Draft Roadmap Report - Chapter 5

5.    BUSINESS MODELS

This section describes the different approaches or ‘business models’ that can be used to drive uptake of renewable energy technologies. It is based on material from the report ‘Background Technical Study: Bright Futures Renewable Energy Project’ for East Gippsland Shire Council, but has been updated based on feedback from Zero Emissions Noosa and a series of community consultations in Noosa. 

The emphasis here is on identifying new opportunities that the community can develop. This means the technologies should be both commercially available and readily deployable within Noosa. To reach 100% renewable energy it is likely that large-scale projects will need to be built outside Noosa. These are longer-term projects and as discussed above are better built after 2020 when they are more likely to be additional. Thus, although larger-scale systems are discussed here, the emphasis is on smaller scale (100kW or less) systems that can be built within Noosa Shire. 

As highlighted in the modelling results above, solar PV is likely to be the predominant technology deployed within Noosa. It has very short payback times (around 5 years for residential, and 4 to 9 years for commercial-scale), can be deployed at any scale, and has no moving parts and so is very reliable and requires very little maintenance. Solar water heaters and other energy efficiency technologies will of course also be taken up, and possibly bioenergy and a some small-scale wind – and many of the business models and programs discussed in this report could be applied to these technologies also. 
Although the focus here is on renewable energy, it is always a good idea to incorporate the uptake of energy efficiency. This will reduce the amount of renewable energy generators required to meet the 100% target, and can be used to reduce the amount of electricity required when solar PV isn’t generating (and so reduce the import from the wider electricity grid). Demand side management is an overarching term that includes energy efficiency, but also includes, for example, shifting loads from the evening to the middle of the day when solar is generating. This both reduces the daytime export and reduces the evening peaks (which in turn reduces the size, and cost, of the networks required to meet these peaks).

Section 6 draws on these options to propose specific examples of actions that EGSC and the local community can undertake.

5.1.    Direct ownership

The most common ‘business model’ for the uptake of small to medium-scale renewable energy is direct ownership, where the host site (be it a household or a business) purchases the renewable energy system outright. Such systems commonly have a simple payback time of 5 years or less.[27]  The most common variation to this theme is where the installer offers some form of finance to help overcome the upfront cost barrier.

Two common approaches to assist households in particular, as well as businesses, to install solar are solar/battery bulk buys and what are often called Solar $aver programs.

5.1.1.    Bulk buys

‘Bulk buys’ are an approach used to reduce the upfront cost of solar PV systems. They can also be used for solar water heaters, but this is rare. They were first used widely back in 2010, and required 50 or more households to ‘sign up’ with an expression of interest. When sufficient ‘sign ups’ had been received, the components for 50 systems would be purchased in bulk at a discount and installed. Nowadays they are more flexible and generally don’t wait until a certain number of systems have been ordered. Recent examples are listed in Table X below, and in summary:

a)    They generally involve a community group responsible for coordination and public outreach, but can also involve the local council. They may also be coordinated by a private business or social enterprise.
b)    Local installers are used, and are vetted with respect to the quality of their installations and whether they are likely to be around to honour warranty claims. 
c)    A limited number of types of systems are available, both in terms of technology options and sizes, and they generally include additional costs in specific circumstances such as: the building being more than a single storey, the roof being tiled, and where a framing is required to angle the panels. 
d)    They can also result in public benefits of some sort, such as direct financial contributions to particular community groups, or a free system for a community building for every X number of total installations. 
e)    Prices are not necessarily much cheaper than normal, but there is an implied guarantee regarding the quality of both the systems and the installers. More recently they have included batteries and options such as Reposit. 
f)    Some are run only in the organisation’s local area (eg. Darebin, MASH, SHASA), and some are run by organisations that work in a number of areas (eg. Farming the Sun). 

A detailed recommendation for how Noosa could participate in a bulk buy is provided in Section 6.2.1.

