Landlord Energy — Providing Solar For Commercial Tenants June 4, 2018 by Ronald Brakels
If you are a business owner there’s an excellent chance you’re not happy with cost of grid electricity and would love to lower your bills with rooftop solar. Unfortunately, there’s also an excellent chance you rent your business premises and so don’t have much of an incentive to install solar. After all you can’t take it with you when you leave.
While there are a few enlightened landlords who have installed solar on the roofs of residential properties – with no strings attached other than perhaps a modest increase in weekly rent – these solar saints are very rare in the business world. In my personal experience, landlords tend to be very reluctant to invest in their properties unless they are certain of getting a decent return on their money. I’m not saying all landlords are tight-fisted, but I’ve met a few who could probably crush coal into diamonds in the palms of their hands.
To get solar power onto rented commercial roofs will require a service that gives business tenants some of the benefits of solar while making sure landlords get the high rate of return they crave. It’s a difficult balancing act, but one new company that is ready to have a go at threading that needle is Landlord Energy. They will install solar panels on business premises and work with their electricity retailer partner, Diamond Energy, so the tenant is charged 22 cents1 per kilowatt-hour of solar electricity they use. This is less than the cost of grid electricity for many small and medium sized businesses. The landlord receives a 20 cent payment for each kilowatt-hour of solar electricity the the tenant uses (22 cents less 2 cents GST) and any solar feed-in tariff received for sending electricity into the grid. Landlord Energy subtracts their fee from this amount, which is 2 cents per solar kilowatt-hour produced, regardless of if the tenant uses it or it receives a feed-in tariff.
While most tenants are only likely to see their electricity bills reduced by a modest amount, the good news is this service costs them nothing. Even if they only save a relatively small amount of money the deal is still full of win for them. They will pay less, the environment will benefit, and the solar panels on the roof should even make the building slightly cooler in summer.
Landlord Energy is part of the international solar installation company PowerVault and is now ready to roll in NSW, Victoria and South East Queensland. They’re also planning to become available in South Australia in the future.
How Landlord Energy Works
Here’s a quick list outlining how Landlord Energy works and I’ll go into more detail below. But first I will engage in something I very rarely do and abbreviate2. Instead of writing Landlord Energy I am just going to refer to them as LE.
How LE works:
- The tenant and landlord agree to use LE’s service.
- The landlord purchases rooftop solar from LE.
- The tenant signs up with Diamond Energy.
- Diamond Energy installs a smart meter and also installs a small additional meter that monitors the tenant’s solar electricity consumption.
- Diamond Energy charges the tenant for the grid electricity they use and 22 cents for each kilowatt-hour of solar electricity.
- Diamond Energy forwards the solar electricity payment and feed-in tariff to LE who pass it onto the landlord.
Tenants And Landlords Have To Agree To Use LE
LE’s service is worthwhile for any tenant paying more than 22 cents per kilowatt-hour for grid electricity. There’s no downside I can see unless you think the price of grid electricity is likely to fall below 22 cents a kilowatt-hour or you only operate at night. So while the tenant has to agree to use LE’s service they’re usually not the one who needs convincing. It’s the landlord who has to shell out for the solar power system and they will only do so if they think the rate of return on their investment will be high enough.
Some Small Businesses May Be Too Small
The landlord receives more money when the tenant self-consumes solar electricity then when it is exported for a feed-in tariff. This means unless the tenant’s business looks likely to consume plenty of solar energy the landlord may not be interested.
LE says the sweet spot is for businesses that use an average of 60 to 280 kilowatt-hours a day. This allows LE to install a rooftop solar system from 15 to 70 kilowatts in capacity. The more closely consumption matches solar output through the day, the better.
Demand Tariffs May Be Unsuitable
Businesses with demand tariffs are less likely to benefit from LE as they pay less per kilowatt-hour but have to pay demand charges based upon their maximum power use. Businesses that pay a flat rate for grid electricity on a standard tariff will generally benefit, as can those on a time-of-use tariff, especially if the time-of-use tariff has a peak period that lasts for most of the day.
Large businesses with very high electricity consumption will often pay less than 22 cents a kilowatt-hour as big business gets extra low rates, so getting solar electricity through LE may not be attractive. But LE says their parent company, PowerVault, has products that can help them.
