annum and have been upwards of 30% per year. When the government STC’s scheme is overhauled or eliminated the returns may fall too as low as 10%.
The returns will depend on a variety of factors including but not limited to how much power is being used at the property, when the power is being used and what electricity tariffs the business is on with the energy company.
In order to understand what sort of savings you can expect to make with an investment into solar panels you first need to understand your power bill. To read more about understanding your power bill visit our dedicated web page by clicking here.
In terms of tax implications the ATO allow a depreciation rate of 5% per year on solar panels. This means that when taking a Chattel Mortgage you are able to depreciate the solar system from day 1 as well as the interest component on the repayments for the lease being tax deductible. The GST is also paid back in the first BAS after the lease is taken out.
The depreciation rates can change depending on the final bill of equipment and the environment in which the system is installed. Some components such as batteries and inverters can be depreciated at a rate greater than 5%.
When you look at the combined total of savings made from the value of avoided costs by not having to buy electricity from the grid, the tax deductions from your lease and the depreciation with a chattel mortgage it is not uncommon to find the business being cash flow positive on their investment into solar power from day 1.
What does this mean? This effectively means that after the first 12 months after installing solar are finished your gross savings will be more than the gross cost of the system and you are financially in front.
Interfacing with the power grid
This has always been the main show stopper with large-scale connections as most network providers simply cannot take anymore excess solar onto their network as the variations in solar production are causing all sorts of problems with local electrical infrastructure. As solar produces low voltage power it cannot interface on a level above the local network so when an excess power is being pushed to the grid it causes the voltage at the transformer to increase. Voltages have been seen as high as 265v when it should only be 240-250v. This is causing problems with power for all consumers on the electrical network as electrical appliances are designed to use 240v and the excessive voltage is causing power trips and appliances to fail.
To counteract this, in areas with a high amount of solar penetration on the network they have reduced the standing voltage on the transformer from 240v to 230v for example which will allow the solar to feed back in and not cause the voltage to exceed acceptable levels. Unfortunately, this is not a long term solution to the problem as reducing the voltage of the transformer to allow for solar during the day will mean that in cloud cover or at night time when there is no solar on the network the voltage is too low and the same problems occur. This is still an on-going battle for power companies and will eventually lead to the installation of large-scale battery systems that will be able to capture excess energy during the day and ‘dump’ it back onto the network in times where the voltage is too low.
The responsibilities of being a network owner and operator such as Essential Energy, Energex or Ergon require them to supply quality and safe power to consumers and excessive solar penetration can cause them to fail to meet these responsibilities.
A point has even come where retailers are refusing to pay a ‘Feed In Tariff’ for excess power put back into the grid and are starting to enforce the installation of sophisticated electrical equipment that can effectively prohibit any power leaking back onto the network. This equipment works in the form of an advanced relay system.
These relay systems can start with a very simple design and can become very sophisticated. They are designed to ‘kick in’ when solar production exceeds demand at the property and in doing so will effectively shut off the solar instantly to stop any power possibly feeding back into the grid. The more simple designs simply act as an on-off switch which is not good for the power network or the appliances at the property due to the flood-gate (water hammer) type effect you have with electricity when a high demand is turned on or off immediately.
More sophisticated systems like those used by Gem Energy and recently installed on businesses like Bundaberg Palms, Austchilli and Gin Gin & Dry effectively ‘ramp’ the solar system up and down to meet the demands of the building. These systems are more expensive but certainly worth the extra cost. Gem Energy are able to ramp our systems in 1% increments whilst most competitors are only able to ramp at 20% commonly or 6% increments at the best of times. This allows for our systems to be producing more power when others are limited.
When commencing a solar installation Gem Energy will prepare electrical diagrams drafted by our electrical engineer providing full visibility on our sophisticated electrical grid protection equipment which will be submitted to the power company to get 100% approval on the solar connection to the network.
A quick case study
The graph below is analysis for a 60kW system installed on a commercial swimming pool that has expensive electricity tariffs. The Blue line represents how much electricity they are using per hour. The Grey line shows the impact on that power usage after installing a 60kW solar system. The Orange line is known as the solar production curve and shows how the solar panels produce electricity as the sun passes over head.