 Table X - Examples of Solar Bulk Buys

Table X - Examples of Solar Bulk Buys

5.1.2.    Solar $aver Programs

The first Solar $aver program was developed by Darebin City Council, which has been very proactive in encouraging uptake of solar PV. As well as the solar bulk buy described above, in 2014 and 2016 they rolled out the Solar $avers program, and have another planned for 2016. They allow pensioners; not-for-profit organisations; and renters in social housing, in receipt of a Centrelink benefit or in housing poverty, the chance to get a solar system. In the 2019 round, eligible residents will first receive a no-obligation quote on a 2 kW to 5 kW solar PV system. DCC will pay for the system up front and the household will then pay off the system interest-free over 10 years through special quarterly rate payments. The payments are less than the savings on their electricity bills. In the first two rounds households could also receive free advice on energy efficiency from Positive Charge (a social enterprise of not-for-profit community organisation Moreland Energy Foundation). Positive Charge also provided project management, household advice, solar assessment and brokers specifications and contracts on behalf of the solar PV supplier and Council. Nearly 500 solar PV systems have been installed through the Solar $avers program to date. More information on this model is available on the Embark website. [28] 

A scaled-up version of Solar $avers is now being coordinated by the Victorian Greenhouse Alliances. It follows a six stage process:

  1. They check that solar is right for the household.
  2. They arrange a quote for a solar.
  3. The household then approves the quote.
  4. They organise for the solar system to be installed.
  5. They support the household to understand and get the most out of their new solar system.
  6. The household gradually pays for their solar system over ten years.

Instead of using repayments through rate increases they are using low interest loans through Bank Australia. A condition of this program is that all households must be at least $100 better of each year. [29] 

The Queensland government is currently running the Sunny Savers trials, which are a form of Solar $avers that target social housing – see Section 5.2. Recommendations for the Solar $avers type of approach in Noosa are discussed in Section 6.2.1.

5.2.    Targeted Social Housing Programs

These types of programs are similar to the Darebin model except that they target government-owned housing. They aim to reduce electricity costs for tenants and essentially revolve around a state government body organising to have solar installed on public housing, which is then either partially or fully paid off over time by the tenants. 

The Queensland government is currently conducting the Sunny Savers trials in Cairns, Rockhampton and Logan through their Housing Service Centres. The trials are being conducted in partnership between the Department of Housing and Public Works and the Department of Natural Resources, Mines and Energy. Where householders can’t pay upfront for their solar PV system themselves, three different purchase options are available. One uses a solar Power Purchase Agreement (PPA) approach where the system is installed free of charge, and the tenant agrees to purchase some or all of the electricity it generates at a per kWh rate that is less than grid electricity. After between 7 and 15 years the householder either owns or can buy out the system. Under the second option the householder can take out a solar loan to cover the cost, with repayments over 2-5 years, after which time they own the system. The third option uses a solar lease, where the householder pays a regular lease charge, then owns or can buy out the system after 5-10 years.[30] 

5.3.    Solar Power Purchase Agreements and Solar Leasing

Solar PPAs offered by solar installers are very popular in the United States, and may be becoming more popular in Australia. They involve the installer owning and operating a PV system on a house or business – which is then obliged to pay for any electricity it consumes directly from the PV system, but at a rate lower than grid electricity. The customer remains with whatever retailer they choose to be with, who meets the remainder of their electricity needs. Some solar PPAs come with the option of owning the system after a certain time, in which case the tariff payments are higher. Despite a number of companies offering this sort of product to the residential sector, they have not proven very popular in Australia, with most households preferring to own their own system. The latest efforts to target the residential solar PPA market have tended to be organised by property developers, who offer solar PPAs en masse to new home buyers,[31]  and governments, such as in the Sunny Savers trials in Section 5.2. Another recent offering by ShineHub combines solar PPAs with a bulk buy of solar PV and batteries.[32]  It will target all states except for the Northern Territory and Tasmania, and offers PV between 3 and 10kW, and batteries between 5.8 and 22.8 kWh. Households will enter into a 20 year contract to buy the solar at a ‘low fixed rate’ that ShineHub says will deliver instant bill savings of between 14% (in Victoria) up to 50% (in South Australia), and the option to buy the system out at any point along the way.

Solar PPAs have been a bit more successful in the commercial sector, being offered by companies such as Energy Lease, Energy Matters, Infinite Energy and ReNu Energy.

