Business is catching on to solar in a rush, finally waking to the possibilities of a technology that has proven itself as a mainstream power source on residential rooftops. Managers of commercial and industrial enterprises faced with rising energy bills are getting wise to power purchase agreements and pushing for energy efficiency in their operations and from every upgrade or investment in new equipment, but not everyone will qualify. Loads might not be large enough to play in the PPA space and the low hanging fruit of energy efficiency may have been plucked years ago.

For property owners with enough roof space — or adjacent vacant land — solar PV is a guaranteed route to lowering costs. Everyone agrees on that.

This solar sector is very competitive, with residential and small-business-scale installers eager to hook commercial and industrial clients for what they’ve heard are meaty margins. EcoGeneration spoke with the two biggest C&I solar installation companies in Australia to take a measure of the market.

Why has big business been slower to invest in solar than residential customers?

David Brown, Solgen: Unlike other markets around the world, Australia’s early incentives provided for residential solar. These included certain rebates and feed-in tariffs that fuelled significant residential uptake. Commercial and industrial [C&I] solar uptake was driven purely on business-case with the RET as the only significant policy driver. Business cases have strengthened in recent years due to rising costs of traditional energy sources. As a result, the C&I market has seen growth later than residential.

Aris Hovardas, Todae Solar: Primarily because residential solar has had, traditionally, higher electricity rates. So, as electricity rates are higher your return is faster and there is more interest — and a better business case.

David Brown, Group CEO, Solgen Energy Group.

Rumour has it undercutting if rife in C&I solar. What’s your experience and how do you deal with it?

Brown, Solgen: A price-only driven approach fails to recognise the significant opportunity that the transitioning energy market is offering up to well capitalised, long-term C&I players. Winning on price today is not relevant when you are offering a long-term solution that focuses on outcomes rather than today’s sticker price.

Hovardas, Todae Solar: It’s still an immature marketplace with a lot of businesses that are growing quite rapidly, therefore there is learning on the job. A lot of businesses are taking risks and through these risks we’re seeing jobs under-costed, we’re seeing businesses trying to target building a portfolio, or trying to hit growth numbers rather than profitability, risk and contingency, and they’re landing in a position where they are making unprofitable decisions.

How savvy are clients about performance guarantees? Are some of them having the wool pulled over their eyes?

Brown, Solgen: It’s important that C&I clients navigate performance guarantees with caution as it effectively underwrites their business case. The premise of a performance guarantee is very simple. If it looks too complex, chances are they are “having the wool pulled over their eyes”.

Hovardas, Todae Solar: Performance guarantees are a big issue at the moment. A lot of businesses who are competing with the C&I market have come from residential solar, so performance guarantees have never really been something they’ve taken too seriously. With C&I, these are large power systems, and these assets can have issues along the way. 

The engineering is one thing, but also the product manufacturer warranties, installation, labour — how all this impacts the long-term asset and how it produces energy are key factors. Businesses are also over-committing to the performance of the system, then systems are unable to be maintained because solar providers haven’t provisioned for the costs to provide O&M. We provision for these costs, otherwise the business becomes unsustainable and unprofitable pretty quickly.

Aris Hovardas, general manager sales, Todae Solar.

How do clients weigh up the decision to buy a system outright or take out a PPA?

Brown, Solgen: We compare outright purchase to PPA for our customers across both financial and non-financial measures. From a financial standpoint, the key decider is use of capital and the actual cost of that capital. Profitable, growing businesses generally have a higher cost of capital and when comparing this to the low cost of funding for PPAs, this can swing the argument in favour of PPA.

Equally, from a non-financial standpoint, businesses just want lower cost energy – solar is not core-business for purchasers – therefore why own outright?

Hovardas, Todae Solar: Buying projects outright is, in Australia, quite common, driven by the fact that in Australia we’ve got great resource so the paybacks are quite short. In overseas markets it’s quite common for people to go straight for a PPA. 

PPAs are good because you don’t have to worry about owning an asset. These larger assets can be a little more complex than a residential system. Providing O&M to these assets — maintaining and monitoring, ensuring that they’re getting the care they need — this accountability then shifts from the asset owner, being the customer, to another company. A PPA simplifies the process and enables businesses to make energy buying decisions rather than a solar asset acquisition decision, which removes a lot of the risk. 

Todae’s 4MW installation for Primo Foods generates about 5.5GWh a year.

Do you have hopes for technology or rule changes that might enable exports for C&I clients?

Hovardas, Todae Solar: Right now, with the transformation happening in our energy services, in our grids, there are a lot of factors at play. We’re seeing more EVs that plug in and more solar farms coming online. We’re looking at subsidies slowing down and storage coming in. I’d like to think that having a good export income would be there forever, but I think the reality is we are shifting towards different ways to process energy. The future for me is going to be around peer-to-peer sharing and how that will play out. Meanwhile, we’ve also got to consider how block chain technologies will play into it.  

Brown, Solgen: We are an industry that is used to changes in technology and rules. We expect the next chapter of these to continue to be favourable for the adoption of solar and storage in the C&I sector.

What’s the general attitude to storage among your clients?

Hovardas, Todae Solar: Everyone’s interested in storage. The way we’re seeing energy rates and tariffs start to adapt and change to capacity changes indicating that storage is going to be a much better business case. For me it’s really just about getting the right buy price with storage. We’re seeing the pricing come down pretty quickly and we expect that will continue. Even with these large storage manufacturers, the majority of them, at the moment, are focusing on residential solar. There isn’t that huge push towards innovation and driving the product through to C&I customers just yet. 

Brown, Solgen: Clients are generally excited by the prospect of incorporating storage with their solar. Indeed, we see a future where the business case for C&I solar will be reliant on the site’s interaction with storage.

Incorporating storage requires careful consideration of how the storage asset is to be utilised and what value can be extracted from that use. For example, while time-of-use shifting in a residential environment might meet payback objectives, in the C&I environment it is generally not enough.

Changes in the energy market continue to open new value streams. Demand response is clearly a value-stream that we continue to monitor carefully. 

Solgen’s 2.1MW installation for Hilton Foods is expected to generate half the site’s energy needs.

What effect has demand response had on the C&I solar PV market?

Brown, Solgen: Demand response for C&I solar is a key pillar in unlocking opportunities for deployment of storage. Demand and associated on-bill charges have long been an area where solar alone has not been able to make in-roads. Impacting demand charges will clearly strengthen the business case for solar and storage. Unlocking these value streams is reliant on digital technologies that work to seamlessly deliver the forecast outcomes.

Hovardas, Todae Solar: Demand response is still something that hasn’t taken off yet. There are some DNSPs that in limited capacity encouraged it for C&I customers previously, like Western Power. As the cost of storage decreases, this will likely start to become a more prevalent initiative. There is the possibility of government and DNSPs providing subsidies that will see this ramp quicker than the current trajectory; however, it’s still in its infancy.