A mass of renters may slowly gain access to cheap solar energy as an ownership model that pays landlords a generous return on investment finds its feet in Sydney.
So many Australian households have installed solar PV systems you’d think our cities would have turned purple when viewed on Google Earth. But a bird’s-eye view of our capitals still shows the same gory glow of red roof tiles.
There are 1.7 million homes with solar in Australia, which puts us well ahead of the rest of the world on a per capita basis, but that result is skewed by the fact that Australians aspire to be homeowners whereas in other parts of the world it’s perfectly socially acceptable to lease for life.
The reason renters are less likely to get a piece of the cheap-electricity action enjoyed by solar system owners is simple and cruel – if the owner won’t benefit from lower bills, why pay to install a system? It’s this “split incentive” dilemma that is holding millions back from not only cutting their living expenses but also doing their bit to transition our sunny and windy nation to renewables.
That’s why ownership of solar is concentrated to parts of the country where standalone residences are common and blocks of apartments with many tenants and owners are harder to find.
More than 2.6 million people across NSW can’t access solar energy, and census data shows nine council areas in Sydney where more than half the residents are locked out of solar. Council areas in rural NSW have lock out figures between 13% and 46%.
People have tried to solve this problem before but solutions so far have been far from perfect, where landlords are sometimes tempted to pay for systems with output estimates that push the boundaries of science. In the meantime, swathes of the urban landscape are exempt from running their refrigerators on the power of the sun.
Up on the roof
It’s a problem that bothered Bjorn Sturmberg so much that he designed an embedded solar-and-storage system for the Sydney digs he shared with fellow Sydney Uni students. Today, the 40 residents at the Stucco building in Newtown are paying half as much for electricity as they were before the 30kW of solar and 42kW of storage was installed in 2016, with accommodation units individually metered and billed by Stucco.
Once he’d finished at uni it was time for Sturmberg to move out of Stucco, but he took his idea with him and is now toiling away at getting solar onto rooftops of rentals as founder and director of SunTenants.
When the Stucco project was successfully switched on and left to run of its own devices late last year we began tinkering away on a project that would roughly copy the Stucco model but apply it to apartment blocks, where some units may be owner-occupied and others leased to tenants.
He went full-time on SunTenants when he landed a Myer Innovation Fellowship which started in May and will provide funding for a year.
Sturmberg was a week away from installation of the first SunTenants system when he met with EcoGeneration but explained the benefits would be immediate as soon the solar PV system was switched on. “It’s nice that it’s immediately impactful,” he says. “The owner of the property will start getting a return on investment and the tenants will start saving money.”
If the first project goes off without a hitch he hopes to complete five more before year’s end and gently build from there. He admits SunTenants probably won’t make a lot of money until it works out a manageable rate of growth. “There is heaps of value generated by solar on rental properties that can be shared,” he says. “SunTenants is a purpose driven enterprise trying to do the right thing by everyone involved and share as much of that with the owner and tenant as possible and then making sure we can cover our costs and scale in what we take.”
On the street
Sturmberg has five pilot sites he says are underway, all in Sydney, where owners and tenants are keen to go ahead and solar systems are being finalised. Importantly, each site is owned by a single owner: a duplex, an apartment where solar will be fitted to a common roof but supply one unit, a terrace and free-standing houses.
The idea is to fit individual solar PV systems for each residence or unit, to keep things as simple as possible. In a block of two units, for example, one unit that is owner-occupied may have solar installed but the other unit may wish to sign up to SunTenants, in which case a system is installed including a smart meter that splits billing with an existing retailer and monitors solar PV production and how much tenants consume.
Tenant can use an app to see how they are using energy and how they might be able to adapt energy use to save extra money.
SunTenants sells the solar energy to the tenant at 20c/kWh, and returns $11/kW per month to the landlord. This means a 5kW costing about $6,500 will return $55 a month to the owner, or a return on investment of about 10%. This is repaid over 25 years.
Where bank term deposits are paying about 2.5%, this makes solar look like a great investment for landlords.
“The value in solar is so huge these days,” he says. “And that number will go up over time as electricity prices continue to rise.”
Sturmberg reckons his solution gets around the split incentive problem by removing one of the barriers, where some owners in a block may not approve of some of the strata levies going towards installation of solar because they don’t live there and won’t get the advantage. “SunTenants nicely removes that obstacle [by providing owners a return on investment],” he says.
Storage can be an option if requested, but Sturmberg feels the technology is still too expensive. “We can work with batteries although we’re not encouraging owners to do that at the moment,” he says. Tenants with batteries would pay for stored energy at the same rate they would pay for solar.
EcoGeneration spoke to Sturmberg in the EnergyLab office on the campus of the University of Technology Sydney, where he shares the space with other mad-keen renewable energy entrepreneurs.