These companies (and others) also offer solar leasing options, with the difference being that payments to the installer/leasing company are for a fixed amount, rather than being based on a per kWh rate. The lease periods are also generally much shorter than solar PPA periods (eg. 7 to 15 years vs 10 to 20 years).

5.4.    Overcoming the split incentive barrier

A significant problem for the uptake on tenanted premises (both residential and commercial) is the ‘split incentive barrier’. With regards to solar PV systems, this is where the building owner has little incentive to install solar because the tenant will receive the benefits (assuming they pay their own electricity bills). 

Apart from the options outlined above where the housing is government-owned, there are a number of options either currently available, or being explored, to overcome this barrier. Note that although none of them necessarily involve a real estate agent, all will require some level of cooperation between the landlord and the tenant. 

Simple agreement: In this case the landlord pays for and installs the PV system, then enters into an agreement with the tenant where the benefit to the tenant is either estimated or calculated. To calculate the total value the amount of exported electricity (kWh) is subtracted from the total generation to calculate the amount of on-site use. The exported and on-site electricity are multiplied by their respective tariffs to obtain to total value. The tenant then pays the landlord all or a proportion of this value, either through increased rent or direct payment.

Electricity retailer facilitated: In this case the retailer acts as a broker between the tenant and the landlord. Again the landlord pays for the system. The retailer has access to the information required to determine the value provided by the system, and can then apportion this value to the tenant and landlord. 

Third party automation: Here a private business installs hardware that measures the exported and on-site electricity and the associated value, then uses bespoke software to arrange payment from the tenant to the landlord.[33]  This could be seen as a type of solar PPA and examples include SunTenants[34] , Matter[35]  and Blue Star Energy[36] , which differ in the nature of the costs faced by the landlord and the tenants, and how the landlord is paid (e.g. directly or through increased rent). A recent variation on this is where Stoddart Group, together with Powershop and Reposit are providing ‘SunYield’, a plan where PV systems are installed on new investment properties, where the tenants receive a single power bill that includes electricity from the solar PV system, and landlords receive income from the PV electricity sales.[37]

Environmental Upgrade Agreements: An EUA is a process whereby a building owner can access funding for construction works (generally for renewable energy or improvements to energy efficiency), the local council then collects repayments through its rates system and passes these on to the lender. Because the loan is repaid through the council rates system it is prioritised over other debts if there is a default. This increased security means the lender can offer a reduced interest rate. An EUA also means that the business that occupies the building can move on as the loan (and the improvements) stay with the building. In this case the building owner would need to charge higher rents to cover the increases to its rates.

Solar Garden: A solar garden is an option where individuals can purchase a ‘share’ of a solar PV system on someone else’s roof. There are broadly two different types of solar gardens. One type is essentially an investment-based approach where an individual can invest in a project as discussed in Section 5.5.2. The other is where the electricity must be used on an instantaneous basis, and so the solar system is seen to be supplying the electricity to the individual involved in the solar garden directly to their home via the grid (for example through Local Energy Trading as discussed in Section 5.6).

5.5.    Community-Owned Renewable Energy projects

Community-Owned Renewable Energy (CORE) projects can be either donation-based or investment-based. Both kinds could be implemented in Noosa.

5.5.1.    Donation-based projects

Donation-based projects, such as those developed by Community-Owned Renewable Energy Mullumbimby (COREM)[38]  and Citizens Own Renewable Energy Network Australia (CORENA) [39] rely on donations, and other forms of income such as fundraising events, to raise funds for PV systems – generally for community groups. The funds are provided as loans that are then repaid from savings in electricity bills. The repayments go into a revolving fund that can then be used to finance more projects, and so on. This approach relies on the host site helping to drive the fundraising efforts using their local networks, and organisations such as COREM and CORENA running the request for tender process, selecting the installer and helping with any post installation issues. They may also provide excess funds available from other fundraising efforts. It may be possible for a community group in Noosa to access funds from groups such as these, but the process would need to be driven by a local group. CORENA currently has funds available to help with donation-based projects.

