I recently bumped into Ingenero CEO, Steve McRea, and got chatting about where the commercial solar market is up to.
I asked this question because it was a hot topic at East Solar Conference and is front of mind for me as I prepare for the EcoGen MasterClass “Getting Commercial Solar right – 50 things you need to know about commercial solar”, which is now less than 30 days away, with some sessions sold out.
Knowing his background is in electricity networks (Steve used to run Energex), I jokingly quipped “so Steve, what’s the secret to overcoming the barriers to Commercial Solar – we figure if anyone knows, it must be you?”.
What followed, was a fascinating insight into Ingenero’s perspective on the commercial solar market in Australia.
SbS: Can you describe who Ingenero are and what the company is about?
Ingenero: Ingenero is a full service solar installation company. We design, supply, install and operate PV facilities for all of the market segments, including residential, commercial, industrial and utility scale. At the end of the day we are about providing quality, robust and well performing solar generation systems at an affordable price. In a marketplace that has been fixated on price rather than quality and maximising power output, we continue to focus on what will be the best performing system for the customer’s application.
We pride ourselves on being innovators in the Australian solar market, introducing the nation’s first commercial-scale solar Power Purchase Agreement (PPA’s) and our recently launched Energy Access solar lease for both residential and SME customers.
SbS: You had a vision when you started to focus on Commercial solar. Has this changed?
Ingenero: Yes and no. Ingenero entered the industry in the commercial sector and we will continue to be active in this sector for years to come. However, for a long time, making the economics work for commercial rooftops without any form of support has been challenging. That is slowly changing and there are now certain segments of the large-scale market where solar investment is a more viable option because of the growing returns for the customer. Unfortunately, these opportunities are still “niche” and geographically dispersed.
This situation dictated a move for us into the residential market a couple of years ago. We focus at the quality end of the residential market and appeal to those customers interested in a long term partnership through extended warranties, performance monitoring and, more recently, the solar lease offering.
SbS: How would you characterise the segments within the Commercial solar market?
Ingenero: In its broadest sense there are three segments to the market: Utility scale, the largest of the three, with MW scale installations, the Commercial segment ranging from sub 100kW to MW installations, and the Small to Medium Enterprise (SME) segment ranging from 10kW’s to 100kW installations.
SbS: The Commercial market in Australia is opening up slower than most probably expected. In your view, what are the top 3 reasons it’s happening so slowly?
Ingenero: All three reasons should relate to the economics around investment although it is not entirely as simple as that.
While commercial organisations, and their boards, are well aware of the issues around environmental impact they will not move ahead with initiatives unless there is a sound economic case that delivers results to the bottom line or there are regulatory hurdles that force them into action. With Commercial companies in Australia, neither of these imperatives apply to an extent that dictates decisive action. As a result, opportunities and buying decisions drift. While the Carbon Tax goes some way to a regulatory hurdle that will force action, the big polluters are being paid to continue.
Secondly, there is a complete lack of any state or federal support for commercial installations with little blue sky on the horizon. The explosion of commercial rooftop installations in Europe, USA and soon to be Asia, were all driven by various different forms of Federal and State support structures. This support, were it available in Australia, would facilitate more Commercial installations and, more importantly, would facilitate learning from these installations.
Another roadblock has been the less than aggressive approach taken by the Utilities in Australia. Networks can study from afar the positives and negatives of distributed generation in networks for years, however, they will not truly learn the benefits or otherwise until they are forced to manage the new distributed generation environment in their own networks. In Australia we have very, very few “data points” on the impact of distributed generation from 100kW to 2MW’s and the resultant impact on network investment. A lot more understanding around the changes to the networks to manage the distributed generation environment and the impact on network investment would have been achieved already if there had been incentives for Commercial PV installations.
SbS: What are the top 3 ingredients to a successful Commercial solar company?
Ingenero: If you are truly going to deliver a solution to the customer you must have real depth of technical expertise at the systems level. It’s not all about simply pushing one type of technology or panel as a solution, but rather analysing the customer requirements and putting forward the right solution. This takes deep technical knowledge and experience as well as corporate support systems that will facilitate delivering the right solution.
As a company you must “invest” real dollars in people, design capability, systems, technologies and project management if you are going to successfully deliver against a large project. Those installers who think that the installation of a 10 to 30 kW system easily transitions to managing complex installations of hundreds of kW’s and even MW’s, where there are multiple parties (like construction companies) involved, will quickly learn the financial commitment required to be successful.
The final ingredient is having enough financial expertise within the company to develop funding models (such as power purchase agreements) as well as having the ability to attract capital to fund the projects. Access to capital to fund projects is critical to success in this market segment.
SbS: What would you say are the most complex aspects of Commercial solar market in Australia?
Ingenero: For the beginner, there are many complex issues. In some ways, the design, supply and physical installation are the easy bits. The issues that consume time, effort and cost are the business case for the customer, the connection approval, cash flow management, retentions and guarantees, OH&S compliance, and for buildings under construction, the co-ordination of the solar installation around the core activity of constructing the building.
SbS: What do you think most new entrants into the Commercial solar market are getting wrong?
Ingenero: I need to answer this in two ways. From a customer perspective and given solar is a relatively new technology and represents a new buying process for a lot of them, especially the SME level organizations, there is little awareness of what are the critical factors in making a buying decision. I mentioned before the Australian marketplace has been fixated on price. The reality is that a focus on power generation, after sales support, warranty, monitoring and something as basic as compliance are more important than price.
From a developer / installer perspective there is little awareness from the new entrants as to what it actually costs to service a more sophisticated client base like larger SME’s and Commercial clients. This drives cost into the business and hence the price of the quote, if you want to run a profitable business.
SbS: You come from the electricity industry. What is your view on the willingness (or otherwise) of utilities to connect commercial solar in Australia?
Ingenero: It is true to say Australian Networks will, in the next few years, become very experienced in managing networks with high penetration at the residential level given the flurry of installations in the last few years. This learning was not a conscious decision or voluntary and occurred through necessity given success of the feed-in tariff (FiT) programs. However, by any measure the utilities are a long way behind most other developed countries in their understanding of how Utility and Commercial scale solar will impact the running of the networks. As I mentioned above we have not seen the allocation of enough capital or manpower by the networks to stay in front in this area.
SbS: Network connections seem to be getting harder and harder in commercial solar – rather than easier- despite increased experience. Why do you think this is the case and what do you do to smooth the path?
Ingenero: The networks do need to do their network connection study for larger systems…that is just good engineering process. However, the time and costs involved for the customer and/or the developer is out of proportion and a major contributor to inflating costs associated with project development. If the networks had invested in different application scenarios over the last few years they would feel much more comfortable in making these connection decisions.
I can draw an example from the residential market where in the early days if you had a larger system (5 to 10kW) it took a long time to get network approval. Today approvals are quick and smooth as a result of confidence built by experience.
SbS: Where do you think the commercial solar market will be in 2 years’ time?
Ingenero: Crystal ball gazing is always difficult and even more so in a market like solar. What I do know is that unless the regulatory landscape changes, the commercial market will not see the growth we expect and require to match the commercial markets in USA, Europe and Asia. It will grow but at a much slower pace than we have seen from overseas markets.
SbS: What’s the single most important piece of advice you would give to a company considering doing Commercial PV projects?
Ingenero: Do not underestimate the time, effort and financial investment necessary to succeed in the commercial and utility market. Rome was not built in a day…and neither were solid, viable commercial projects
SbS – Thanks for your time and insights.
Nigel Morris is director of Solar Business Services. This article was originally posted on the SbS blog. Reproduced with permission.