Free Introductory Reports on Successful Solar Strategies (2009)

This is the complete collection of the free introductory reports that SunWiz produced and distributed in the interest of the Australian Solar Power Industry. They introduce motivations and methods for becoming independent of the REC price.

Free Introductory Reports on Successful Solar Strategies

RECs Catastrophe and Creditable Solar Solutions
1st Free Introductory Report on Successful Solar Strategies
An free solar power industry report by Warwick Johnston, SunWiz, October 2009
Copyright © Warwick Johnston 2009
Cover Image: Mykl Roventine and Warwick Johnston – Licensed under Creative Commons
Introduction
This free report provides a succinct insight into why the REC price is almost certain to be low for the foreseeable future, and provides insights into what can be done to manage your REC Risk.
Over 200 hours of research have gone into this report. It has been offered for free in the interests of the solar power industry, as an industry that is forewarned can take action to ensure its future prosperity.
This free report is supplemented be by three more reports that will be released over the course of a week. Together these show:
• why the REC price is likely to remain low and volatile
• what impact this could have on the solar power industry
• and, crucially, strategies for solar success whatever the REC price.
This free introductory report has been abridged so that the whole industry can quickly read and understand its key implications. A wealth of supporting information than provides the bigger picture has been collated and documented into the “Successful Solar Strategies report” – this information helps readers more deeply understand the drivers behind REC prices, the risk to their business, and what they could do to prosper in uncertain and difficult times.
There are a lot of background information and assumptions that omitted from this concise document. You should not act upon this information without first researching and confirming its applicability to your situation.
The full picture fills 80 pages, and contains advice that will assist the reader’s business to prosper. To ensure the competitive advantage of the reader, a limited number of reports will be made available over the period 21 – 27 October 2009.
Foreword
It is official: the REC Catastrophe that was predicted has occurred. The problem is: the Solar Credit Crisis is not about to go away.
In this introductory report, you’ll learn:
• What experts opinion is on the future REC price
• What will keep the REC price low until the window of opportunity for PV has passed
• Why the REC price is volatile, and how this could eat into your
profits
• What you can do about it
Expert Opinion on the REC price
Experts agree on the bleak prognosis for RECs for the foreseeable future:
“Our analysis suggests that on the basis of current subsidy proposals, the REC market may be significantly oversupplied by [PV, SHW, and Heat Pumps] in the period to 2015, … all stand to be affected by this oversupply and we advise careful consideration of the implications” – Carbon Market Economics1
“REC prices are likely to be depressed as the new supply is absorbed… The recent collapse in prices is arguably partly driven … more so by the massive incremental supply to come from PV solar as announced in the recent budget” – UBS Consulting
2
“We are forecasting an oversupply of RECs for the next few years … this is likely to keep a downward pressure on REC prices”. Ric Brazzale, Managing Director, Green Energy Trading:
3
Why the REC price is low, and why it will continue to be.
To answer this question, we need to consider the background to the Renewable Energy Target. But consider this, the most crucial consideration: Already by October, there are 5 million more RECs on the market than are needed for 2009. And 2010 requires only 4.4 million more RECs to be surrendered than in 2009. So next year’s target may already have been met. Up until recently, electricity retailers were buying up RECs (thus keeping the REC price higher than what it would otherwise be with such an oversupply) so they don’t have to buy next year when their shortfall penalty increases to $65. As retailers don’t need to buy many RECs next year, expect a low REC price for 2010.
Here’s a pictorial summary of the situation:
1 www.carbonmarkets.com.au/text/FoREsight3.pdf
2 UBS Consulting, July 2009
3 http://www.environmentalmanagementnews.net/storyview.asp?storyid=1034595&sectionsource=s0
Read Successful Solar Strategies for full expert quotations on further reasons the REC price is likely to be poor for a long time ahead
As depicted in the figure above, the REC price is set, like any market, by supply and demand. On the demand side is the Renewable Energy Target (RET) and GreenPower, both of which create the need to purchase and surrender RECs. The demand for RECs has limits that are known in advance with a high degree of accuracy. On the supply side, a number of renewable energy technologies compete to supply the required number of RECs. If supply is less than demand, then a shortfall penalty ($65 from 1/1/2010, which is equivalent to a post-tax liability exceeding $90) is paid. However, if REC supply exceeds demand, then the REC price is established by the technology that can most-cheaply create RECs – for this reason, PV competes with other renewable energy technologies for a share of the REC market.
On the demand side, the graph shows the number of RECs that must be surrendered each year under the old MRET and the expanded National RET. While the curve trends up, indicating the requirement for more and more renewable energy generation each year (left axis of the graph), the additional amount of generation in each year isn’t huge (shown in bars and read from the graph’s right axis)– 4,400,000 RECs more in 2010 than 2009, and 2,325,000 RECs more in 2011 than 2010.
Demand
Supply
As you’ll read in the Successful Solar Strategies report, AGL has “around A$1 billion [in wind farm projects] ready to go, and well over $2 billion more in the pipeline”
Consider carefully: 4.4 million RECs may sound large, but 1.5 kW systems generate 155 RECs in Zone 3. Thus it would only take installation of 28,400 PV systems to fully meet the increase in RET from 2009 to 2010. The situation is worse in 2011 – half as much increase in deployed renewable energy is required. If the REC price creeps up in 2012, the reduction in solar multiplier will continue to make life tough for PV. For this reason, the PV industry needs to become independent of RECs.
On the supply side, the PV industry – well capable of installing 30,000 systems per year – competes not only with other renewable energy technologies but also with itself. Furthermore, the Solar Hot Water industry, already a dominant creator of RECs, is in rapid expansion mode on the back of the $1600 federal rebate it receives in addition to other state rebates.
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The REC price is prevented from going too high by the availability of free PV or Solar Hot Water Systems. If the REC price gets near $50, then you can have free solar PV and free solar hot water systems competing for a share of the REC market. As the REC market isn’t that large, it wouldn’t be long before supply exceeded demand and the REC price would dive again. Large-scale renewable energy technologies are also competing to create RECs, with over 800 MW of wind power ready to be deployed in the next 1-2 years4, and up to 6000 MW over the next 10 years5
The figure below conceptually illustrates the “piece of the pie” that the PV industry has to compete for amongst other suppliers. Solar Hot Water systems had already created 5.4m RECs in 2009 by September, capturing 55% of the market this year. Other renewable energy technologies have created 5.4m in recent years, but modelling performed by Carbon Market Economics – plus other renewable energy technologies such as bagasse, landfill gas, etc. A high REC price hastens the development of these power stations, which can flood the market with RECs and thus lower the price dramatically. Therefore, PV businesses cannot expect a high REC price anytime in future.