5.5.2.    Investment-based projects

Investment projects are far more complex and challenging than donation-based projects. This is because the organisation responsible for the project invests money on behalf of others and so has legal obligations regarding the use and return of that money. The following briefly describes the available legal structures and provides examples operating in Australia. [40]

The available legal structures can be divided into those most suitable for systems less than 100 kW and those most suitable for larger systems. The former are simpler to establish and operate, and are limited to 20 investors per year (the 20/12 Rule)[41] . In Australia, a hybrid approach is often used: with a ‘parent’ organisation using one type of structure, and a different type of legal structure for each renewable energy system (or group of systems). RePower Shoalhaven and ClearSky Solar use this approach.

Less than 100 kW:
•    incorporated association (RePower Shoalhaven)
•    private company limited by shares (Farming the Sun; RePower Shoalhaven)
•    unlisted public company limited by guarantee (ClearSky Solar)
•    trust and trustee company (ClearSky Solar)

More that 100 kW:
•    unlisted public company limited by shares (SRPC, Sapphire)
•    co-operatives (Hepburn Wind)
•    listed public company. 

There are currently no listed public companies that have been established for CORE projects, most likely because of the high cost in establishing and operating them.

Farming the Sun has developed two separate 99 kW solar systems: one on Goonellabah Sports & Aquatic Centre and one floating at the East Lismore Sewage Treatment Plant. Each involved the establishment of a proprietary (private) company limited by shares (each with a maximum of 20 shareholders). Each raised $180,000 that was provided as unsecured loans to Lismore City Council at 5.5% over 7 years. Savings on electricity costs enable the Council to repay both the interest and capital of the loan. Returns to investors are paid annually, and target a fully franked dividend of around 3.7% per annum. This approach may also be suitable for Noosa, and it is possible that Farming the Sun would be happy to provide assistance.

RePower Shoalhaven is an incorporated association where members can invest money in discrete renewable energy projects. Solar PV systems are installed behind the meter on host premises, which buy the electricity at reduced rates. For each solar system, or group of systems, a private company limited by shares is created which owns the system(s), and is limited to 20 investors per year. Once the system is paid off, it then becomes the property of the host site. Member investors are paid a return on their investment, with the capital also being returned. To date, 7 tranches of projects have been developed.[42]  This approach should be suitable for Noosa, and it is possible RePower Shoalhaven would be happy to provide assistance. The main difference to the Farming the Sun approach is that with Farming the Sun, the private company doesn’t own the PV system but just loans the money to the host site (which owns the system from day 1).

ClearSky Solar Investments is a public company limited by guarantee. It is operated as a not-for-profit social enterprise. It helps to establish trusts as platforms for specific renewable energy projects. Investors can buy units in one of the trusts, with a maximum of 20 investors per project in a single year (the 20/12 Rule). This money is then passed to the for-profit installation company Smart Commercial Solar, who is contracted to own and operate the system. Smart Commercial Solar pays the trust an annual amount that consists of one seventh of the initial capital plus a revenue stream based on a value per kWh generated. This is then passed to investors after fees have been deducted. After seven years the host site owns the PV system. If this approach is to be used for Noosa, because of its complexity, it would most likely be best if ClearSky Solar was invited to manage a local project. ClearSky also have their dedicated installer, and so local installers could not be used. 

Sydney Renewable Power Company (SRPC) is an unlisted public company limited by shares. A total of 519 shares were sold at $2,750 each, raising $1,427,250. It has funded Australia’s largest CBD solar array at the International Convention Centre in Sydney. Each year it expects to pay dividends and aims to also return capital to investors. This approach is not recommended for sub 100kW projects within Noosa because it: “faces all of the expensive disclosure requirements that come with that structure. It relies on volunteers to run the company under a public company governance framework. … Ongoing ASIC requirements are expensive and time-consuming and involve half- yearly reviews”. [43]

Sapphire Wind Farm is an interesting and recent development where a community investment vehicle is being established to own part of the wind farm to be located between Inverell and Glen Innes in northern NSW. This investment vehicle will most likely be an unlisted public company limited by shares. In this case the investment vehicle will acquire the rights to a portion of the earnings from the wind farm but will have no decision-making power or control over the operation of the wind farm. The wind farm is being built by CWP Renewables, who contracted Taryn Lane (Akin Consulting) and Adam Blakester (Starfish Initiatives, who established Farming the Sun above), to investigate the community investment.  [44]

Hepburn Wind is the trading name of Hepburn Community Wind Park Co-operative Ltd. It was established in 2007 by the Hepburn Renewable Energy Association (an incorporated association now known as SHARE). Is it the owner and operator of Australia’s first community-owned wind farm, which consists of two turbines totalling 4.1 MW, located at Leonards Hill.