The 60kW solar system will be expected to produce approximately 270kWh of electricity per day therefore saving the business having to buy that power from the grid. The cost of power for this business is $0.40902 so in off-setting a purchase of 270kWh they have saved $110.43 ex GST on that day. The solar production figure of 270kWh of electricity is based on an average of 4.5 peak sun hours per day. The panels we use have proven over the last 4 years to average approximately 5.32 peak sun hours so these figures are conservative.
The saving of $110.43 per day is equivalent to $40,308.92 per year. The capital cost for a project of this size can vary from $80,000 to $120,000 depending on the customer’s choice of equipment, the layout and size of the building and the location of the business. Best case scenario there would be a financial return of just 2 years and worst case would be 3 years. Below is a chart that shows the financial expectations after 10 years. All figures are ex GST and assume a 5% power price increase each year which is well below average. The capital cost for this project was $92,400.
Understanding your power bill
When assessing the viability with solar you first need to understand how to read our electricity bill and you will need to manage your expectations around the results.
If you have a very high power bill or you use a lot of a large amount of electricity you will be billed differently to most other consumers. The price that you pay for each kWh of electricity will be very low but you will be getting charged a ‘demand charge’ which will be very expensive. Small and medium enterprises will avoid the demand tariffs but will have general supply tariffs that have a higher cost per kWh for all electricity consumed.
Small & Medium Enterprises: General Supply Tariffs:
Here is a power bill taken from a Gem Energy customer in Queensland on the Ergon Energy network.
This Tariff 20 General Supply is an easy tariff to follow as there is a flat rate for power throughout the day and night. A bill like this would be a good candidate for solar as they are a business that operates from 8am to 5pm 7 days a week which is when the solar produces the most power. With a correctly sized system almost every kWh of electricity that has been produced from the solar should be used at the property therefore off-setting a cost of $0.23 per kWh if bought from the grid.
In this instance the customer was running a pump that was feeding water to crops at Bundaberg Wholesale Palms. They have a 7.5kW pump but opted for 11.5kW of solar panels to ensure that from 8am to 5pm they would be producing enough power to off-set all of their costs. Had they opted for a 7.5kW system to match the size of the pump they would only come close to off-setting their usage in the middle of the day when the solar system is peaking. The customer also has plans to add another pump to the bill and this is how the system looks now.
The same customer has another electricity account that is on the same general 20 tariff mixed with a residential tariff that supplies power to a grounds-keepers property. We installed 36.5kW over 2 different buildings facing North East and North West to take advantage of the morning and afternoon sun. To maximise the effect on the solar we rewired the existing meters and shifted load onto the main Tariff 20 General Supply as this was the tariff the solar is connected to.
Large Enterprises: Demand Tariffs:
These power bills are usually the hardest to understand and the true cost can be grossly misunderstood. When you look at the per kWh charge compared to the Tariff 20 General Supply it’s initially hard to understand why the power bills are so high but after conducting a more detailed analysis the true cost becomes more visible. This is how a large power bill looks:
On the surface the peak charges only come to 6.9c per kWh but when you add the Network Charges and the Other Charges the true cost per kWh comes to almost $0.10 per kWh which is a large increase but still a reasonable rate for power.
There are a lot of fixed costs with a tariff like this such as DUOS & TOUS Fixed Charges which are unavoidable and solar will not reduce these charges.
The main variable cost on this bill that solar can impact is the DUOS & TUOS Demand Above Threshold under Network Charges. On this particular bill these costs contribute to 35% of the total power bill. The demand charge is the one point in the billing cycle (usually monthly) where the most power has been drawn from the grid at one time. These charges usually occur around 7am – 8am with many businesses as this is when the lighting in the building is turned on, air conditioners are started and computers are turned on etc.
Understanding when your demand charges occur are fundamental in assessing the viability of an investment into solar and this information can be obtained by phoning your power company and asking for a 12 month load profile or otherwise known as interval data. This can cost up to $150 for the report but it is without any doubt worth the investment.