6 suggests that wind farms alone may create another 2m RECs over the next 1-2 years. The 10,000 schools7
within the National Solar Schools Program could generate about 1m RECs, and the 63,000 system backlog of Solar Homes and Communities Program could generate 1.3m RECs. How many RECs are needed from Solar Credit PV systems?
4 Carbon Market Economics, “Renewable Generation Projects 2009 – 2028, Revised Final Report”, January 209
5 “Australian renewables law to spark wave of wind projects”, BusinessGreen.com, 21/8/09
6 Carbon Market Economics, “Renewable Generation Projects 2009 – 2028, Revised Final Report”, January 209
7 http://www.abs.gov.au/AUSSTATS/abs@.nsf/MF/4221.0
Solar Credits
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Excess RECs on Market
SHCP
•1,300,000 Backlog
•Was 8% of total market
Solar Schools
•Up to 1,000,000
SHW
•5,400,000 by Sep 2009
•>55% of total market
Other RETs
•Historically 5,400,000
•extra 2,000,000 in 2010?
As you’ll read in the complete extended report, solar hot water systems “are economic at a lower REC price than even wind requires”
In summary, here are the threats that face your PV business:
• There is a huge oversupply of RECs available on the market – perhaps enough to cover 2010..
• Subsidised sectors such as Solar Hot Water, Solar Schools, and the Solar Homes and Communities Plan continue to supply RECs almost without regard to their price
• The REC price is prevented from getting much above $50 by the resulting “free” solar systems
• Other large-scale renewable energy technologies could flood the market with RECs in coming years
• The Solar Multiplier means very few systems can be installed before the REC requirements are met.
The following graph puts this all together into an outlook for RECs supply and demand. While it is difficult to estimate the exact amount of RECs that will come from each sector in future years, combining analysis of a number of scenarios with some sensible assumptions allows the exploration of likely outcomes. Consider that:
• There may be 18 million RECs available by the end of 2009, 8 million more than needed
• This would mean 2010’s requirement of 12.5 + 1.9 = 14.4 million RECs (RET + GreenPower) would only require creation of 6.4 million RECs.
• Existing wind farms and other renewable energy power stations create 5.6 million RECs per year.
• Solar Schools and Solar Credits are likely to produce 0.6 million RECs in 2010
• This leaves at least 0.2 million RECs required in 2010 between PV and Solar Hot Water
The major unknown for 2010 and 2011 is the performance of Solar Hot Water. Considering that it has already created 5.4 million RECs this year, it seems likely that it will easily create 0.2 million RECs in 2010. The graph below shows scenarios of a 10% contraction of SHW to end of 2009, and a 75% and 50% contraction (conservative and highly conservative estimates) for 2010, and the same levels of SHW deployment in 2011.
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There are many conditions and assumptions that relate to the modelling and the presented graph that are detailed in the Successful Solar Strategies report. Reading Successful Solar Strategies is essential in order to understand how these numbers were created, and what it could mean for your business.
The graph clearly demonstrates that even with significant contraction in SHW, there are enough banked RECs to cover most of 2011 levels. PV RECs are necessary to meet the target only if HW retreats to its 2008 installation level, and there is no other renewable energy power station development. However, the major players have 6000 MW of wind development representing billions of dollars of investment, and the deployment of 800 MW of wind can create 2 million RECs. In summary, not much need for PV systems to create RECs, and the phantom RECs they create exacerbate the problem. Thus the future of the PV industry might be quite constrained.
It is not all bad news! In the Successful Solar Strategies report, a number of ways of rapidly gaining significant market share are explored.
Although we’ve discussed the “piece of the pie” that remains for the PV industry, remember that if a wind farm is financially viable with $35 RECs, or there is high demand for solar hot water systems even with $30 RECs, then it is likely that the REC price will remain near that level. The technology that can survive with the lowest REC price is likely to gain greatest market share, and if the PV industry has difficulty selling systems when RECs are less than $40, then there could be significant downsizing within the industry. So too, if one company within the PV industry discovered a way to sell a large volume of PV even with a REC price of $25, then the rest of the (PV and renewable energy) industry may suffer.
A number of ways of successfully and profitably selling PV systems even without RECs are presented in detail in the Successful Solar Strategies report.
REC Price Volatility
The REC price is quite volatile, which can have a huge impact upon your business. Because RECs take three weeks to register and clear, and because PV businesses are now highly exposed to and dependent upon REC prices, any significant movement in REC price can hurt both in the short- and long-term. Consider that the past 18 months has seen $7-10 price falls happen over the course of weeks. A $10 drop in REC price can cost your business $1550, evaporating your profit. If you’ve installed 20 systems in the last two weeks – that’s $31,000 you may have to wear… and then try to carry on business with a higher sales price.
There are a number of reasons the REC price is volatile. Like any market, the REC market is subject to player’s perceptions of what the price will do in the future. This can easily be influenced by government announcements, or the construction of a new renewable energy power station. The REC market gamed in favour of the buyers, further complicating matters. In simple terms:
• The buyers only have to surrender their RECs once per year. They have all year to strategically make REC purchases. If they have RECs in the bank, they can wait indefinitely before their next purchase.
Read the complete extended report for four ways to beat REC price volatility, including how to avoid the worst time to sell RECs
Over ten almost-untapped markets for profitable NET Feed-in Tariff exploitation are presented in a bonus report
• There are a huge number of sellers whose cashflow and livelihoods depends upon selling their RECs so that they can continue to install solar power, solar hot water, and heat pumps. These pressures mean that they need to sell, often at below-market rates. Also due to this reason, any sudden downwards shift in RECs price can unleash plenty more RECs from desperate installers wanting to cut their losses. For reasons explained above, the buyers can simply wait until the price bottoms out before taking advantage of the situation.