Once a cooperative is formed, members are allotted shares and a Board of Directors is elected. The board sets policies and establishes the business plan and the management deals with the day-to-day business. Renewable energy cooperatives would be classified as infrastructure cooperatives and so are required to undertake asset maintenance and renewal forward planning over the entire life of the infrastructure. Such cooperatives would normally be classified as a trading cooperative because they sell electricity to a third party. As such, they would be for-profit where income that isn’t distributed to the member shareholders would be taxable. This approach should be suitable for Noosa for larger-scale projects, although note that such a structure has significant ASIC reporting requirements.

Some Qld-specific information on community-owned renewable energy projects can be found at the Energetic Communities Association website,[45]  and some more general information in the Community Power Agency’s ‘How To Guide’,[46]  and the Victorian Government’s ‘Guide to Community-Owned Renewable Energy for Victorians’. [47] Specific proposals for CORE projects in Noosa are discussed in Section 6.3.5.

5.6.    Local Energy Trading

Local Energy Trading (LET) [48] is basically where electricity produced by small generators (such as solar PV systems) can be sold directly to particular customers elsewhere on the grid. Although the name implies they are near each other, in fact there is also no upper limit to the distances between consumers and generators trading electricity – as long as they are on the same network. This is also called wheeling, where generation at one site is deemed to pass through the distribution system to a remotely located energy user. The most significant issue is negotiating the grid network charges that are applied to the transported electricity.

Most organisations emerging in the LET field use blockchain technology (the technology that underpins Bitcoin). Local examples include Power Ledger (based in Perth) [49] and LO3 Energy (based in Byron Bay)[50] , and now SonnenFlat. It is also the subject of ‘desktop’ trials, such as by AGL in Melbourne. Blockchain technology uses software that tracks multiple transactions between peers in a very secure manner without a third-party facilitator (hence the term peer-to-peer trading). It can be used to track the amount of renewable electricity generated by different people/businesses, as well as manage the sale of that electricity, possibly to multiple buyers. This minimises involvement by third-parties, which should reduce costs, and so maximise the returns to owners of distributed generation systems. 

One exception to the use of blockchain technology is the Australian start-up Nexergy,[51]  which uses simple reconciliation of transactions, where electricity is either sold into, or bought from, a general pool (rather than directly between peers). It also occurs in real time (the generation and use of the exported electricity occur at the same time) and from the customers’ point of view, is essentially the same as the blockchain approach. 

For both these versions of LET, the electricity flows can be measured using technology such as smart meters, while the financial flows around electricity trading, and the financial accounting (ie. reconciliation of who owes who and how much) are handled by information technologies and innovative accounting systems. 

LET options for Noosa can be broadly divided into two types: i) uses an embedded network, and ii) uses Energex’s network.

5.6.1.    Embedded networks

An embedded network is an electricity network attached by a single connection point to the main grid. The embedded network itself is not owned by Energex, but instead by a 3rd party. Examples include a greenfield urban development or within an industrial estate, apartment block, retirement village or caravan park. In such cases, a 3rd party could operate as a retailer, selling electricity to internal customers. This can already happen simply using sub-meters, however it gets more complicated if solar PV (or some other generator) is generating electricity within that network. In this case, LET can be used to distribute the financial costs and benefits within that embedded network. 

A significant advantage of embedded networks is that when excess PV electricity is exported and used by a neighbour, no per kWh network charges will apply, which means that the owner of the PV system can get more for their export and at the same time the user can buy electricity for less that the normal retail rate. Another advantage is that with only a single point of connection to the grid, there is only one daily connection charge, rather than one for each customer. 