Here is a days’ worth of data taken from the interval data of a Gem Energy account in Queensland. The black circled spike in the graph represents the peak Demand Charge. Theoretically, if this was the largest spike the customer would be billed for 108kW. The itemized bill above shows a demand charge of $33.63 per kW as the demand charge so this customer would be billed 108kW x $33.63 which is $3,632.04 per month.
The good thing about this particular company’s energy consumption is that the peak is during daylight hours in the afternoon. So we know that if we were to orientate the panels west to face the sun when they have their power spikes we will offset some of that demand charge making a big dent on the bill. Alternatively, if they had a power spike at 9am we would face the panels east. The savings made from off-setting the demand charge greatly outweigh the savings made by off-setting the cost of buying the electricity from the grid at 10 cents per kWh.
Even if we were able to reduce that peak at 3.30pm the customer would still be peaking at 85kW at 8pm. At this time the solar is producing no power so we are unable to do anything about that. This is why it is important to obtain this information so we can manage expectations of savings and quote and estimate accordingly.
This customer opted for a 100kWP solar system with 400 solar panels to reduce the amount of electricity they are buying during the daylight operations hours of the business. Through a detailed analysis of the property we have been able to identify the machinery causing the power spikes and as per our advice the client has been able to shift the time the machinery is used from the afternoon to the middle of the day when the solar system is performing at its best. This is how we will achieve the best possible outcome for our customers.
This particular image below shows a Tuesday under normal operating conditions before solar (left) and a Tuesday under normal operating conditions after solar (right). We have selected a distinctly average weather day with low solar performance to be on the conservative side but you can still clearly see the impact in their electricity usage and a reduction in their demand charge. The demand charge has dropped from 246.9kVA at 2.00pm to 226.8kVA at 2.00pm with an improved power factor. Even more incredible, at 12.00pm the maximum demand before solar was 228kVA which has dropped considerably to 122.4kVA after the solar was installed. We have reduced the consumption from 2,995kWH to 2,396kWH in their peak usage which is a saving of over 599kWh. The collective saving on this day would be over $60 in electricity charges and the potential saving on the demand is of a value of $663 – just for this one day. What this tells us is that when we go back to install another 100kW we will face all of the panels west so they will have 150kWP facing west and 50kWP facing east.
Here is a photo of the system. The panels were split 200 facing east and 200 facing west so the system would peak in the middle of the day as the panels are mounted on a 10 degree pitch. Having a flat roof in this instance is quite beneficial although it will require more maintenance due to a dirt build up that will occur on the panels that will not be sufficiently cleaned with rainfall.
Although power bills change, budgets change and there are a lot of other factors to consider, all of our customers are expecting approximately 20% per year return or more.
In summary, the most important things are to understand your electricity bill and to analyse where the power is being used. Once this has been identified we can then work out a course of action and get an idea of realistic savings you can expect and where these savings will come from. It’s then a case of finding a solution to fit the budget or to cure the problem for good.
It’s not in all cases where you have high power bills that solar is the best answer. There may be other more cost effective options available.
The Gem Energy Approach – A 3 Way Approach
At Gem Energy our ‘3 Way Approach’ is a method we adopt when analyzing the needs of our customers and developing and implementing a strategy around those needs. We have seen the hard evidence that this approach works and saves our customers money in the short term and long term.
- Analyse, Assess and Understand.
This is the first step we take with our customers when assessing their needs. The first things we establish are:
- What hours does the business operate?
- Is there a need for hot water at the property? If so, is it Gas or Electric?
- Are there a lot of lights used at the property?
- Is there an adequate amount of roof space for the required system?
- And most importantly, can we obtain a load profile or interval data?
Once we have obtained this information we can get a good understanding of when and how the power is being used. We can also assess our options in order to develop a structured cost saving strategy.
- A Cost Saving Approach.
Once we have identified and understood the power consumption profile of the business we can then look at our wide range of solutions to see if we can implement any of these as a cost saving method. The key focus of Stage 2 is to see what we can do to reduce the amount of power being used at the property. In doing this we can effectively reduce the power bill immediately and thus reduce the size of the system required to tackle the power bill.