Stable Solutions
Some of the solutions include making conservative REC assumptions, sharing the REC risk, and understanding REC price cycles. Of course, the best strategy is to become independent of the REC price altogether. How to do all of this is explained in detail in the Successful Solar Strategies report.
Summary
To summarise the threats to the industry, and to the success, sustainability, and prosperity of your business:
• 2010’s RET has effectively already been met, keeping REC prices low for at least the year ahead.
• SHW installations also act as a significant supply of RECs
• A flood of Solar Credits could supply the entire REC requirements for the coming years
• Other subsidised markets including schools and SHCP backlog will also contribute to supply RECs, independent of REC price
• Other large-scale renewable energy projects that have been waiting for an expanded RET will be deployed, leading to bulk
increase in supply of RECs.
• REC market forces favour the buyers in the market
• Although market forces also act to stabilise the REC price, the REC multiplier creates a high degree of sensitivity to REC price fluctuations for the solar power industry.
Granted, it’s unlikely that all of the above comes true to its fullest extent – that would be a nightmare scenario. It’s more likely that a low REC price would dampen development of certain renewable energy technologies and of particular projects. However, some renewable energy technologies are supported by direct government rebates, grants and commitments – these projects may be less impacted by a low RECs price, and thus continue to create RECs and thereby keep the REC price low? Furthermore, solar power businesses are five times as exposed to REC price fluctuations than other technologies.
Many market analysts have suggested that a low REC price is likely for the foreseeable future. Unfortunately, a PV industry that was solely reliant upon RECs would probably generate far fewer RECs if certificate prices dropped to $10 – the industry would grind to a near-complete halt.
This is something nobody wants to occur. Like you, I wish to see the industry shine, to succeed in covering Australia with solar power. For this reason I’m presenting you the opportunity to learn how to make your business prosper, whatever the REC price. The problems identified all have solutions – and they’re detailed in the Successful Solar Strategies report, which you’ll get a further sample of in our next Free Introductory Report, due for release later this week.
Learn what the REC price is likely to be: Discussion on each of these points is expanded upon within “Successful Solar Strategies”.
The Successful Solar Strategies report can help your business to prosper. It will be released on 21st October 2009.
• It contains invaluable analysis and industry insight that can contribute to your success.
• It provides a more detailed assessment of the RECs supply market, and provides four strategies for managing the risk of a sudden drop in REC prices.
• It includes payback graphs that can assist you to sell solar power to your customers
• It explores in depth more than ten strategies to sell an abundance of profitable solar systems, including opportunities to exploit while the REC price is moderate, and advice on how to capitalise on a high REC price.
• It demonstrates profitable ways to sell solar power even if RECs were worthless.
• It provides a financial analysis of commercial installations, with favourable outcomes
• Plus industry-proven sales advice, some of which is based on successful international PV sales models.
• Plus a list of untapped target markets highly suitable for net Feed-in Tariffs
• Plus much, much more.
About SunWiz – Solar Energy Consulting:
SunWiz has extensive knowledge of all facets of solar energy: solar photovoltaic solar heating and cooling concentrating solar power solar drying passive solar design
SunWiz is able to provide the following services related to solar energy systems: Award-winning PV System Design Tender Preparation Procurement Advice Independent Tender Evaluation Business Opportunity Identification and Evaluation System Performance Monitoring and Reporting Technology Evaluation Feasibility Studies Installation supervision and sign-off
Warwick Johnston, manager of SunWiz has: Won two awards for Best Australian Solar Power System Managed the delivery of over 600 kW of PV systems BCSE/CEC Accreditation (Design and Supervise) and Membership (pending board approval) Completed a Masters in Renewable Energy (November 2009) Been awarded a fellowship for solar air conditioning Been a member of the PV directorate Been the treasurer of ANZSES (Victoria) Presented at a number of conferences
Consulting projects that Warwick has been involved with include: Opportunity identification for PV inclusion in Tsunami reconstruction on behalf of an international NGO PV opportunity identification and pre-feasibility studies for a number of local councils PV opportunities investigation on local council sporting pavilions Identification of 10 MW of untapped renewable energy resources in one council area Analysis of Victoria’s off-grid market potential for renewable energy Pre-feasibility study for two 250 kW tracking PV power stations Energy Efficiency Opportunity Assessments for large electricity users
Phone: +61 (0)413 361 534
Address: PO Box 263 Bangalow NSW 2479
Accreditation #: P1902
Member: ANZSES, ISES, ATA, EWB
Larger Systems: More Profitable Less RECs Exposure
2nd Free Introductory Report on Successful Solar Strategies
An free solar power industry report by Warwick Johnston, SunWiz, October 2009
Copyright © Warwick Johnston 2009
Cover Image: David Blaikie– Licensed under Creative Commons
Introduction
This free report demonstrates why larger systems offer favourable benefits to your business and your customer, and are essential for your business prosperity during periods of moderate REC prices.
Over 200 hours of research have gone into this report. It has been offered for free in the interests of the solar power industry, as an industry that is forewarned can take action to ensure its future prosperity.
This free report is supplemented be by three more reports that will be released over the course of a week. Together these show:
• why the REC price is likely to remain low and volatile
• what impact this could have on the businesses like yours in the solar power industry
• and, crucially, strategies for solar success whatever the REC price.
This free introductory report has been abridged so that the whole industry can quickly read and understand its key implications. A wealth of supporting information than provides the bigger picture has been collated and documented into the “Successful Solar Strategies report” – this information helps readers more deeply understand the drivers behind REC prices, the risk to their business, and what they could do to prosper in uncertain and difficult times.
There are a lot of background information and assumptions that omitted from this concise document. You should not act upon this information without first researching and confirming its applicability to your situation.
The advice in this report is of a general nature only and should not be relied upon, in and of itself, by readers. Before making any decisions or commitments based on the content of this report, it is recommended that readers discuss their individual circumstances with their own professional accounting and investment advisors. Should a reader wish to tailor the advice in this report to his/her particular circumstances, please contact the author.
The full picture fills 80 pages, and contains advice that could assist the reader’s business to prosper. To ensure the competitive advantage of the reader, a limited number of reports will be made available over the period 21 – 27 October 2009. If you have received this report without registering your email address on the www.SunWiz.com.au then you might miss out!