Risk and returns
Renters deserve access to solar like anyone else, but it’s highly likely their home load profiles will be very light during the daylight hours as they’ll all be at work earning the money they need to pay rent. “It’s one of the big challenges of solar and rental properties,” Sturmberg says. “We’re aware of that challenge and really motivated by it.”
He sketches an example. Let’s say a young tenant family is home all day every day, using lots of solar from the rooftop. Then, they move out and a professional moves in, who’s never home when the sun’s in the sky. Suddenly all the solar is going straight to the grid. The SunTenants model takes on that risk, Sturmberg says, and offers the owner the fixed return, irrespective of self-consumption. “Because we’re taking on the risk of tenants’ consumption we’re starting with a pretty conservative estimate of what that is.”
Clauses are in place so that if a property has a tenant that’s using 100% of the solar that is generated, a bonus will be paid to the owner from SunTenant’s revenue.
Tenants pay 12c/kWh to SunTenants for solar power that is exported to the grid, which is balanced by a roughly equivalent feed-in tariff from their retailer (remembering that tenants must maintain a relationship with an electricity retailer other than SunTenants).
His model assumes average daily consumption of 20kWh and that 1kW of installed solar will generate 3.9kWh a day.
Selling the message is the hard part. Some owners look at a 10% return and ask is it enough? Others ask if solar even works, to be reminded that the SunTenants mechanism takes that risk away for owners by returning them an amount that is determined by the system size. “The way we’ve structured this is you don’t have to believe it works; we’re going to pay you for it and it’s our responsibility that it works to the extent it was quoted. As an owner it’s a really straightforward, economically rational thing to do. And in the meantime you’ll be doing something good for your tenant and something great for the environment. You don’t have to belief that the photovoltaic effect actually works.”
A property that is sold will see the contract with SunTenants terminated, but the value of the PV system will hopefully be reflected in the sale price.
Talking to tenants isn’t all plain sailing either. SunTenants starts from the position that it will be sending the tenant yet another bill. Regardless of the fact that corresponding bills from the tenant’s electricity retailer will be lower and that the overall total spend on electricity is reduced, it’s still a bit tough for some to jump at the chance to sign up to yet another provider.
Sturmberg is a bit stumped by it. He’s just trying to do something good in the energy market and in the rental market, but both are sadly “totally devoid of trust”, he says. No renter loves their landlord and agent or energy retailer. “Everyone feels like they’re getting screwed on both fronts,” he says. As a renter and bill payer himself, he understands why.
“For as long as I’ve been working on this I’ve found that intellectually a really interesting place to be, this nexus of mistrust,” he says. Facing the mistrust is different, as he gets to exercise his skills in diplomacy while tempting prospective participants towards the good sense of solar by using as much charm as he can. “I’m trying to do something good!”
All the same, a tenant may question the reason behind paying for technology the landlord will own. Sturmberg gets to the nuts and bolts. “We’ll make sure you only pay for the solar you use. And there is a guarantee we’ll sell that to you at less than the retail rate, so you’re guaranteed to be ahead.”
Councils on board
Sturmberg is founder and director of SunTenants but also chief door-knocker and travelling evangelist. If things take hold this year he’s hoping to put on some staff next year but so far he’s flying solo. It’s a good job, because everyone knows renters should have solar too, but it’s a bit of a slog. “I’ve already got enough on my plate in terms of properties but the plan is to ramp up with bigger projects next year.” He expects growth will be generated by natural interest but also alliances he’s fostering with community energy groups, community housing providers and councils.
Councils are the most accessible tier of government as far as householders are concerned and Sturmberg is impressed by the eagerness of some Sydney councils towards doing something about climate change. “There are a lot of councils around that have zero carbon plans or 100% renewables plans,” he says. “Even those that don’t have [such targets] are mindful of wanting to get more solar in their area.”
Some councils that have investigated why they don’t host many solar households have quickly concluded it has something to do with the high ratio of rental properties. If councils can become part of the cause, landlords may be inspired into action.
In some council areas in Sydney nearly three-quarters of residents are locked out of solar because they are renters.
Sturmberg’s happy with the simplicity in his model: the owner gets a guaranteed return on investment, the tenant is charged only for what’s consumed. “They’re guaranteed to be better off,” he says.
SunTenants is left with the responsibilities of system sizing, quality of the system, whether it’s working, maintenance and variability of energy usage. If something’s underperforming SunTenants will feel the pain, not the owner or tenant. “It’s a lot of risk and responsibility for a company to take on but we understand solar really well and we’ve got that great smart meter in there getting real time data and we can do analytics on that. And we can aggregate that risk across a big fleet of rental properties so that once we have a big enough number of sites that should steady out at a constant rate of self-consumption.” Of the solar that’s produced, he expects about 30% will be used by the tenants.
If landlords and tenants are converted to solar, energy efficiency upgrades could follow – but one step at a time. “Once we can start to build some trust in this space those things will become a lot more easy to do,” he says.