It’s not all bad news in the Australian rooftop solar sector. At least, that’s the message from Suren Chandrajit, the CEO of True Value Solar, which he says has overtaken Australia’s largest utility, Origin Energy, to become the biggest installer of PV in the country.
True Value and Origin have been jockeying for position for much of the past year, and in the December half, Origin pipped True Value for top spot after installing 10,883 units, just ahead of its rival’s 10,373.
But in the months of January and February, Chandrajit says, TrueValue has overtaken Origin – despite not operating in the volatile NSW market. In January, according to data provided by leading industry consultants SunWiz, it installed 1,498 systems, or about 2.74MW of capacity, compared to Origin’s 1,424, or about 2.69MW of capacity.
And, Chandrajit says, the company, which was bought out by German engineering group M+W in March 2011, has managed to increase profits in defiance of the industry downturn. In calendar 2011, it returned an EBIT of $43.3 million, more than double the $19.3 million returned in calendar 2010. This is in sharp contrast to the experience of companies such as Origin Energy, CBD Energy, Silex Solar, and Solco, who have all reported sharp profit slumps from their solar operations in the latest six month period, as installations declined in the wake of cut-backs to federal incentives and state-based feed-in-tariffs.
The solar PV industry remains a highly fractured market. True Value and Origin each have around 12 per cent, according to January data, and the next biggest has less than 4 per cent, according to January data. (Interestingly, AGL Energy’s solar PV division is now ranked 15th with just over 1 per cent of the market).
Chandrajit says two types of operations are performing well in the current market – smaller “mum and dad” operators who provide a personalized service and charge a premium, and deep-pocketed, scale-based operations such as his and Origin Energy that can pass on the benefits of those savings to customers. TrueValue, which was only founded by Melbourne entrepreneur Gavin Fernadez and three partners in 2009, used to be a cottage operation itself before Chandrajit took the reigns and “institutionalized” the operation, which has grown from 14 staff in late 2009 to 180, plus a further 200 sub contractors who do the installation work.
Chandrajit is certain solar PV has a strong future in the country. For a start, there is the declining cost curve, which he says is still falling rapidly, with another 50 per cent to come over the next three years. He says that solar PV is clearly already at grid parity on a retail basis, and may soon be on a wholesale estimate as well.
He puts the long term cost of energy of rooftop solar at 12c-15c/Kwh, and says it is offering paybacks to customers of five years or better, depending on the location. “It’s come a long way. When I joined the business two years ago, it was more than 30c/kWh.”
He says the commercial and industrial markets look even more inviting because users are better able to use solar PV to offset their electricity bills. True Value plans to enter that market within the next 18 months, supported by M+W, which has experience in that market in Europe. The utility-scale market also beckons, supported by European financial institutions where the cost of capital is considerably lower – 8 per cent – versus the 15-18 per cent internal rates of returns sought by super funds and investors in the Australian market. “That changes the investment metrics dramatically,” he says.
“There is no doubt in my mind that this is a strong and sustainable business,” he says. “The penetration rate in the residential market is between 8 and 10 per cent. Mature markets should be 30-40 per cent, and then you need to consider we have strong building starts, and there will be maintenance and replacement.”
The potential downsides? Grid connection is an issue, he says, but not a systemic one across the country. The biggest concerns are around the quality of some of the panels, and the quality of some of the installations. “We are a two year old industry, and the quality of some of the kit that has been installed has not been exposed yet, because it has not been on the roof long enough. It worries me what some of it might look like in five years time. That will be a problem.”