The economics of commercial solar power – an example of a 50kW system

This video is going to show you the financials
for a 50 kilowatt commercial solar system. If you’re thinking of solar this is the essence
of it. This is a demonstration in the form of video of our financial modeling process.
It will show you some actual numbers about what a solar power systems costs and how much
it will benefit you. A lot of people have misconceptions about solar power. So before
I jump into the financial model here are some points clarified. Solar is not your only source
of power. You still keep the grid and, therefore, have a stable power supply. You can’t eliminate
your bill. You still have costs on your power bill which don’t necessarily vary according
to your electricity consumption. For example, there are fixed daily rates and charges based
on peak demand called KVA amongst others. In addition, when the sun isn’t shinning,
you pay for the power that you use. Solar isn’t a switched system. So it’s not as if
your business runs on solar power then that switches off then that runs on the grid again.
I call this the Toyota Prios view of the world. In reality it is more of a blending of resources.
Grid power and solar power. Your solar panels are always producing power as long as there
is light. If the sun isn’t shining it doesn’t provide power and you will then run off grid
power. When it’s cloudy it still provides some power and in all cases it just blends
with your existing grid power supply so you always have a full supply of clean electricity.
That system is passive; you don’t need to do anything. A steel fabricator once said
to me solar won’t work for us; we pull in an amazing amount of power. Solar is not trying
to supply all of that power, just diminish your demand from the grid. Here’s an example
and those numbers. Let’s say you’re looking at a 50 kilowatt system just for the sake
of an example. Let’s say you have a metal roof and we put the panels on tilt frames
and we use good quality components such as a top brand of solar panel and a good German
inverter and a quality monitoring system. The system might consist of 200 panels and
take up approximately 400 square meters of roof space if the system is installed flat
on roof. So here are those actual numbers. The full cost of that system will be around
$110,000 excluding GST. You then get a point of sale rebate for the STC’s, which are created
and are worth around $35,000. So it becomes an out of pocket cost of around $75,000. Underlining
our model is an assumption about how much power is produced. We know how much power
any given system size produces because we can observe it by monitoring and the Clean
Energy Council has published some average output data for different regions. This output
will vary day by day, season by season, but will be correct year by year. Based on the
Clean Energy Council guidelines for Sydney a 50 kilowatt system will produce around 195
kilowatt hours per day. When we create a financial model we’re fairly conservative about saying
what this output is. We also reduce this around the number of workdays your business has because
it is only power that is used as it is produces that matters and you don’t get paid for exported
power in most commercial scenarios. So on a 50 kilowatt system is around 195 kilowatt
hours per day. We analyze what you pay for hour and this is not 100% intuitive from your
power bill. We look at the variable costs which are made up from three categories of
your bill, the main rate, the network charges, then the insularly charges. In many businesses
this will all add up to be between 11 and 25 cents per kilowatt hour. This is the value
of power to you as you are substituting self-generated solar power for grid power. In our model we
run an analysis where we say power will rise by a certain percent per year. So here’s an
example of the savings, year 1, year 2, year 3, and so on. We then map this out compared
to the initial investment and we get a graph that shows this payback. Let’s say you borrowed
money to put the system on. Using the cost of finance we will also model that and this
will have two impacts. First it makes it easier to buy, sometimes with no initial capital
outlay. Second, it extends the payback by a year or so due to interest payments. When
we create the financial model the purpose is as a prediction of how solar will perform
for you. So we need to take into account a range of factors. Here are some of the things
that we cover. We feel that this makes it pretty accurate and what it shows you is that
solar will deliver for you. So, to work out how solar will work for you we need to start
out with a conversation about four things, your roof space, your power usage, the rate
you pay for power, and your timeline. If a payback of four to seven years will be suitable
for you, great let’s talk. We can put together a financial model in the form of a solar business
case just for you. As positive as we are about solar there are a couple of instances where
we think it won’t make sense. Here’s three examples. A lack of clear roof space can make
things difficult. Some office buildings could put solar on, but it may be relatively small
compared to their usage. A lack of usage can limit solar’s usefulness as you need to be
consuming the power it generates to make it economically viable. Even if you have a large
roof, but if you don’t use a lot of power then solar may not suite. Take, as an example,
a storage warehouse. It may have a great roof, but use just a few lights and little else,
so the power used would be exported for little or no benefit. A third reason that solar might
not suite is that you don’t have the right time frame. You might be on a short term lease
or thinking of moving. If you can’t see yourself being in the premises for at least five years
or so the decision becomes clouded. So industries are well suited for solar. For example, manufacturing,
food processing, many primary industries, golf clubs, aerosols, refrigeration, mechanical
workshops, engineering and fabrication, some warehousing, offices, and anywhere that has
a regular power load. So if you have a roof space, high power usage, and a view of the
world that extends past five years, solar will most likely be great for you. The returns
on investment in commercial solar are very attractive and can often exceed 20% per year.
The return is also highly predictable which makes the investment low risk. All in all,
a pretty compelling case we think. The figures here for a 50 kilowatt system can be extrapolated
for a 100 kilowatt system, as long as your roof space and power consumption allow for
that. The return on investment is the same, just the investment size changes. Over 100
kilowatts things change and STC’s change to a different system call LGC’s, which are not
available as an upfront point of sale discount. For this reason, 100 kilowatts is a sweet
spot for many businesses. We’ve actually developed a stringent methodology to develop the solar
business case and this is how we can demonstrate to you how solar power will perform financially.
If this video made sense and you would like a chat, call me, Stuart Gordon on 0424225097.
If this video makes no sense at all, but you’re still listening and you’d like to chat about
solar call me on 0424225097. Thank you.

2 thoughts on “The economics of commercial solar power – an example of a 50kW system

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