With current and forecast increases in the price of conventional electricity and growing concern over the instability of the electricity market, many businesses are in unchartered waters when dealing with their energy requirements moving forward and where renewables such as solar energy may fit. With the recent changes to government subsidies for small-scale renewable energy projects, there has never been a better time to maximise on installing a solar system – before it is too late – and here’s the four reasons why:
1. The price of electricity is at its highest in over two decades and the price of solar is at its cheapest
Recently Energy Australia, Origin and AGL all announced there would be price increases for energy prices from July 1, 2017 with Energy Australia providing details to news.com.au that businesses in NSW and SA should expect an increase by almost 20% to their electricity bills and QLD businesses should expect an almost 12% increase – the highest they have been in over two decades.
The Finkel Report stated that unless significant changes are put into place to end the state of uncertainty surrounding the future of grid electricity, this price will only continue to rise significantly. With most businesses unable to afford to leave this portion of their operational costs up to chance and government regulation, many businesses are looking at alternatives to offset their energy usage and hedge their requirements moving forward.
A recent ARENA study showed that of the 50% of Australian businesses currently utilising renewable energy, 90% of those businesses want to do more with 80% prioritising solar as an immediate solution to combating rising electricity prices. Supported by a 60% drop in the cost of installing a rooftop solar PV system between 2010 and 2015, the case for implementing solar power in businesses is strong.
2. There are government incentives available
Through the Renewable Energy Target (RET), the government issues system owners with certificates that can be traded as units of currency on the market. If the system installed is below 100kW a number of Small-scale Technology Certificates (STCs) are deemed upfront and can be used to offset as much as 40% of the cost of the solar power system.
STCs are calculated based off of the system location, and the estimated overall electricity the system will generate for a maximum of 15 years or until the RET legislation expires in 2030 – whichever is shorter. These certificates are deemed upfront as a one off at the time of installation. This means that all of these certificates can immediately be traded to offset the initial cost of the system. Because this process can be complex and time consuming, it is common practice to allocate the STCs to the system provider to sell on your behalf in exchange for a discount on the purchase price.
However, with the emergence of the Finkel Review and talks of a new Clean Energy Target (CET) there are no guarantees the current system and the same benefits will continue until 2030.
3. The number of STCs a system will receive will drop
Because STC certificates are calculated based on the amount of electricity produced until 2030, this means that for every year closer to 2030 you will receive fewer certificates and thus less of an offset against the price of the system. The number of STCs a system can receive is based off of the time of install, so for example if a 100kW system is installed and commissioned by 31st December 2017 you receive 137 certificates (up to $5,500) more than if the system is installed and commissioned after this date.
Given systems can take up to 3 months to be approved by an electricity network provider, the time is fast approaching to ensure systems can be completed prior to the end of year cut-off date.
4. The value of each STC certificate may drop
With the recent 25% fall in the value of STCs, a stark reminder has been delivered to businesses that the cost of solar may be the best we will see for some time.For the past few years the value of STCs have remained relatively stable, however recently the Clean Energy Regulator reduced their 2017 small-scale renewable energy scheme target to 7.01% from 9.68%, which means that electricity providers are required to purchase less STCs compared to last year causing there to be an excess of certificates in the marketplace. This has driven down the value of each certificate. With the rate of installations only increasing there is a potential oversupply in the market that will remain, creating the potential for STC’s to drop further- especially if the government does decide to continue to reduce their targets. Nevertheless, the balancing act in the business case for solar is grid based electricity prices and these show no signs of abatement.
With these facts coming to light, many businesses are acting to implement solar power systems with haste. The business case is clear and these businesses are now acting to secure the highest amount of STCs with the highest value.
The business case for solar power is simple and provides tangible and immediate results. Whether a system is financed or purchased outright, the principles remain the same. That is, energy from your solar power system is energy that is not purchased from the grid. The value of the energy is your ‘return on investment’. The sum of those ‘returns’ required to match the value of the system is the payback.
In simple terms, if a business is paying $0.16 per kWh for electricity and a 100Kw system costs $85,000, and produces 140,000kWh’s per annum, then a system will save the business $22,400 off their electricity bills each year and which is an annual return on investment at over 26%. If the business’s grid rate is higher, then returns will be higher.
Even if the capital for the system is not available upfront, with financing (approximately an extra 8%) the system would still return in excess of 18% to the business. Furthermore, if the business is generating 25% of its requirements from solar power, then effectively they have hedged 25% of their electricity requirements – immune from grid power price fluctuations. Add to this storage options moving forward and gradually the business takes control of their energy requirements for significant financial returns in the form of operating expense reductions and reduces risk from increasing grid prices.
The business case for solar is simple and compelling, but despite these positives its pricing is not immune to fluctuations. That’s why now is one of the best times to invest in solar power.
To find out how Solgen can help your business’s energy needs and to find out which system size will best suit, contact us for an obligation-free business case assessment.
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