Making solar part of your business’s energy mix has never been more appealing. But risk and opportunity balances between an optimised design and types of PPAs.
While there’s heat in the market, there are incentives – but don’t unthinkingly sign away your business for a free set of steak knives! Or solar panels, for that matter.
According to the Electricity Authority, New Zealand’s solar energy generation capacity increased to just under 115MW in 2019.
Putting this into perspective, 115MW of installed capacity is similar to one of Contact or Mercury’s Geothermal stations. As a percentage, this equates to around 1.2% of total operating generation capacity in New Zealand.
Lowering costs for installed solar
The installed cost of solar has dropped by around 75% since 2009 to
an average of around $2.20 per watt. With large commercial energy rates continuing to rise, the return on investment starts to become more realistic for business customers considering solar.
Location is more important than just sunshine hours and roof direction
With 29 distribution networks in NZ, there are a variety of charging structures for time of use electricity customers. Some networks prefer to charge more for demand and capacity than on the total volume of energy consumed. Understanding how these charges are calculated is an important consideration for the ROI of solar. For example, a network price structure that favours variable charges will potentially have a far greater ROI than a price structure that favours peak demand.
Depending on the distribution network, peak demand charges can equate to a significant portion of your total electricity costs. Installing solar alone does not necessarily impact peak demands to any large degree. However as battery storage becomes more economic, this will assist customers smooth their load and reduce demand based charges.
What are Power Purchase Agreements (PPA’s)?
For no money down, you too could have a solar array. Just be sure to check the fine print. And pick up your steak knives!
Power Purchase Agreements are a great way for solar companies to sell solar arrays to customers as they don’t require a customer to come up with the CAPEX costs associated with the array. There are typically two forms of PPA’s that are common in NZ.
One involves the solar company installing a meter on the array that is installed and then billing you for the energy you consume from the array at an agreed price. You can still engage with the market and import energy from a standard retailer as required. An agreement would need to be struck with your retailer for any exported energy, depending on the solar PPA, the solar company may get all the financial benefit from exported energy.
The other type is where the solar company becomes your retailer as well and manages both the import and export of power.
Sometimes the solar arrays are oversized so that the solar company can charge you for what you consume from the array and then make money selling additional energy back to the market.
This can all be used to pay off the cost of the array and there can be lease to own options or buy-out clauses after a minimum term.
In both cases, there are minimum terms from anywhere between 7 to over 20 years. Where the length of contract, maintenance and replacement clauses become important as inverters can need replacing after 10-15 years and panels at 20-25 years.
Is Solar right for my enterprise?
The first question I would be asking is:
What is the comparison between owning the array outright and the associated financing costs with benefits from the array going directly to OPEX costs from day 1 versus the costs and risks associated with a power purchase agreement?
You could also be asking how your energy choices impact your sustainability goals and brand perception.
Total Utilities has recently completed three large scale viability studies
of 42kW, 96kW, 146kW, 286kW and 350kW solar arrays for commercial facilities and can assist you in determining the best solution that meets your specific requirements.
Solar companies are often constrained by the supplier of their solar products for what and how they deliver an array. Getting an independent solar viability review by Total Utilities can increase the efficiency and output of an array to ensure full value for money if you make solar part of your energy mix.