The PV arrangement is generally divided into two types. One where a single larger PV system exports electricity to a number of customers (eg. an apartment block or businesses within a larger building), and one where each dwelling could have it’s own PV system that exports to other dwellings on the embedded network (eg. retirement villages). 

Pseudo-embedded networks

A third option has recently emerged that is currently being applied to apartments blocks. It is provided by Allume Energy and is where a single large PV system is separately wired ‘behind-the-meter’ to all the dwellings, and so doesn’t use the embedded network at all.[52]  PV is distributed to all residents in proportion to their instantaneous load. 

Allume Energy has 2 possible business models at present:

1)    The strata pays upfront for the PV system as well as the distribution equipment (wiring and metering). There is then a $5 per month per customer administration charge and the PV electricity is free.
2)    Allume lease the roof from the strata (for $0), and pay for the PV and metering installation and sell generation to residents via a solar PPA set at less than the going retail rate for electricity. 

This is approach can be used where the buildings are on Energex’s network (rather than on an embedded network) and the per kWh network charges can still be avoided, however each customer still has to pay a single daily connection charge.

5.6.2.    Using Energex’s network

Under current network arrangements, when a distributed generation system such as a PV system exports electricity to the grid, the owner of the PV system is paid only the costs avoided by the retailer – which are essentially the avoided wholesale electricity costs. This is because when that electricity is on-sold, the retailer must pay the full network costs. These costs will also apply when LET is used, although the third party operator of the LET system may charge less than a retailer. 

Of course, it can be argued that the network payments should only cover the amount of the network used, which would be much lower than normal since the exporting PV system may be very close to the importing customer. In this way, LET can be used to reconcile payments between a generator and a customer where network charges are reduced in much the same way as they would be on an embedded network. Unfortunately this has not occurred to date in Australia.


Footnotes:

[27] This assumes the PV system has been well installed in the optimal orientation. 
[28] http://www.embark.com.au/display/public/content/Darebin+Solar+Savers+model+description
[29]http://solarsavers.org.au
[30]  More information is available here https://www.qld.gov.au/housing/buying-owning-home/compare-solar-purchase-options
[31]  https://onestepoffthegrid.com.au/wa-residential-solar-ppa-absolute-game-changer/ 
[32]  https://onestepoffthegrid.com.au/low-income-homes-offered-no-cost-solar-batteries/  [33] One example is Matter, which at the time of writing cost $1,507 upfront per site, then an ongoing fee of $14/month, http://go.matter.solar/going-solar/. Another example is SunTenants, but this is yet to be officially launched - https://www.suntenants.com.
[34]  https://www.suntenants.com
[35]  http://matter.solar
[36]  https://www.bluestarenergy.com.au/solar-pv/solar-landlords-tenants/ 
[37]  https://onestepoffthegrid.com.au/rental-solar-scheme-targets-15000-queensland-investment-homes/ 
[38]  http://www.corem.org.au/projects-2/ 
[39]  https://corenafund.org.au
[40]  The legal structure is different to the governance structure, where the latter relates to the set of processes by which an organisation makes decisions. Although the choice of legal structure does affect some aspects of how decisions are made, there is enough flexibility within Australian law to allow tailoring of the governance of an organisation within the chose legal structure.
[41]  http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s708.html
[42]  https://www.repower.net.au/projects.html   
[43] ‘Funding Basics Guidebook for Community Energy Projects’ by Frontier Impact Group, https://www.frontierimpact.com.au/toolkit
[44]  More information is available at the following link, especially in the FAQ pdf - http://www.sapphirewindfarm.com.au/community-investment/ 
[45]  http://www.energeticcommunities.org.au
[46] http://cpagency.org.au/wp-content/uploads/2014/06/CPAgency_HowtoGuide2014-web.pdf
[47]  http://www.business.vic.gov.au/__data/assets/pdf_file/0007/1407751/Community-Energy-Projects-Guidelines-Booklet.pdf
[48]  Also sometimes called Virtual Net Metering.
[49]  https://powerledger.io, for example at White Gum Valley in Fremantle, WA.
[50]  http://lo3energy.com, for example in Brooklyn, New York.
[51]  http://nexergy.co
[52] https://allumeenergy.com.au

 

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