Over the course of this week you’ll see the three elementary pieces of the jigsaw puzzle that fit together with synergy and present businesses a roadmap to solving the REC Crisis
RECs Catastrophe– a recap
In the RECs Catastrophe introductory report, we learned of the threats to the solar power industry, and to the success, sustainability, and prosperity of your business:
• 2010’s RET has effectively already been met, keeping REC prices low for at least the year ahead.
• Deployment of other large-scale renewable energy projects that have been waiting for an expanded RET would lead to a bulk increase in supply of RECs.
• SHW installations act as a dominant supply of RECs
• Other subsidised markets including schools and SHCP backlog will also contribute to supply RECs, independent of REC price
• REC market forces favour the buyers in the market
• Although market forces also act to stabilise the REC price, the REC
multiplier reduces the amount of PV systems needed to meet the RET. It also creates a high degree of sensitivity to REC price fluctuations for the solar power industry.
In “Strategies for Solar Success Part 2: Larger Systems, More Profitable, Less REC Exposure”, you’re going to learn one strategy you could employ when the REC price is at a moderate level. Part Three will be made available later in the week, and will extend upon Part Two, informing how you might maximise your revenue from Feed-in Tariff Target Markets. These are just tasters of the full content available in the Successful Solar Strategies report, which covers this material and much more in far greater depth.
If you haven’t already received your free copy of RECs Catastrophe, contact warwick@sunwiz.com.au
Moderate REC price?
It becomes more difficult to sell 1.5 kW systems for little out-of-pocket expense to the consumer when the REC price is below $50. How can solar power companies thrive and prosper when their bread-and-butter customers desert them on the back of a $23 REC price? This section demonstrates one strategy that successful solar businesses can use when the REC price is at a moderate level.
Sell Larger Systems!
Although 1.5 kW systems attract the greatest solar credits-per-installed Watt, the system price that the customer sees on this system is also highly sensitive to fluctuations in the REC price, as shown in the graph below.
For example, if your 1.5 kW GST-inclusive system price is $11,946 and attracts 155 RECS, your customer pays $4,196 if RECs are $50, but $8,071 if RECs price halves to $25. The customer sees this as a doubling in the system price for no apparent reason. The price of larger systems remains proportionally more stable as REC price fluctuates. Under the same diabolical situation, a customer interested in a 5 kW system only faces a 25% increase in price rather than a 100% increase.
Although there may be fewer customers willing and able to pay $25,000 for a solar system, it stands to reason if you get such dedicated, high-quality customers may be more tolerant of a $1,000 change in system price than a customer interested in a $4,000 1.5kW system.
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Read the extended report for four strategies for moderate REC prices, plus one strategy to use to advantage if the REC price again becomes high
The extended report demonstrates ways to attract high-value, loyal, quality-seeking, payback-minded customers interested in large systems
Other benefits of larger systems include:
• Exposure to REC price fluctuations is proportionally smaller with larger systems. Profits are thus less likely to be entirely swallowed by a change in REC price.
• Advertised system prices are change less when the solar multiplier reduces overnight. A customer-base that demands larger systems may be less likely to evaporate overnight.
• Larger systems should have a higher per-system gross profit.
Customers residing in states with net Feed-in Tariffs stand to benefit most from a larger solar power system, simply because a larger system is more likely to export power, more often, and more of it. The graph below shows an example payback calculation that demonstrates that the payback can be significantly improved if a high amount of power is export. This is less likely for smaller systems, but is quite likely for larger systems installed in the right places.
The Successful Solar Strategies report calculates the likely amount of power export from houses, based upon expert measurements. This is integrated into the feedback calculation to categorically demonstrate that larger solar power systems are far more likely to pay for themselves sooner than small systems.
The complete Successful Solar Strategies report replicates these graphs for NSW Zone 2 & 3, QLD Zone 1 & 2 & 3, Vic Zone 3 & 4, SA Zone 2&3, and the ACT. These graphs assume the proposed NSW net Feed-in Tariff passes as indended.
The extended report includes international research on costs of PV advertising that could be critical to your future business prosperity
The extended report graphically shows why a 2 kW system pays for itself sooner than a 1.5 kW system in most circumstances.
Observations:
• The payback of a 1.5 kW system is highly dependent on REC price. The payback of a 10 kW system is more stable.
• At $30/REC, the payback is longer for a 1.5 kW system with 25% of exported power (13 years) than for a 10 kW system with anything more that 40% export.
Summary
Larger systems can help offer businesses like yours the following benefits:
• Increased per-system profits
• Proportionally lower exposure to REC price fluctuations
• Lower variability in customer price with REC price movements
• Less price-per-Watt at low-moderate REC prices
• Less proportion of system cost that must cover advertising overhead
• Greater likelihood of exporting power, and thus greater likelihood of quicker payback
Other Strategies for a moderate REC price
Other strategies for a moderate REC price that are described in the Successful Solar Strategies report are:
Target Zone 1 & 2 – Learn how this strategy increases your RECs by 11-17%, and could increase the annual return on investment for business customers by 2.5% even at $30 REC prices.
Bulk Installation – Learn how this strategy can mean large sales and significant cost savings, including 3 example markets
Focus upon customer experience – learn why quality and customer experience as essential features of the solar credit sector.
Like you, I wish to see the industry succeed in covering Australia with solar power. There are many more great solutions to the REC Catastrophe – including one strategy to use when the REC price is high, and four strategies to use when the REC price is low. A favourable outcome is demonstrated for commercial customers even when the REC price is zero! You’ll get another free sample of these strategies later this week.
The Successful Solar Strategies report could help your business to prosper. It will be released on 21st October 2009.
• It contains invaluable analysis and industry insight that can contribute to your success.
• It provides a more detailed assessment of the RECs supply market, and provides four strategies for managing the risk of a sudden drop in REC prices.
• It includes payback graphs that can assist you to sell solar power to your customers
• It explores in depth seventeen strategies to sell an abundance of profitable solar systems.
• It demonstrates profitable ways to sell solar power even if RECs were worthless.
• It provides a financial analysis of commercial installations, with favourable outcomes
• Plus industry-proven sales techniques, incorporating successful international PV sales models.
• Plus a list of untapped target markets highly suitable for net Feed-in Tariffs
• Plus much, much more.