Our most common solutions include:
- LED Lighting – This is generally the first thing we recommend every business to consider before an investment into solar for a variety of reasons. Not only do they offer improved reliability and longer life spans they don’t produce heat like the standard halogen or fluro lights which means that air conditioning units don’t have to work so hard thus making an immediate saving on power consumption. Furthermore, and most importantly, LEDs can save up to 80% on power usage compared to a standard light. In the cases of most businesses the most popular light we replace is a 4 foot Philips fluro tube light that uses 36 watts of electricity per hour with a brighter LED 4ft tube that only uses 18 watts per hour. This immediately halves the cost of the lighting for all tube lights and better still it effectively reduces the demand charge as lights have fixed power consumption so every watt saved on lighting reduces the demand charge by that many watts. As demand charges can exceed $33 per kWh this can lead to LED’s having an extremely fast payback period (sometimes less than 6 months).
- Timer Switches – The installation of these units allows you to control when power is going to those circuits. Using timer switches on certain circuits can also greatly improve the savings from very little cost. A great example here would be rooms or areas that only require light or power for one of 2 hours per day. We have seen some businesses put certain operations areas on timers for lunch breaks. They can also be effectively used on hot water systems to stop them cycling at night time when nobody is there using the hot water etc.
- Solar Hot Water or Heat Pumps – This is usually only viable for businesses that use a lot of water that needs heating like hotels, motels and restaurants. Once you reach a certain amount of hot water usage solar hot water systems pay for themselves very quickly.
By the time we get to Implementation stage we have a perfect understanding of the usage patterns of the business and how we can tackle the issues in the most cost effective way possible.
A large amount of our competitors go straight to the solar option and put on a system to cover your problem but at Gem Energy we believe that fixing the problem where possible should be the first point of call. Of course this can lead to a smaller investment for our clients into solar but it provides better long term results and due to our wide range of services we are able to build a trusting relationship with repeat clients.
By reducing the amount of fixed power being used at the property by 20% that simply leads to a capital saving of 20%. That capital saving can be used to fund the other cost saving solutions. This may still end up being a similar amount to what was originally budgeted or what our competitors are quoting but our solutions are simply far better and offer a real solution to the problem, we don’t just cover it up.
We also install extensive monitoring equipment so we have direct access to the power usage and solar system performance at all times which allows us to provide on-going support once the system has been fully commissioned.
Future-proofing your investment
Solar and renewable technologies are still at the tip of the iceberg in Australia. Other nations are more advanced and it is only a matter of time before Australia catches up. Having staff that have worked in the European and American solar industry we understand this and all of our systems are built accordingly. One solution that will soon be viable that Gem Energy already have extensive experience with will be large-scale battery storage systems. Large battery systems will use either cheaper off-peak grid power or solar power to charge and the stored energy will then be used to effectively ‘peak shave’. Peak shaving is still not well known in Australia and is extremely important as it flattens out the power consumption profile of the businesses and can be used to reduce the expensive demand charges that occur when power consumption peaks as per the Energy Consumption graph with the black circle above.
Financially this is already extremely viable with current technologies but the required battery technology is still not at the right point in Australia for us to add it to our product mix. In overseas markets like Japan, America and Germany the government subsidise the investment into battery storage by up to 50% which massively increased demand which has rapidly improved battery technology in recent years.
In Australia we are mainly limited to Gel or Led-Acid battery storage units which are fine for slow cycling like being discharged over the full night but the technology required for this type of fast and hard draw has to be Lithium Ion. As there is no demand for Lithium Ion in Australia at this time the costs are still just a little too high. The other main benefit of Lithium Ion batteries over Gel or Led-Acid technologies is the footprint required for the installation. As conventional battery technologies can only be discharged to 40-50% of their total capacity in order for them to last long enough to yield a good return you need a lot more room than you would a Lithium Ion bank which can be discharged to 90% and still last 20 years whereas the conventional batteries would only typically last 5-7 years used in a scenario like this.
All of our systems are compatible with this new Lithium technology.
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