In an ABC news item on 14/4/2017 it was reported that there has been a big surge in households installing solar panels - with March installations the highest in five years. Apparently “Queensland led the way installing 25 megawatts of capacity, which is enough to power 5,500 homes and businesses”.
This surge in installations may be a reaction to high power bills after a long and hot summer season, or perhaps ever climbing electricity rates. Whatever the motivation, solar panels lower monthly electricity accounts and act in part or whole as an insurance policy against ever increasing electricity rates. It is possible to install solar panels in strata titled buildings. However, this issue may have gone off the radar for many communities, due to the dropping of generous feed-in tariffs supported by past State Governments.
In fact, Bodies Corporate can be the perfect solar panel users as they very often have a consistent base load which ensures all the electricity generated is consumed on site, which translates to maximum financial benefit. Further, Bodies Corporate can receive substantial “funding assistance”, usually up to 35% of the total installation cost via the Small-scale Renewable Energy Scheme. This scheme applies to solar panel systems that have a capacity of no more than 100kW, and a total annual electricity output less than 250MWh. Note, most household systems are typically between 3 and 5kW. Body Corporate configurations vary greatly but typically to have a roof size to accommodate a 100kW system would probably be a Body Corporate building containing 80 to 100 lots. The Brisbane Powerhouse in New Farm, Brisbane has a 100kW system on its rooftop.
The falling costs of solar components coupled with the Small-scale Renewable Energy Scheme make solar panel installation viable even for those Bodies Corporate who can obtain relatively low electricity tariffs via bulk electricity schemes. A ‘ballpark’ installed cost of a 100kW, net of GST and the benefits from the Small-scale Renewable Energy Scheme is presently about $100,000.
The main issues with such schemes is doing the feasibility study and making sense of the funding alternatives. This requires quite a lot of work in terms of analysis, planning the implementation and the task of communicating the issues to owners to enable them to make an informed vote on the choices on offer.
Not every roof will be suitable for a solar panel installation, so this will be the first assessment to make. Many Body Corporate rooftops are cluttered with safety hooks, air conditioning condensers, and other installations. Some installers will only provide a superficial analysis of the roof suitability, but it will pay to push hard on this issue as you don’t want to take the matter to a General Meeting vote, to subsequently discover that the project is not feasible due to an unexpected roof layout issue.
This highlights that considerable work is required to work through the various steps in the planning, approval and implementation process. There is considerable merit in commissioning an independent expert to assist the committee with the technical and financial analysis issues, as there are some traps for the layperson in assessing the options available for solar panel installation.
One of these are the installations offered free of any capital cost to the Body Corporate. These are usually described as Power Purchase Agreements (PPA). In these schemes the provider will install the panels at their cost and on-sell the electricity produced to the Body Corporate at a rate below what they are currently paying to a commercial provider. At the end of fifteen years the arrangement terminates and the Body Corporate takes full ownership of the panels and their production. Some readers might understand this scheme better if its loosely described as a rent to buy deal. The promoters of these schemes claim the benefits are;
- No upfront cost for the installation of the plant.
- Savings from the first year of installation.
- The Body Corporate owns the plant at the end of the term.
- At the end of the 15-year term, the Body Corporate ceases to pay the vendor for the electricity generated by the plant, and all subsequent electricity generated by the plant can be used free of charge.
- The vendor is responsible for the maintenance and monitoring of the plant during the term.
- The vendor will obtain all relevant permits and project manage the entire installation process.
With all these benefits, the scheme does not provide a free lunch and indeed may suit some Bodies Corporate, but a careful financial analysis is likely to prove the PPA is the most expensive way to obtain a solar panel installation. In simple terms these schemes may suit bodies corporate that are cash strapped, have other pressing expenditure demands or otherwise, see a better return on their money allocated elsewhere. Whilst it is moot regarding what might benefit investor owners most, it is highly likely that they will find PPA schemes attractive - after all investors do not pay the electricity accounts for the individual lots.
Under various names there are variants of the PPA scheme so that the ownership point is brought back to a much lower number of years. These are more commonly described as lease schemes. In these schemes, there is usually no financial benefit until the panels pay off the underlying loans usually somewhere between 5 and 8 years depending on what electricity rates are being paid by the body corporate.
The various funding options can only properly be assessed using a discounted cash flow analysis, but it should not be forgotten this analysis can suggest precision where none indeed exists. Obviously, assumptions made over a 25-year life of a solar panel installation will be incorrect, so the analysis merely highlights the financial dynamics of the alternatives.
Committees will have the task of bringing the options down to ideally, a couple of choices that can then be accurately defined to owners. This is often challenging as it can be hard to explain why the “free” PPA schemes might be the most expensive in the long run. Many expert commentators continue to expect that the costs of panels will continue to fall so there is the question of whether it might be better to postpone such a project. On the other hand, the Small-scale Renewable Energy Scheme will not necessarily be permanently accessible.
Body Corporate Committees should look at solar panels as part of a wider energy efficiency scheme, because as they say the most effective measure will always be the “off switch”. In this regard, solar hot water is often a forgotten element in the mix. This highlights why Bodies Corporate should make a wide-eyed assessment of energy efficiency initiatives, prioritise them and implement them over a period that meshes with the owners’ expectations and ability to fund.
by Gary Wilson, Executive Committee member