LE Uses Quality Hardware
If the landlord decides to go ahead LE will install the solar system themselves or through a trusted contractor. Fortunately for the long term value of their investment, LE uses solar hardware that ranges in quality from good to excellent. Currently they use Jinko, LG, and SunPower solar panels. But not all at once. Just one brand per installation. Jinko panels have a 10 year product warranty while LG and SunPower have 25 year full replacement warranties but cost considerably more. LE uses Fronius inverters, which are a quality brand.
Diamond Energy Meter Installation
After the solar panel system is in place Diamond Energy will install a smart meter. This is a normal part of having a solar installed these days and is now the responsibility of retailers where LE operates. In addition to the smart meter, Diamond Energy will also install another small meter that will measure the how much solar electricity the business uses. Unlike some schemes that have very expensive monitoring equipment, this additional meter only adds around $100 to the cost of a new smart meter installation. It will communicate with the smart meter, which will transmit its data to Diamond Energy, so no one will ever have to physically read it.
How Much Can Tenants Save?
Tenants are charged a flat rate of 22 cents for every kilowatt-hour of solar electricity they use so the amount of money they save will depend upon the what they currently pay for grid electricity.
Origin Energy is Australia’s largest electricity retailer so I looked up their Business Saver plans and saw in Brisbane and Sydney tenants on these plans could be certain of saving money, but in Melbourne business tariffs after discounts ranged from 36.9 cents to as little as 20.8 cents for a demand tariff. Obviously, if you are paying 20.8 cents for grid electricity the prospect of losing 1.2 cents for each kilowatt-hour of solar electricity used is not going to be much of a thrill. Clearly it’s important to check just how much you are paying for grid electricity and compare the total cost, including supply charges, with what Diamond Energy offers you to determine just how much you’ll come out ahead. But even if nothing is saved, getting rooftop solar will still help the environment and that is all the motivation some people need.
How LE Gets Paid
In our society it is standard practice for businesses to charge money for the services they provide. LE is not an exception and they get their piece of the action by charging an administrative fee for processing the tenant payments and feed-in tariff they forward to the landlord. It comes to 2 cents per kilowatt-hour generated by the solar system regardless of whether the tenant pays for it or a feed-in tariff is received. An advantage of this method is LE has a clear incentive to install solar systems that produce as much energy as possible and suffer very little downtime. And since well-installed rooftop solar is very reliable, the average amount of downtime should be extremely little.
Return On Investment For Landlords
Landlords receive 20 cents for each kilowatt-hour of solar power the tenant uses3 and the feed-in tariff for any solar electricity that is sent into the grid. LE says it is possible for the landlord’s investment in solar energy to pay itself back in as little as three and a half years, but this is only possible under very optimistic conditions that involve the following assumptions:
- The solar system costs $1 per watt — This price is only likely for Jinko panels and not LG or SunPower.
- It produces an average of 4 kilowatt-hours of electricity per day per kilowatt of solar panel capacity — This is not unusual, but the exact amount will depend on the location in Australia and the orientation of the panels.
- The tenant consumes all the solar electricity produced — This is extremely unlikely.
- LE forgets to charge their fee — This probably isn’t going to happen.
When their 2 cents per kilowatt-hour fee is included the simple payback comes to 3 years and 10 months.
If we keep the first two assumptions above the same the same but assume the following:
- the tenant uses half the solar electricity.
- The feed-in tariff is 10 cents.
- LE remembers to charge their fee.
Then the system would have a simple payback period of 5 years and 3 months. This is just simple payback and doesn’t include the cost of capital or any repairs or maintenance that may be required, but this is still an excellent return on investment. So provided the system size and tenant electricity consumption habits are suitable, landlords can be confident that using LE can rapidly pay for itself quickly.
Convincing property investors to install solar has always been challenging. Hopefully this simple scheme from Landlord Energy and Diamond Energy is attractive enough to commercial landlords that we start to see much more commercial solar get deployed on rented roofs in Australia.
The Payoff For The Planet
Over 80% of businesses rent their premises, which make for a huge amount of roof space that has, until recently, almost been off bounds for solar power. So I am glad to see companies such as Landlord Energy working to get panels into these places. Every additional solar installation results in slightly cleaner air for our lungs and a slightly more stable climate for our children.4
Full Disclosure: PowerVault is a client of SolarQuotes®
- They are charged 20 cents plus 2 cents GST.
- I’m doing this despite the fact that Father O’Flannery told me if I abbreviated too much I’d go blind.
- The tenant pays 22 cents but 2 cents of that is GST the landlord doesn’t get.
- And a slightly more stable climate for me. Please get out there and stabilize the climate for my benefit. I hate being sweaty or under sea level.