Sun Burns Red Hot for Solar Sellers, whilst Businesses Risk Blindness.
As energy prices have headed North, so too have calls for Goanna to provide independent business case verification of large scale Solar and Solar/Battery proposals. Over the past 12 months Goanna have been commissioned to independently verify the technical and financial merits of some very significant "Behind the Meter" Commercial and Industrial scale Solar, Wind, Hydro and Solar/Battery investments, ranging from $100,000 all the way up to $25,000,000.
The key factors in determining the financial viability, NPV and payback period for most solar and solar/battery proposals are, Energy "Commodity" rates, Renewable Energy Certificate rates and businesses ability to avoid paying Network costs. So lets do some quick due diligence on each of these factors and check for any "Red Flags".
1. Energy Commodity Rates:
Firstly, the most obvious benefit of installing your own Solar system, is through avoiding paying your retailer the cost of energy, by producing your own energy, "Behind the Meter". So what's happening to the cost of the energy "Commodity" in the market place?
The Pool or Spot market for electricity in Tasmania is at a record high (shown below), in fact 2017 Year to Date, is even higher than it was during 2016, which contained the Energy Crisis.
These record spot prices are feeding into record high Forward Wholesale Contract rates and because rates for Export to the Grid, known as "Feed in" or "Buy back" rates, are relative to your contract and tend to follow Import from Grid "Sell" rates, Solar sellers have been only too happy to show businesses how the negotiated commercial "Feed in" rates have escalated in recent months. The price path of Tasmanian Calendar 2018 Wholesale energy rates are shown below.
So Red Flag Number 1 is to be aware that, if you are using the current 2018 energy rates for your long term "Business as Usual" costs, or indeed using the currently negotiated commercial "Feed in" rates to calculate the value of your solar outputs over the next 10 - 15 years, these rates may not be sustained in the long term and past performance is no indicator of future results!
2. Renewable Energy Certificate rates:
Residential and small business solar systems of less than 100KW (up to around $100,000 systems) generally qualify for Small Technology Certificates (STC's), but for systems of greater than 100KW (~ >$100,000 systems), Large Generation Certificates (LGC's) are produced under the MRET Scheme to encourage investment in Large Scale renewable energy.
LGC's are traded on a "Spot Market" and as shown in the graph below, the Spot market for LGC's is also trading at near record levels.
Red Flag Number 2 is to be aware that, if you are using only the current Spot market price for calculating the value of your LGC's over the next 10 - 12 years, these spot rates may not be sustained and past performance is no indicator of future results! For example, the current forward LGC price for 2020 is just $49.60, reflecting a softening in the market price due to the expected arrival of significant grid-scale renewable energy generation.
3. Ability to avoid Network costs:
Network costs make up around half the energy bill, so avoiding network costs by installing solar power "Behind the Meter" has been a key success factor in the uptake of renewable energy over the past 20 years. Unfortunately it has also meant that Networks, being regulated businesses, have simply increased rates to recover these otherwise "avoided costs". Networks then pass these costs through retailers, who pass them onto consumers, resulting in ever increasing cross subsidies to the "Solar Haves", effectively paid for by the "Solar have not's".
One of the most common TasNetworks Business Tariffs, known as TAS94 is a "Time of Use Tariff" with a Monday to Friday 7am to 10pm Peak Network rate of 10.6c/kWh + GST (2017/18). This Network Tariff has been a delight for solar sellers and buyers alike, as 5 days out of 7 solar energy produced behind the meter has avoided a significant portion of the network costs.
However the Australian Energy Regulator (AER) has obliged Network businesses, like TasNetworks, to move toward "Cost Reflective" tariffs from 1 July 2017. In response to this and other factors, TasNetworks has recently introduced two new Network tariffs with no "c/kWh" charging, known as Maximum Demand tariffs.
Maximum Demand tariffs for heavy industrial and large commercial users, have been around for a long time, but are the bane of solar sellers, as solar production rarely avoids their costs. For example even for an installation that reaches its peak demand between the peak solar producing hours of 11am to 3pm, just one day of cloud cover per Calendar month can mean that the 30 minute Peak demand is still reached, recorded and sets the monthly Network cost.
The newly introduced TasNetworks TAS88 Tariff (shown below) and TAS89 Tariff contain no c/kWh charging. All charges are calculated as a multiple of the maximum 30 minute (kVa) Demand recorded at any time during the billing month.
Red Flag Number 3 is to be aware that, if you are using the currently published 2017/18 Network "c/kWh" type Tariffs to calculate the value of avoided Network costs over the next 10 -15 years, these rates are on a price path to "Cost Reflectivity" and may not be sustainable in the longer term!
So if you're looking to invest $100,000 or $100 Million in renewable energy, Red Flag Number 4 is that, you're looking at 3 different quotes but have no independent business case verification or access to the normal due diligence, that you would usually apply to an investment of this magnitude. For credible, independent energy advice that is "Fit for Purpose", call Marc White now on 0418 596 162.
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Want to know more about Goanna Energy services? Phone Marc White on 0418 596 162 for more information or follow him on Twitter at https://twitter.com/MarcBWhite
While Goanna has endeavored to ensure that the information contained within this newsletter is accurate, we do not make any warranties or representations in relation to the accuracy of the information contained herein.
This newsletter is intended as general advice only and is not intended to constitute personal financial product advice. It is has been prepared without taking into account the personal circumstances, financial needs or objectives of any one person or organisation. Accordingly, individuals or organisations who seek to rely on information contained within this newsletter should undertake their ow
n independent enquiries and seek legal or financial advice prior to doing so.
Disclosure: Tasmanian Energy Brokers Pty Ltd is an affiliated business of Goanna Energy Consulting Pty Ltd.