We have them over our heads, we raise them and sometimes we even hit them. But we rarely think of our roofs as assets.
Some lucky high-rise building owners with properties in the right spots might pick up a rent-paying mobile antenna or two.
But roof space is more usually the clutter-filled attic of commercial property, where condensers, generators and other ugly functions are hidden away.
But that is all about to change as the humble roof reinvents itself as a revenue-generating asset, with the agent for change being solar energy.
Recent research we’ve undertaken suggests that two trends are converging which could transform the roofs of Australian commercial property.
The first is the cheaper cost of solar photovoltaic, or solar PV, panels. A standard method for calibrating the cost of solar power is in dollars per watt, namely the capital cost for each watt of generating capacity. The increased volume from manufacturers and technology innovations is driving costs down to a point where generating power from solar panels competes with buying power from the grid.
We see solar PV falling to $3 per watt for commercial installations in the next five years.
Combine this with direct action initiatives such as feed-in tariffs and Renewable Energy Certificates and the maths for commercial and industrial building owners to invest in solar becomes compelling.
Direct action initiatives are the second trend. In the absence of a carbon price, state governments are taking their own renewable energy initiatives.
A common program provides for a so-called feed-in tariff, whereby building owners who operate solar energy systems are able to sell surplus power they produce back into the national grid.
The feed-in tariffs often far exceed the retail price for electricity. For example, in NSW, where electricity retail prices are 15c-20c a kilowatt hour, solar systems attract a feed-in tariff of 60c per KWh, a healthy premium.
To date, feed-in tariffs have been restricted to small residential systems.
But last month the Victorian government announced it would raise the threshold on qualifying system sizes, extending the opportunity to commercial and industrial building owners.
Similar developments in the US have led to some building owners leveraging their roofs to become local power generators, reducing their own costs and selling excess power to neighbouring businesses. A Toyota factory in California, which recently installed a 2.3 megawatt system has reported a 48 per cent reduction in power costs.
The second bonus available in Australia via direct action initiatives involves Renewable Energy Certificates, or RECs.
Systems up to 100KW can effectively claim RECs for their expected lifetime of generation up front. For a 100KW system, that’s a $98,000, or 25 per cent, subsidy to the capital cost. It is this effect which is driving residential solar installations.
RECs are a tradable commodity, therefore prices, and the corresponding subsidies available to building owners, have varied according to market prices.
But from January 1 the REC price for small-scale solar systems will be fixed at $40, giving certainty and allowing building owners to better forecast investment returns.
As an example, a low-rise office block in a business park installs a 1MW rooftop system at a cost of $4 million. The system uses 5500 panels and occupies a roof space approximately 100m by 100m. The system generates 2,100,000 KWh of electricity across the year, with reliable output during daylight hours.
Depending on usage profiles and the solar resource available, subsidies could reduce the cost per KWh by as much as 25 per cent, bringing the net cost of power from the system perilously close to the cost of buying power from the grid.
There is another secret weapon in this systems arsenal; predictability. Large-scale, solar power systems from good suppliers and using high-quality technology have a useful life of up to 25 years.
So long as the sun comes up each morning, this system will keep producing power at the same price, whereas most industry forecasters anticipate that retail electricity prices will rise at double-digit rates.
A solar system allows building owners to lock in prices, effectively providing a hedge against rising and variable retail prices.