About SunWiz – Solar Energy Consulting:
SunWiz has extensive knowledge of all facets of solar energy: solar photovoltaic solar heating and cooling concentrating solar power solar drying passive solar design
SunWiz is able to provide the following services related to solar energy systems: Award-winning PV System Design Tender Preparation Procurement Advice Independent Tender Evaluation Business Opportunity Identification and Evaluation System Performance Monitoring and Reporting Technology Evaluation Feasibility Studies Installation supervision and sign-off
Warwick Johnston, manager of SunWiz has: Won two awards for Best Australian Solar Power System Managed the delivery of over 600 kW of PV systems BCSE/CEC Accreditation (Design and Supervise) and Membership (pending board approval) Completed a Masters in Renewable Energy (November 2009) Been awarded a fellowship for solar air conditioning Been a member of the PV directorate Been the treasurer of ANZSES (Victoria) Presented at a number of conferences
Consulting projects that Warwick has been involved with include: Opportunity identification for PV inclusion in Tsunami reconstruction on behalf of an international NGO PV opportunity identification and pre-feasibility studies for a number of local councils PV opportunities investigation on local council sporting pavilions Identification of 10 MW of untapped renewable energy resources in one council area Analysis of Victoria’s off-grid market potential for renewable energy Pre-feasibility study for two 250 kW tracking PV power stations Energy Efficiency Opportunity Assessments for large electricity users
Phone: +61 (0)413 361 534
Address: PO Box 263 Bangalow NSW 2479
Accreditation #: P1902
Member: ANZSES, ISES, ATA, EWB
Maximum Feed-in Tariff Revenue
3rd Free Introductory Report on Successful Solar Strategies
An free solar power industry report by Warwick Johnston, SunWiz, October 2009
Copyright © Warwick Johnston 2009
Cover Image: Nozee Le Snoop and Warwick Johnston – Licensed under Creative Commons
Introduction
This free report does shows how to legitimately target net Feed-in Tariffs as part of your effective sales message, bringing you all the benefits of selling larger systems that were described previously.
Over 200 hours of research have gone into this report. It has been offered for free in the interests of the solar power industry, as an industry that is forewarned can take action to ensure its future prosperity.
This free report is supplemented be by three more reports that will be released over the course of a week. Together these show:
• why the REC price is likely to remain low and volatile
• what impact this could have on the businesses like yours in the solar power industry
• and, crucially, strategies for solar success whatever the REC price.
This free introductory report has been abridged so that the whole industry can quickly read and understand its key implications. A wealth of supporting information than provides the bigger picture has been collated and documented into the “Successful Solar Strategies report” – this information helps readers more deeply understand the drivers behind REC prices, the risk to their business, and what they could do to prosper in uncertain and difficult times.
There are a lot of background information and assumptions that omitted from this concise document. You should not act upon this information without first researching and confirming its applicability to your situation.
The advice in this report is of a general nature only and should not be relied upon, in and of itself, by readers. Before making any decisions or commitments based on the content of this report, it is recommended that readers discuss their individual circumstances with their own professional accounting and investment advisors. Should a reader wish to tailor the advice in this report to his/her particular circumstances, please contact the author.
The full picture fills 80 pages, and contains advice that could assist the reader’s business to prosper. To ensure the competitive advantage of the reader, a limited number of reports will be made available over the period 21 – 27 October 2009. If you have received this report without registering your email address on the www.SunWiz.com.au then you might miss out!
Over the course of this week you’ll see the three elementary pieces of the jigsaw puzzle that fit together with synergy and present businesses a roadmap to solving the REC Crisis
RECs Catastrophe– a recap
In the RECs Catastrophe introductory report, we learned of the threats to the solar power industry, and to the success, sustainability, and prosperity of your business:
• 2010’s RET has effectively already been met, keeping REC prices low for at least the year ahead.
• Deployment of other large-scale renewable energy projects that have been waiting for an expanded RET would lead to a bulk increase in supply of RECs.
• SHW installations act as a dominant supply of RECs
• Other subsidised markets including schools and SHCP backlog will also contribute to supply RECs, independent of REC price
• REC market forces favour the buyers in the market
• Although market forces also act to stabilise the REC price, the REC
multiplier reduces the amount of PV systems needed to meet the RET. It also creates a high degree of sensitivity to REC price fluctuations for the solar power industry.
Benefits of Larger Systems – a recap
As shown in Part Two of the Strategies for Solar Success Introductory reports, larger systems can offer the following benefits:
• Increased per-system profits
• Proportionally lower exposure to REC price fluctuations
• Lower variability in customer price with REC price movements
• Less price-per-Watt at low-moderate REC prices
• Less proportion of system cost that must cover advertising overhead
• Greater likelihood of exporting power, and thus greater likelihood of quicker payback
Big Systems are only one small part of the solution to the REC Crisis. But they are a fundamental to the solution. Like a jigsaw puzzle, the overall picture only becomes clear when the pieces lock in together. But BIG Systems are like the corner puzzle piece – the rest of the puzzle becomes easy once this piece is found.
If you haven’t already received your free copy of RECs Catastrophe, contact warwick@sunwiz.com.au
Low REC Price: Target Feed-in Tariff
At a low REC price, solar power systems cease to be simply a “cheap buy”, and more sophistication is required in selling the benefits of solar power. At $24/W, 155 RECs only mean a 30% discount on a 1.5kW system.
Why would a customer spend $8,000 on a system if it will only offset $300 a year in electricity? If that same system earned $1,200 a year, then it might be a sound investment – but an extraordinarily difficult claim to justify, one that could leave companies inviting legal action (the Australian Financial Review recently reported on this topic8
If your business operates in a state with a net Feed-in Tariff, then your customers could be earning up to four times as much revenue from their solar power system. ).
The conservative practice of quoting annual revenues of $200-$800 per kW of solar power might have been acceptable when the customer was receiving a free system, but it doesn’t offer much confidence to customers now paying significant amounts of money for their solar power system.
Although it may be difficult to estimate a customer’s electricity usage patterns, you can be certain of two things:
• The solar power system installed has to be larger than the customer’s base daytime load if they are to export power and thus take advantage of the feed-in tariff.
• Large systems are more likely to export more power than smaller systems, for the period in which the customer’s loads are met by a solar power system will be longer for a larger solar power system, and the
system will export more power during that period.
