CEFC to provide $120m to unlock Australia rooftop solar finance

CEFC brings in US solar giant SunEdison to Australian rooftop solar market, and helps local manufacturer Tindo. All told, $186 million will be deployed to expand solar financing and power purchase agreements to avoid up front costs of rooftop solar.

The Clean Energy Finance Corp has announced funding of up to $120 million to help break down financing barriers to rooftop solar, and open up the market to renters and others by removing up front costs.

The commitments by the CEFC include $70 million in senior debt finance to bring US solar giant SunEdison to the Australian market and open up a range of new finance products that include leases and power purchase agreements. Sun Edison will provide a further $46 million.

The CEFC is also providing $20 million to help Tindo Solar, Australia’s only solar module manufacturer, offer similar products in concert with local groups Impact Management and Lighthouse Infrastructure

And it will also provide $30 million to encourage PPAs to a company backed by another US group, Angeleno Group and Australia’s Kudos Energy.

In a separate announcement, covered here, CEFC will provide $80 million in seed funding for a potential $580 million clean energy fund managed by Colonial First State to provide leasing to the commercial solar PV market, and other large renewable projects.

The CEFC is hoping to rapidly expand the solar market beyond the 3.4GW that has already been installed on 1.25 million households. It believes it can do this by removing up front costs and facilitating finance that encourages leases and power purchase agreements (PPAs).

It could have a transformative impact on the solar industry in Australia, and pose a major new threat to the generators that are already struggling to deal with the impact of rooftop solar on their bottom line.

The deal with SunEdison – and its entry into the Australian market – is the big ticket item. CEFC chief executive Oliver Yates says it will provide a boost to the commercial and residential solar markets in Australia.

SunEdison’s newly established Australian businesses will originate, design, install, own, operate and maintain the solar PV systems and lease them, or sell the power (depending on the contract) to customers, working with local partners.

“People will be buying electricity rather than panels,” Yates told RenewEconomy in an interview. “People will be selling electricity price advantage over the long term, rather than up front cost solution.

“We think it will help mature market quite rapidly. The focus will be on performance, maintenance and monitoring, which is critical for a maturing asset class.

The CEFC says existing barriers in finance that have held back the take up of solar power by the commercial and residential sectors. By removing the need for upfront capital and allowing the benefits to remain with the building occupants when a tenant moves, PPAs and leases will accelerate use of solar power across all sectors – including rental premises and those in multi-occupancy buildings.

It says customers will benefit directly with lower energy bills, with lease payments structured to provide an immediate financial benefit.

“While there has been widespread take up of solar PV by the residential sector in Australia, with about 1.25 million solar rooftops, there is still considerable untapped potential,” the CEFC says, noting that the commercial sector has lagged behind the residential sector with just 7 per cent of the market and represents a major opportunity.

One of the problems has been the upfront cost and the relatively long payback period of over five years. Many businesses operate with a three to five year payback threshold for their capital investments.

“The power purchase model overcomes this challenge as individual and commercial customers do not pay for the upfront purchase and installation of the equipment and customers can achieve immediate savings on their energy bills.”

“The relatively long pay back periods for rooftop solar have meant standard bank loan terms were not financially attractive to customers, said Pashupathy Gopalan, President, SunEdison Asia Pacific, Middle East and South Africa.

“With the CEFC’s finance, SunEdison is able to introduce a number of financing models to Australia, using our global experience, that will provide an immediate cost saving to customers and expand the use of solar resources here.”

The Tindo deal, meanwhile, will allow the Adelaide-based company to build, install and own rooftop solar arrays and sell the power to building occupants under a power purchase agreement.

The program is also funded by the Solaire Income Fund, which is a joint venture between Lighthouse Infrastructure and Impact Investment Group.

Tindo will be targeting residential customers, small to medium- sized businesses and government bodies and hopes to use the model to grow its business and expand its operations. Currently, it produces less than 10MW of solar panels a year, miniscule by global standards.

The CEFC is also providing $30 million senior debt finance for a solar finance program delivered by an Australian company called Kudos Energy, and back by US-based Angeleno Group.

This will allow the companies to install and own rooftop solar arrays and sell the power to the building occupants under 15-year PPA. The CEFC believes this will be particularly attractive to commercial customers, renters and residential bodies corporate.

If an owner or tenant moves premises, they can assign the PPA to subsequent building occupants so they are not locked in long-term.

Yates says the CEFC is working with a range of other Australian and international financial institutions, solar providers and manufacturers to introduce new financing programs to accelerate and widen Australia’s uptake of solar technology.

PPAs have an extensive history in the US and have been widely adopted by both residential and commercial customers in the States where they are available. While PPAs have been used in Australia for larger-scale projects they have rarely been used for smaller businesses or the residential sector.

“Once we done this there will be stats around for how these things perform. Other financiers will step in, and rooftop solar will become a normal securities asset class. There is so reason why this is any different.”