COMMERCIAL SOLAR SYSTEMS SHOW HUGE RETURNS

COMMENTS ON RETURNS ON COMMERCIAL SOLAR POWER SYSTEMS

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This headline was designed to get your attention if you own or operate a small or medium sized business or if you are a farmer or just keen to get a good return on your money

But it’s just that I feel the need to shout from the rooftops about the insane returns that SMEs can get from commercial solar right now due to the combination of:

  • plummeting solar panel prices,
  • rocketing commercial electricity tariffs
  • and the typical electricity use profile of most SMEs.

I honestly lay awake at night wondering why, with almost zero-risk returns of 20-40% on offer, are so many small businesses missing the opportunity offered by a commercial solar system?

Since I started this website, almost 5 years ago, over one million Australian households have demonstrated that an obvious way to address rising bills is to install a solar power system.

Though state government incentives (AKA Feed In Tarrifs) which supported the majority of residential installations have mostly been wound-back, the financial opportunity for small-to-medium enterprises (SMEs) has never been better.

Why? Because most SMEs which operate 9-5 will use all the electricity their solar system generates, offsetting their bills at 30c-40c per kWh. So recent feed in tariff reductions have little or no effect on commercial solar systems’ payback.

Why then is solar power not more popular amongst businesses?

The Australian solar power sector was kick-started by a combination of state and Commonwealth incentives that targeted households. Though small businesses could access many of these incentives, for many years a business-sized solar power system remained too expensive to justify the purchase.

The last 12 months have fundamentally changed the economics of commercial solar.

In the last 12 months the price of electricity has skyrocketed while the cost of solar power has dropped astonishingly. Small businesses tend to consume more and pay more for electricity than households, meaning solar power can quickly pay for itself.

Further cost reductions in solar power are likely to be more gradual than past years’ successive price halving, meaning now is a great time to purchase a system. It seems that most SME’s don’t realise how easily they can cut their electricity bill while also attracting conscientious customers.

Payback periods vary considerably depending on the electricity tariff, and by the ability of the business to utilise the power that is generated during the day.

How would you like an IRR of 35% on your next business asset?

Those businesses facing electricity tariffs of over 30c/kWh may be able to have their investment returned in as little as three years, although, yes I admit a few stars have to align to get the 3 year payback. Five years is a more realistic expectation. But that should still make your accountant happy.

Because electricity prices keep rising, the internal rate of return (think of it as a ‘comparison rate’) for a solar investment can be as high as 20-40%.

And if cash-flow is tight in your business (whose isn’t?) many solar companies are now offering five-year finance terms that can make hire-purchasing a solar power system a cash-flow positive experience from day one.

You are probably wondering where I’m pulling these crazy sounding figures from?

(Oi – I heard that answer!)

These crazy sounding returns are actually from a pretty reliable, and might I say – usually conservative – source:

graph of solar returns

Projected Internal Rate of Return for a small-commercial 10kW system assuming

no export.

The graph above (provided by SunWiz for Green Energy Market’s advice to the Clean Energy Regulator in late 2011) demonstrates the Internal Rate of Return for a PV estimate starting from 2011 PV system prices and 2011 small-business electricity tariffs. The return on investment naturally increases as electricity prices rise, and is already ahead of schedule owing to faster-than-expected reductions in PV system prices in 2012.

As you can see, system profitability varies owing to the different electricity tariffs applicable in each state, and is based on a reasonably-performing system operating for 25 years with 5% annual increase in electricity prices; higher performance and electricity price hikes would improve financial outcomes even more.

So why haven’t more businesses bought a solar power system?

Many don’t own their business premises, which can make it difficult (though innovative solar companies do have solutions for that). But really, I suspect it’s primarily a lack of understanding of the opportunity, so I hope this article increases awareness in the commercial sector.

Many businesses are too distracted by daily operations to ring around for quotes, which is where SolarQuotes makes life easy (sorry for the blatant plug!). But before you get a quote or 3, get a solar education.

Here are the key things to look for when choosing a commercial solar provider:

  1. Understand your electricity bill. Many businesses have ‘unbundled’ tariffs in which they’re charged separately for their energy consumption and peak demand. The solar power proposition in such cases can still be satisfying, but longer paybacks will occur. Make sure your PV company performs a detailed assessment, because solar power doesn’t necessarily guarantee reductions in peak demand.
  2. Communicate your electricity habits. Solar power produces quickest payback when its generation is consumed on site whenever the sun is shining. Power that is export to the grid is less financially beneficial. For this reason businesses with mostly nighttime consumption (e.g. bakeries) don’t make ideal candidates for solar. This also makes it vital to size your system correctly. Make sure your PV company performs an hourly energy balance to ensure your production won’t be wasted by being exported.
  3. Select a company with commercial experience. Installing commercial solar power is more complex than installing household solar. Your PV company should perform a detailed roof structural assessment, negotiate grid connection, arrange finance (if required), and custom design a high-performance system – all of which are more complex on a commercial job. Make sure your PV company has sufficient experience in commercial PV so that your system will be delivered without hiccup.
  4. Choose trusted equipment and suppliers. Solar power systems should last for over 20 years, but should something go wrong you want to be covered. Choose larger equipment manufacturers with over 5 years’ experience producing solar equipment, and check that the warranty is honoured locally. Make sure your PV company also has a long operation history so that help will be there if needed.

Remember, solar power can bring highly-valuable indirect benefits too, beyond just reducing your electricity bill. You deserve to be proud of a solar purchase, and to show your customers your community leadership by shouting from the rooftops.

One million households have made a similar investment, a fact that can provide trust empathy and conversational access to customers ready to buy from whichever provider they most prefer. And don’t delay, for this leadership opportunity won’t last – it won’t be long before others are following you by getting a solar system for their business.

AAA

Henry Sapiecha

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