Thus, a customer can create substantially more revenue by both decreasing their daytime power consumption AND increasing the size of their system. If you have data supporting a claim that a larger system is a better investment, you might more easily convince your customers to increase their system size. This could quite possibly mean more profitable installations, lower REC exposure, etc. You might also be able to cross-sell energy efficiency services, and in doing so create a better customer experience that means they are more likely to promote you to everyone they know.
Wouldn’t it be great to have data that showed that a larger system is a better investment? Wouldn’t it help you sell more kW if you could show a 2 kW system paid for itself faster than 1.5 kW?
8 Matthew Dunkley, “Solar Sales Pitch Could End in Hot Water”, Australian Financial Review, 26/9/09
The extended report contains a graph of measured data that demonstrates that a 1 kW system typically exports insignificant amounts of power
Other cross-selling strategies that can build your business resilience are described in the extended report.
Graphs such as the ones in last week’s report on larger systems are useful – they show that the payback for a high-exporting large system is quicker than that of a low-exporting small system. But they don’t say what a 1.5 kW system exports on a typical house. Theoretically a 2 kW system will export more, but its impossible to say how much more without measured data.
Fortunately, this data exists. And it allows us to produce this graph, which combines the likely amount of power to be export from various size systems, for three typical residential power consumption levels. Here’s what it looks like for NSW Zone 3 with $24 RECs.
The complete Successful Solar Strategies report replicates these graphs for NSW Zone 2 & 3, QLD Zone 1 & 2 & 3, Vic Zone 3 & 4, SA Zone 2&3, and the ACT. These graphs assume the proposed NSW net Feed-in Tariff passes in its presently proposed form.
This clearly demonstrates that for a system price that is commonly achievable by most of the industry, and at $24/REC, a 5-10 kW system installed on an average house pays for itself far more quickly than a 1.5 kW system.
All the evidence for this graph is included in the complete report. The extended report covers each Zone of each state with a Feed-in Tariff.
Admittedly, most of these graphs have focussed on Zone 3 NSW. How do the paybacks of larger systems compare Australia-wide?
The South Australian and Queensland Feed-in Tariffs allow for up to 30 kW in three-phase installations. This could mean even higher export percentages that justify even larger systems.
This graph shows that in order to achieve As a bonus, if you act swiftly upon release of the Complete Report, you’ll also receive a spreadsheet that allows you to re-create these graphs as they relate to your location, costs, profit margin, and RECs value.
Over ten target markets for high export power are identified in the complete extended report. Most of these markets are mostly untapped.
So, its difficult to sell on price alone when the REC price is $24, but it may still be possible to sell on payback, if you’re able to target specific markets of opportunity. But it’s important to act swiftly. The following graph conveys a message that isn’t commonly discussed – the Feed-in Tariffs are to be reviewed after a limited amount of PV has been installed.
Already SA has reached their threshold for FiT review, and Queensland is rapidly approaching its own. NSW and Victoria’s FiT won’t last too long at today’s installation rates. Although the process of reviewing SA’s FiT it clearly demonstrates that this highly valuable opportunity to sell on good paybacks may not be around for long.
Summary
• When the REC price is low it becomes to sell PV systems on their low upfront price
• A wiser selling strategy may be to sell PV systems on their payback time
• This is difficult (and legally risky) to advise without appropriate evidence to justify your claim
• The evidence is available that could make it easier to sell systems on payback, and to sell larger
systems, with their associated benefits to your business.
• PV systems can have a rapid payback, depending upon a number of circumstances
Like you, I wish to see the industry succeed in covering Australia with solar power. Payback is just one way of evaluating whether it is financially wise to install a solar power system. There are more strategic ways of selling commercial systems that are covered in the Successful Solar Strategies Report, including financial and tax analysis. These are introduced in the final part of the free Solar Strategies Introductory Reports. A favourable outcome is demonstrated for commercial customers even when the REC price is zero! But you’ll have to buy the Successful Solar Strategies Report to have the complete picture.
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What if you could tell your customers that investing in a system was like putting money in the bank and earning an interest rate of 12% AFTER tax?!!! Find out how in the Extended Report
The extended report contains even more strategies for a selling when the REC price is low; strategies that aren’t dependent on RECs or a Feed-in Tariff
The Successful Solar Strategies report could help your business to prosper. It will be released on 21st October 2009.
• It contains invaluable analysis and industry insight that can contribute to your success.
• It provides a more detailed assessment of the RECs supply market, and provides four strategies for managing the risk of a sudden drop in REC prices.
• It includes payback graphs that can assist you to sell solar power to your customers
• It explores in depth seventeen strategies to sell an abundance of profitable solar systems.
• It demonstrates profitable ways to sell solar power even if RECs were worthless.
• It provides a financial analysis of commercial installations, with favourable outcomes
• Plus industry-proven sales techniques, incorporating successful international PV sales models.
• Plus a list of untapped target markets highly suitable for net Feed-in Tariffs
• Plus much, much more.
About SunWiz – Solar Energy Consulting:
SunWiz has extensive knowledge of all facets of solar energy: solar photovoltaic solar heating and cooling concentrating solar power solar drying passive solar design
SunWiz is able to provide the following services related to solar energy systems: Award-winning PV System Design Tender Preparation Procurement Advice Independent Tender Evaluation Business Opportunity Identification and Evaluation System Performance Monitoring and Reporting Technology Evaluation Feasibility Studies Installation supervision and sign-off
Warwick Johnston, manager of SunWiz has: Won two awards for Best Australian Solar Power System Managed the delivery of over 600 kW of PV systems BCSE/CEC Accreditation (Design and Supervise) and Membership (pending board approval) Completed a Masters in Renewable Energy (November 2009) Been awarded a fellowship for solar air conditioning Been a member of the PV directorate Been the treasurer of ANZSES (Victoria) Presented at a number of conferences
Consulting projects that Warwick has been involved with include: Opportunity identification for PV inclusion in Tsunami reconstruction on behalf of an international NGO PV opportunity identification and pre-feasibility studies for a number of local councils PV opportunities investigation on local council sporting pavilions Identification of 10 MW of untapped renewable energy resources in one council area Analysis of Victoria’s off-grid market potential for renewable energy Pre-feasibility study for two 250 kW tracking PV power stations Energy Efficiency Opportunity Assessments for large electricity users
Phone: +61 (0)413 361 534
Address: PO Box 263 Bangalow NSW 2479
Accreditation #: P1902
Member: ANZSES, ISES, ATA, EWB
Commercial Systems: Wise Investment Targets
4th Free Introductory Report on Successful Solar Strategies
An free solar power industry report by Warwick Johnston, SunWiz, October 2009
Copyright © Warwick Johnston 2009
Cover Image: Alan Cleaver and Warwick Johnston – Licensed under Creative Commons
Introduction
This free report demonstrates the highly favourable opportunities in the commercial PV market.
