The World of Commercial Solar Is Exciting Right Now!
The technology is mature and proven to work reliably. Your company’s bottom line has the potential to grow through lower power bills.
Going Solar shows a commitment to sustainability and corporate social responsibility which gives an image boost to any business.
On top of all that, GEM Energy offers attractive finance options that give most of our customers positive cashflow from day one.
Now is the time to jump aboard and take advantage of the many benefits of solar energy!
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We can structure your finance package for maximum benefit, such as using power bill savings to cover the entire cost of your Solar System (Pay As You Save) or implementing sustainable energy initiatives.
Commercial Solar Investments – What To Consider
Before investing in any solar system, make sure to check for cost effectiveness. Depending upon your particular need and area, there are various components that influence the cost viability for your business, including:
Solar Power System Size
Bigger solar power system can cost less money per watt than small systems due to economies of scale.
Operation and Maintenance (O&M)
In contrast with other power generation methods, O&M expenses of solar-powered systems are generally low. Expenses may incorporate infrequent cleaning of solar modules, customary visual examinations and repair, and conceivable substitution of inverters or other components.
Solar System Production
Installing your system at the correct orientation and pitch will ensure that you are getting the best possible results. Overall system production will also depend on the location of the installation.
More complex installations include ground-mounted systems. Working around deterrents, such as funnels and HVAC gear, and building-coordinated custom establishments can be more extravagant in price.
Potential macro-benefits from investment into medium and large-scale solar systems:
– Aid in meeting renewable energy targets. Australia is trying to source 20% of its power from renewable energy sources by 2020. These are driven targets, and failure to meet them will have financial implications.
– Add to the security and dependability of a country’s power supply, with the exception of the issue of voltage regulation. It can for instance support the demand on the network during the middle of the day. It will also secure the cost of power.
– Investment into solar power projects will help boost the industry and provide thousands of jobs.
The GEM Energy Guarantee
GEM Energy Australia now offers 100% guaranteed cash flow positive investments for commercial solar.
Our Commercial Solar photovoltaic (PV) installations range from 5 kW to 1,000 kW+ and are a sure way to improve the sustainability and profitability of your business.
That is just the reason why commercial solar panel installations are becoming more popular. It used to be an expensive investment in the past, with a long financial payback period – too long for many. However, with the dramatic increase in electricity prices, and falling solar panel prices, commercial solar PV installations have become more than viable today.
In 2010, a 50kW solar system would have cost around $150,000 or $3,000 per kW of solar panels installed. In 2014, prices were as low as $60,000 or $1,200 per kW of solar panels installed.
The graph below shows the growth of kWs of solar installed per year since 2001.
A lot of credit is due to the Australian Government for encouraging such growth.
Generous financial contributions are going towards the cost of installing solar. Although the Government rebate initiatives for installing solar have changed in recent years, the rebate, also known as STCs (small-scale technology certificates), remains in place and can fund anywhere from 30-50% of most solar projects. The STCs initiative is regularly under review, and there is an increasing amount of political pressure to reduce or eliminate the scheme altogether.
With electricity prices increasing over 50% in the last five 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.
While Solar has really taken off in the residential marketplace, the uptake in the commercial sphere has been slow. This can largely be put down to a lack of understanding and expertise on how commercial solar PV can work for businesses. GEM Energy is one of the few Australian providers with extensive experience in managing the funding and financial viability of a project, as well as the approvals to connect the solar power system to the power network. The latter is steadily becoming harder due to an excess of solar already on the network.
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How Solar started and where the Australian 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 with the cost of power at 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 was 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 they were previously.
When the $0.66 tariff was introduced, solar panels cost more than double what they do now. Pioneering investors needed something attractive to take the risk of ‘adopting early,’ which is exactly what the Government did to kick-start the solar industry. Once the industry took off and became competitive, the tariff was reduced. Falling solar panel prices, fierce competition between retailers and increasing electricity prices now provided enough organic incentive for people to invest in solar.
