The market in Australia is ripe for on-site renewables. As an economy we are mature and we understand of the financial market’s important role in any industry's growth. The private sector is driving product innovation and market changes. Malcolm Turnbull recently announced his support in renewables backing ARENA and CEFC with another $1B investment round. The implementation and delivery of leading projects still, frustratingly, lags as we search for solutions. That perfect mix, integrating finance, delivery and motivation. What we need to consider are the facilitators and key drivers of business procurement.
Commercial rooftop solar impacts businesses in a variety of ways, which causes the confusion of what the instrument is really there for. In the first layer, we see a product that is renewable, it allows autonomy from the grid, and it is a statement piece both visually and sustainably. It can increase asset value and desirability, in conjunction with Ecologically Sustainable Design, rating schemes, or even local community appreciation. We increasingly see tenants desire and even require green tenancies, whilst asset owners are needing a point of difference as competition for quality tenants continues to rise.
In the second layer, we can appreciate the product is financial in nature where there is a return on investment, or if invested through aggregation like an embedded network, there is a profit associated with it. There is a reliability consideration, where if the grid isn’t working (i.e. agribusiness), it can minimise operating downtime and losses. It is also impacts on an organisation when there is an important sustainable message - this can be valued as internal requirements to meet sustainable targets (i.e. emission reductions), or is an important stepping stone to increase social value to educated investors and shareholders who increasingly require sustainable investment in their portfolio.
In the third layer, we consider internal business hurdle rates for return on investment, and where the majority of barriers really lie. Most large organisations are looking for an off-balance sheet solution as they are still streamlining debt, and also have no or minimal capital works budgets to invest with. The solution for these financing problems lies in financial institutions ability to appreciate solar as a product, and the risks associated with it – the current issue comes down how do you value a second hand solar system. There is no secondary market to sell second hand panels/systems currently. Typically the solution we look at an operating lease structure where there is no capital costs, and only an operational expenditure to the business, also with favourable taxation impacts.
At this layer we also see large energy companies such as AGL and Origin entering the market providing rooftop solar to their clients in an attempt to minimise risk and increase client retention/acquisition. We also will continue to see the ‘death spiral’ for utility and network operator’s pan out over the coming decade as the greater Australian market transitions to renewables. This will force chances in energy costs, network costs and even restrictions around your ability to connect to the grid. Competing with the self-generation evolution as battery price affordability and accessibility increases, and a decaying network infrastructure.
We also see the investment, and asset management community operating with performance measurements based off sustainability investment. This investment pressure from shareholders and external parties with vested interest transfers into Board and C-level decision making now being made on sustainability.
Financial year 2017 will see the convergence of a wide range of private and public sector pressures, technology advancement and disruption such as storage and embedded on-site energy generation and a new quantified motivated market. With the government election looming later this year, Turnbull’s well-timed financial backing of the renewable community seems to add a stir of certainty. The continued maturity of financial institutions will see better products available to the market being a key driver to investment, and financial returns compared to business as usual becoming considerably more attractive. Manufacturing growth and globalisation will continue push delivery price competitiveness down. Momentum is growing, and FY17 will be the break out year for rooftop commercial solar.