Over 200 hours of research have gone into this report. It has been offered for free in the interests of the solar power industry, as an industry that is forewarned can take action to ensure its future prosperity.
This free report is supplemented be by three more reports that have been released over the course of a week. Together these show:
• why the REC price is likely to remain low and volatile
• what impact this could have on the businesses like yours in the solar power industry
• and, crucially, strategies for solar success whatever the REC price.
This free introductory report has been abridged so that the whole industry can quickly read and understand its key implications. A wealth of supporting information than provides the bigger picture has been collated and documented into the “Successful Solar Strategies” report – this information helps readers more deeply understand the drivers behind REC prices, the risk to their business, and what they could do to prosper in uncertain and difficult times.
There are a lot of background information and assumptions that omitted from this concise document. You should not act upon this information without first researching and confirming its applicability to your situation.
The advice in this report is of a general nature only and should not be relied upon, in and of itself, by readers. Before making any decisions or commitments based on the content of this report, it is recommended that readers discuss their individual circumstances with their own professional accounting and investment advisors. Should a reader wish to tailor the advice in this report to his/her particular circumstances, please contact the author.
The complete picture fills 80 pages, and contains advice that could assist the reader’s business to prosper. To ensure the competitive advantage of the reader, a limited number of reports will be made available over the period 21 – 27 October 2009. If you have received this free introductory report without registering your email address on the www.SunWiz.com.au then you might miss out!
Over the course of this week you’ll see the three elementary pieces of the jigsaw puzzle that fit together with synergy and present businesses a roadmap to solving the REC Crisis
RECs Catastrophe – a recap
In the RECs Catastrophe introductory report, we learned of the threats to the solar power industry, and to the success, sustainability, and prosperity of your business:
• 2010’s RET has effectively already been met, keeping REC prices low for at least the year ahead.
• Deployment of other large-scale renewable energy projects that have been waiting for an expanded RET would lead to a bulk increase in supply of RECs.
• SHW installations act as a dominant supply of RECs
• Other subsidised markets including schools and SHCP backlog will also contribute to supply RECs, independent of REC price
• REC market forces favour the buyers in the market
• Although market forces also act to stabilise the REC price, the REC
multiplier reduces the amount of PV systems needed to meet the RET. It also creates a high degree of sensitivity to REC price fluctuations for the solar power industry.
Larger Systems and Feed-in Tariff Targeting – a recap
As we saw in Parts Two and Three of the Strategies for Solar Success Introductory report series, using a Feed-in Tariff sales-pitch could be a sensible approach:
• When the REC price is low it becomes to sell PV systems on their low upfront price
• A wiser selling strategy may be to sell PV systems on their payback time
• It is difficult (and legally risky) to advise of payback without appropriate evidence to justify your claim
• The evidence is available – it calculates the amount of power export based on typical consumption
• Selling PV systems on payback could make it easier to sell larger systems, with their associated possible benefits, including
• Increased per-system profits
• Proportionally lower exposure to REC price fluctuations
• Lower variability in customer price with REC price movements.
• Less proportion of system cost that must cover advertising overhead
• PV systems can have a rapid payback, depending upon a number of circumstances
If you haven’t already received your free copy of RECs Catastrophe, contact warwick@sunwiz.com.au
Commercial Systems
Payback is just one way of evaluating whether it is financially wise to install a solar power system. Business customers might be more likely than residential customers to have access to the $65,000 it can cost to install a large solar power system. However, many businesses also won’t be interested in anything less than a three year payback. What if you could tell your customers that investing in a system was like putting money in the bank and earning an interest rate of 14% AFTER tax over at least the next 20 years?!!!
This is possible, through the savings available to commercial customers.
The first part of their saving is the GST. Business customers that are registered for GST effectively get a 10% discount. Unfortunately, they also pay at least 10% lower electricity rates than residential customers, because they can claim back the GST on their electricity bill. That evens up the payback calculation, but at least gives you the chance to quote prices that are in effect 10% lower.
Solar power systems that are installed for business use (namely reducing electricity bills) can claim depreciation over the 20 year effective life of the asset. As seen in the figure below, over the course of its life, depreciation can mean a further $15,000 saving on a $60,000 (ex GST) solar power system, assuming a 30% company tax rate applies.
As part of the budget stimulus measure, the Federal Government made selling solar systems to businesses a little bit easier. As part of the Investment Allowance: small business and general business tax break, small business entities (those with less than $2m turnover per year) are entitled to:
“An additional tax deduction of 50 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 31 December 2009 and first uses the asset, or installs it ready for use, or (in the case of new investment in an existing asset) brings the asset to its modified or improved state on or before 31 December 2010.” 9
9 http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/00175431.htm
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Learn of the effective return on investment for all states with Feed-in Tariffs, for a variety of system sizes and REC prices in the complete report
Larger businesses (those with turnover larger than $2m per year) that commit to spending a minimum of $10,000 before 31/12/09 and are installed prior to 31/12/10 are eligible for a 10% tax break (they were eligible for 30% if they committed to purchasing prior to 30/6/09).
The 50% tax break could means that your customer’s $60,000 (ex GST) solar power system could mean they pay tax on $30,000 less income. This is equivalent to $9,000 extra post-tax income10
This graph presents how a $65,000 solar power system may ultimately cost the customer less than $30,000 in post-tax out of pocket expense. This is the amount that is needed to be paid back by the (GST-adjusted, company tax-adjusted) electricity generated by the solar power system. . That’s a 15% saving for small businesses, but only a 3% saving for larger businesses, but only if they act quickly. Naturally, time-limited incentives could also greatly assisting you in closing your sale.
So, the million dollar question: what is the return on investment for a solar power system? How can you assist your customers in making prudent financial decisions? The most appropriate metric to use is typically the Internal Rate of Return, which is equivalent to the amount of post-tax annual compounding interest rate that would be received if the same amount of money was invested in a bank loan.