The new tariff of $0.06 works under a ‘Net Metered Feed-In-Tariff.’ This means that residential and commercial customers only feed back excess solar electricity that they are producing and not using. The bulk of the solar electricity produced 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.
The graph on the right shows how 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 system as the sun passes over the roof. The blue line is what the household’s old power usage would look like without solar. The grey line represents the household’s new electricity consumption profile, which it 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 expensive power from the grid. This is called the value of avoided costs.
Commercial Solar Finance
Upfront capital requirements
Until now, Solar has been difficult to purchase as it was not considered an asset that finance could be secured against. You either 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 organizations including ANZ, CBA, Macquarie, and NAB, readily offer solar finance packages today. 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 for solar panels are Chattel Mortgage and Rental Finance. Each has its own merits, and the final choice depends on the individual situation. Companies with a lot of debt on their balance sheet will generally prefer a rental or hire purchase agreement.
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 depend on the situation, but returns are usually no less than 15% per annum and can be upwards of 30%. When the Government’s STC scheme is overhauled or eliminated, the returns may fall to as low as 10%.
The returns will depend on a variety of factors, such as when and how much power is being used at the property 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.
Tax and depreciation
Regarding tax implications, the ATO allows a depreciation rate of 5% per year on solar panels. This means that with a Chattel Mortgage structure you are able to depreciate the solar system from day one. The interest component on the repayments for the lease is also tax deductible and the GST is 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%.
What does this all mean?
- 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 businesses being cash flow positive with their investment into solar power from day one.
This effectively means that you will be financially in front twelve months after installing solar when your gross savings will be more than the gross cost of the system.
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A quick case study
Let’s go back to the graph from before, showing an analysis for a 60kW Solar PV System installed at a commercial swimming pool with expensive electricity tariffs. The blue line represents how much electricity is used per hour. The grey line shows the impact on that power usage after installing a 60kW solar system. The orange line is the solar production curve and shows how the solar panels produce electricity as the sun passes overhead.
The 60kW Solar System will be expected to produce approximately 270kWh of electricity per day, therefore the business does not have 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 (these figures are conservative as the panels we use have proven to average approximately 5.32 peak sun hours over the last four years).
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 size and layout of the building and the location of the business. The best case scenario would be a financial return of just two years, and the worst case would be three years.
Below is a chart that shows the financial expectations after ten 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.
Cash-Flow Positive Investments From Day One
How changes to the Ergon network are increasing utility bills
From July 2015, network operators such as Energex & Ergon began shifting from KW demand billing to KVA and then KVAR billing. We used to be billed based on Real power (KW). Since then the networks have started transitioning to KVA billing which is effectively the Total Power taken from the grid. The networks will also start billing for excessive Reactive Power (KVAR) consumption.
There are two types of power we draw from the grid: Real Power and Reactive Power.
When we do everyday activities like lighting, heating or cooling, we consume Real Power. Reactive Power is the energy stored in the load and then returned to the source – similar to the water hammer effect.
The total demand on the network is the sum of Real Power and Reactive Power, also known as Total Power.
Before July 2015, we were billed based on Real power (KW). Since then the networks have started transitioning to KVA billing which is effectively the Total Power taken from the grid. The networks will also start billing for excessive Reactive Power (KVAR) consumption.
Find out how to reduce the impact of the new types of billing on our Power Factor Correction page.
Real power = KW
Reactive power = KVAR
Total power = KVA
KVA = KW + KVAR
Interested in Power Management for your Business?
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See if going Solar is a viable choice for you and your business:
Even if going solar is not a viable alternative for you and your business, GEM Energy can help you implement a range of other solutions to make your business more sustainable and save money on bills, such as:
- Energy-efficient lighting
- Energy-efficient electric motors, pumps and fans.
- Industrial refrigeration units
- Heat exchanges
- Solar/Heat Pump Hot Water
- Compressed air solutions
- Variable speed drives
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What our customers say about us
…it wasn’t until we met with GEM Energy Australia that we were confident we were dealing with a compay that had the expertise to get the job done.Phil Sellwood