The federal government’s proposal to ban the Clean Energy Finance Corporation from investing in wind power or rooftop solar projects has stirred outrage among many supporters. However, not everyone in the rooftop solar game sees the policy as cause for gloom, even as it raises questions about anti-competitive policy shifts.
Founder of Smart Commercial Solar Huon Hoogesteger described it as “an interesting move”, especially given the timing of the proposed mandate. It came just a week after Origin Energy gained a $100 million loan from the CEFC to fund domestic and small business rooftop solar installations under power purchase agreements with individual customers.
Mr Hoogesteger suggested that Origin gaining the competitive finance might put other major retailers such as AGL and Energy Australia at a commercial disadvantage, as they may no longer be able to obtain a similar deal.
“Origin now have some of the cheapest capital for PPAs at a price no-one else can get their hands on,” he said.
Origin now also has a mechanism by which they can retain customers.
“Retail electricity is a high churn industry, so if Origin can stop people leaving looking for the next cheaper bill, it gives them long term customers,” Mr Hoogesteger said.
“They can [legally] lock people into a long term PPA, but not lock them into an electricity bill [contract] long-term. PPAs give them customer retention beyond a normal [bill] contract.”
The Fifth Estate approached AGL and EnergyAustralia asking whether they thought the proposed mandate would put them at a commercial disadvantage relevant to Origin. Both said they would make no comment.
Origin did not provide a comment.
AGL has created a similar scheme to Origin’s without CEFC finance. Under the terms and conditions of the AGL scheme, a PPA is a contract of between seven and 15 years. In order to exit the PPA, customers have to purchase the residual value of the rooftop solar system.
International firms Sun Edison and Tindo Solar have also previously brokered finance deals with the CEFC for PPA installations for residential and commercial customers.
But the government’s mandate to make no more such deals, if formalised, might not be the death knell for smaller, independent solar firms that some fear.
One of the challenges for the small and medium sized solar power firms, Mr Hoogesteger said, has always been the $50 million minimum threshold for CEFC finance.
“Those firms couldn’t really use CEFC funding in any case,” he said, stressing the point that because the business case for solar stacks up so well, those businesses will still find a ready market.
“Solar is linear, and it has a fast break-even.”
He said he does agree with the idea the CEFC should be directing investment into new innovations that currently find it hard to get financing through mainstream financial institutions due to their lack of established market credibility.
These include biomass projects, projects with cattle farmers and the use of methane emissions from stock to generate power, and further developing the potential of the storage end of the renewable equation.
Lithium ion batteries, he said, were rapidly coming down in price, and now some have a lifetime of between 24 to 27 years. However, they are currently capital intensive to purchase and take around 17 years to achieve return on investment.
This is a timeframe that most banks are not willing to finance, he said, “but the CEFC might be able to wait that long.”
He said that in terms of the big picture, perhaps it is time the rooftop solar industry “stands on its own two feet.”
“We’ve had it pretty good. It’s now a mature industry, and perhaps it’s time to share the wealth [with other technologies].
“All we need is for the government to maintain a long term policy. It’s all the chopping and changing and uncertainty that’s the problem.”
The other thing that needs to happen is a levelling of the playing field with the fossil fuel generators.
“If the government is going to remove the rebates and incentives from solar as an energy source, it needs to remove them from coal as well and let there be a market-based mechanism for everything.”
Managing director of Solar Choice, Angus Gemmell, also believes the proposed limitations on the CEFC in relation to rooftop solar will have little impact on the industry.
Only 5 per cent of all rooftop installs in the nation were under PPAs, he said. The other 95 per cent of installations were being financed through traditional lenders, vendor finance or in the vast majority of cases bought outright as a capital expense.
These installations are also generally subsidised by Small Technology Certificates under the Renewable Energy target.
“The cost of upfront solar is so low, the ROI is generally about three years,” Mr Gemmell said.
“And there is no shortage of cheap finance from outside the CEFC for solar companies with good financial standing.”
Mr Gemmell said he can understand the wind power industry being “quite upset” by the mooted ban on wind investments, but he sees that can ultimately only benefit large scale solar, as this is where the CEFC would need to direct funding to be sure of generating a healthy return.
A spokeswoman for the CEFC told The Fifth Estate the organisation is currently in discussions with the government about the proposed mandate, and confirmed that if it does become formalised, it will mean no other firms can access a finance deal like Origin or Sun Edison’s.