The following two graphs answer this question for a 10 kW system in NSW and for a 5 kW system in Victoria. They show that over a 20 year period, money invested in a solar power system could earn its owner a post-tax compound annual interest rate of over 14%. To me, an interest rate of 14% sounds more appealing than a five year payback, especially if that’s post-tax declared income. The situation in Victoria isn’t as lucrative, but still favourable in certain cases. At $30/REC, the maximum IRR jumps to 15% in NSW Zone 2.
Each REC Zone in South Australia, Queensland, New South Wales, Victoria, and the ACT are graphically presented in the Successful Solar Strategies report, along with a sensitivity analysis on the price of panels and tax break. If you act before Friday 23/10/09, you’ll also receive a bonus spreadsheet that allows you to enter in your own costs and determine the payback and IRR for your situation.
10 at the 30% company tax rate
Learn more about the Risks involved with an investment in a solar power system (and how these risks can be minimised) in the Complete Extended Report.
It’s wise to act quickly to take advantage of the tax break. Learn about how greatly it affects your customers’ financial decision in the complete extended report
The graphs clearly demonstrate that in order to achieve reasonable return on investment in States with a net Feed-in Tariff, a high proportion of generated power must be export. Indeed, an IRR of 18% could be reached if 100% of power can be export from a 1.5 kW system located in NSW Zone 2 with $30 RECs. Exporting 100% of power from a 1.5 kW system is not likely, but exporting a significant amount from a 10 kW system is quite achievable, depending upon the power consumption of the site to which its connected. The challenge then becomes to identify and target businesses with large roofs and low daytime power consumption
Over 10 virtually-untapped target markets with potential for high export power are included as a bonus in the Successful Solar Strategies report, if you act quickly upon its release.
You’ll also have to act quickly to take advantage of the Tax Break, which contributes about 3% to these IRRs.
The figures presented in this document are based on personal research and ATO taxation advice, and use the most general, conservative tax assumptions possible. For the same reasons, treat the advice given within this document as advisory in nature only, and consult a taxation professional as appropriate.
These graphs use a conservative performance assumption. High performance installations could have even greater financial merit.
A system whose payback is longer than the duration of the Feed-in Tariff will have poor financial outcome, as its income dwindles in its twilight years.
Conclusion
This is pretty exciting stuff, and quite a journey. After glimpsing the business risks involved with RECs and seeing what the REC price is likely to do and how it could seriously affect your business for the worse, perhaps you were thinking of closing down shop. Yet we’ve just had a small insight into how lucrative the Strategies for Solar Success can be. We’ve just seen a bright future for strategically-minded solar power system installers, even without RECs. And there’s so much more depth, detail, strategies, target markets, marketing material, sales strategies, ways to mitigate RECs risk, the list goes on. Even the challenge of identifying target markets for large, Feed-in Tariff eligible, highly exporting systems has been taken care of.
Comments on the Complete and Introductory Reports
“This is a very well researched report, appropriately attributed, and with good direction back to source material. As a text book on the very specific subject of renewable energy certificates (RECs), it is the only document I have seen that covers the subject so comprehensively.”
– Bruce Hannam, President, SEIA (Sustainable Energy Industries Association Inc).
“Our Company could hardly wait for the rebates to be removed. Since this has happened we have sold more large systems than the entire time of Rebates. As you say in your emails large systems provide the only gain economically and genuine reduction of green house gas. Reduced RECS do not effect these larger systems (as you have pointed out). I look forward to a spreadsheet that will show kWhr daily usage versus solar daily delivery with approximation of feed in tariff credits.”
– Brian Springer, Springers Low Voltage Specialists
“Just read your first report. I think it is outstanding. I thank you for making this public to the solar installers of the country.”
– Mark Hickey, Nickel Energy
Plus further endorsements from the CEO of Australia’s largest PV REC trader, ATRAA founder and 2nd longest established (30+ years) solar company, Partner in a CleanTech Venture Capital firm, and more…
The Successful Solar Strategies report could help your business to prosper. It will be released on 21st October 2009.
• It contains invaluable analysis and industry insight that can contribute to your success.
• It provides a more detailed assessment of the RECs supply market, and provides four strategies for managing the risk of a sudden drop in REC prices.
• It includes payback graphs that can assist you to sell solar power to your customers
• It explores in depth seventeen strategies to sell an abundance of profitable solar systems.
• It demonstrates profitable ways to sell solar power even if RECs were worthless.
• It provides a financial analysis of commercial installations, with favourable outcomes
• Plus industry-proven sales techniques, incorporating successful international PV sales models.
• Plus a list of untapped target markets highly suitable for net Feed-in Tariffs
• Plus much, much more.
About SunWiz – Solar Energy Consulting:
SunWiz has extensive knowledge of all facets of solar energy: solar photovoltaic solar heating and cooling concentrating solar power solar drying passive solar design
SunWiz is able to provide the following services related to solar energy systems: Award-winning PV System Design Tender Preparation Procurement Advice Independent Tender Evaluation Business Opportunity Identification and Evaluation System Performance Monitoring and Reporting Technology Evaluation Feasibility Studies Installation supervision and sign-off
Warwick Johnston, manager of SunWiz has: Won two awards for Best Australian Solar Power System Managed the delivery of over 600 kW of PV systems BCSE/CEC Accreditation (Design and Supervise) and Membership (pending board approval) Completed a Masters in Renewable Energy (November 2009) Been awarded a fellowship for solar air conditioning Been a member of the PV directorate Been the treasurer of ANZSES (Victoria) Presented at a number of conferences
Consulting projects that Warwick has been involved with include: Opportunity identification for PV inclusion in Tsunami reconstruction on behalf of an international NGO PV opportunity identification and pre-feasibility studies for a number of local councils PV opportunities investigation on local council sporting pavilions Identification of 10 MW of untapped renewable energy resources in one council area Analysis of Victoria’s off-grid market potential for renewable energy Pre-feasibility study for two 250 kW tracking PV power stations Energy Efficiency Opportunity Assessments for large electricity users
Phone: +61 (0)413 361 534
Address: PO Box 263 Bangalow NSW 2479
Accreditation #: P1902
Member: ANZSES, ISES, ATA, EWB