Instyle Solar Solar for Business- Step 2. A Solar PV Feasibility Study

In today’s world, it’s becoming increasingly important to develop a sustainable energy strategy due to climate change obligations, reducing operational costs and also ensuring energy security for vital business operations during periods of power blackouts.

The journey to sustainable energy is a process, so start off with the little things - “Low Hanging Fruit” as they call it - by optimising your energy usage through both technology and operational control improvements. Work your way down the list till you get to invest in renewables.

Once you have done this and performed an analysis of your facility’s demand load profile then it’s time to dive a bit deeper into the business of solar. After all, it’s a business investment and as a business, you need to do your homework and follow due diligence.

It’s probably worth investing in an independent professional to assist you with this part of the project. They will be able to conduct a due diligence report to better understand your business and conduct a sort of pre-feasibility study into solar PV and how much electricity it can save you. They can help you explore the possibilities and economic viability of energy storage.

What’s Included in a Solar PV Feasibility Study

Well, you need to maximise your amount of clean energy self-consumption so the aim of the feasibility study is to size a system appropriately. Almost like the “Goldilocks Effect”. Not too big not too small but just right so it can match your average consumption.

Of course, you will be limited by the size of your roof or amount of space you have for the solar panels and whether or not the roof space is facing the right direction. In the Southern Hemisphere, this would be true north.

The economic side of the report should look at your current utility rate; do you pay a demand charge? Are you on a Time of Use (TOU) tariff?

By estimating the amount of energy your business consumes during the day and how much you pay per kWh, you will be able to establish how much energy you will offset during the day from the yield of the solar PV system.

The yield of the solar PV system is the amount of clean energy it produces. The yield varies depending on the time of day and the time of year.

There are also other factors that affect yield such as losses, etc. but to keep things simple we’ll just stick to the basics for now.

Your solar PV system produces more power during the summer than the winter due to the positioning of the sun. So another important factor to consider is if your business is seasonal or whether it is pretty much consistent throughout the year.

This goes back again to your demand profile, showing how important it is to understand your energy profile!

If your business has a consistent energy profile throughout the year or where your peak demand is in summer, then you will benefit greatly from a solar PV system as its peak production is in the summer.

The feasibility study should establish how much you will be saving financially. One needs to establish how much you are spending on electricity during the day and the night too. From here it’s necessary to compare this either to the kWh cost of the solar PV system if it’s a CAPEX investment or the KWh cost of a Solar PV leasing model. In most situation,s though it’s ideal to compare both options.

If as a business you are planning on owning and operating the solar PV system then you need to know how much a kWh generated by the solar PV system is going to cost you.

This is established by dividing the total CAPEX amount by the total amount of estimated kWh the system is expected to produce over the lifetime of the project.

Typically the industry standard here is 25 years.

Ideally, you want the kWh cost to be lower than your utility charges.

The feasibility study takes all of this into account and also provides a financial analysis on the payback period, ROI and IRR. It’s also worth investigating solar PV leasing models at this stage as in many instances they are an ideal way to go if there are budget constraints or the business is on very high tariff rates.

A solar PV system should in theory also assist in bringing down those dreaded demand charges, although it’s quite difficult to model the potential demand charge savings from a solar PV system.

So what is the difference between owning a solar PV system outright and a leasing model or PPA?

If you are planning on investing in a solar PV outright and owning it then a fair amount of CAPEX is required. It does have it certain advantages though. One of them is your unit kWh cost will probably be lower than any leasing model can offer.

However, the downside of this is that you are responsible for the upkeep of the system and maintenance. It’s also not ideal if there are budget constraints.

With a leasing model (PPA), a third party would install and operate the solar PV system and your business would then pay for each kWh generated and used by the facility. Typically this KWh charge would be lower than the utility charge.

The advantage of the leasing model is that the third party would be responsible for the system in terms of maintenance and there’s no CAPEX required. You would also hedge against future utility price increases to a certain extent depending on the leasing agreement. This model is ideal for companies that don’t want to have a large capital outlay. Expect the kWh charge to be slightly more though than owning a system outright.

Leasing models are worth exploring as the financial models for this solution become ever more creative!

The Financial Aspects

Next in line are the finer details.

They say in life that there are only two certain things: “Death & Taxes!”

Investigate what the tax implications of going solar are for your business.

If you are considering a solar PV leasing agreement then you could possibly include the rental as a tax deductible.

Likewise, if you are exporting and benefiting from a Feed-in Tariff (FIT) then you might be liable for GST.

Financial Incentives

There is a myriad of different financial incentives that one can take advantage of when investing in solar PV but the Renewable Energy Certificate opportunity is probably one of the most lucrative out of them all.

Renewable Energy Certificates (RECs) are a popular choice amongst governments around the world to stimulate the renewable energy market. What are they though?

Renewable Energy Certificates or RECs as they are also called, are a unit of clean electricity produced that can be traded or sold for a monetary value.

Australia introduced its renewable energy targets way back in 2001 and required all energy retailers to purchase a set amount of certificates each year.

These RECs can be broken down into two distinct classifications.

Small-scale technology certificates

Large-scale generation certificates

Let’s take a look at Small-scale technology certificates first. These apply to small-scale systems that are under 100 kW in size. In simple terms, one STC as they are called is equal to 1 MWh or 1 000 kWh. The price of STCs vary according to market conditions and is based on supply and demand principles of economics.

You can use the STC online calculator to do some rough calculations on the number of STCs your system can generate.

So where can you trade STCs?

There are two options really.

You can assign your STCs upfront to an agent when you install your solar PV system and either benefit from a discount on your system installation cost or opt for a delayed cash payment of your STCs.

The 2nd option is to create your own STCs.

This means finding a buyer and selling it to them through the renewable energy certificate registry. However, you will still need to run it through a registered agent.

Large-scale generation certificates apply to solar PV systems that are over 100 kW in size. There’s a bit more admin here, unfortunately. To take advantage of LGCs you’ll need to register as a power station first with the CER.

Once registered you will be assigned a REC registry account.

It’s then possible to create Large-scale Generation Certificates through the REC registry account.

One LGC is equal to 1 MWh or 1 000 kWh.

The price of LGCs also depends on market conditions as well as their counterpart LGCs.

Unlike STCs, LGCs can only be created once they have been generated and also need to be validated by the CER.

Once all of this has been done you can then trade the certificates to purchasers of electricity such as electricity retailers that have RET commitments.

Choosing a Solar PV Installer

The next step is finding a suitable PV installer.

Choosing an installer that has experience with larger commercial-sized solar PV systems is recommended.

Also, ensure they are approved by the Australian Clean Energy Council.

The Australian Clean Energy Council has developed a code of conduct for PV installers and approved installers abide by this code of conduct and have demonstrated their commitment to service and quality.

Conclusion

A fair amount of pre-planning is required before a business decides on investing in a solar PV system, so have an independent professional consultant conduct a feasibility study. They will take such variables as your current utility tariff rate into account and the estimated market cost of solar PV.

They will also establish the optimal size of the PV system needed, based on the facility’s average energy consumption.

From all of this data a financial analysis can be conducted.

Other things to consider are renewable energy certificate incentives and ensuring an approved Clean Energy Council solar PV installer with experience in commercial installations is used.

Next Step

If you want to see how much solar or battery storage could save you over the next 5 years, then take our solar saving calculator quiz below!

Or talk to an Instyle Solar expert about the best solutions for home energy storage or PV-panels.

Otherwise, head back to the solar blog to find even more great educational content.

Photo credit: Depositphotos

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