As Australian homes and small businesses continue to install solar at a record-breaking and world-leading rate, some major gaps in the market remain.
A new report, to be published next week by EnergyLab, has identified four key markets where solar uptake is lagging the rest of Australia – and that are ripe for the picking for canny start-ups and installers prepared to use a little innovation and entrepreneurial spirit.
And the report estimates that if these gaps were to be filled, Australia’s rooftop solar capacity could double, adding somewhere in the order of 7GW of installed PV, and generating close to $9 billion in investment.
So what are these overlooked markets? The first two, which make up the most glaring gaps, are those notoriously hard to reach rental properties and apartments – an issue we touched on in this story last year.
As you can see in the chart below, those two areas alone are estimated by EnergyLab to be worth around $6 billion to the residential PV market, and stand to add another 4.6GW of installed PV capacity (3.2GW for rentals, 1.4GW for apartments), according to the report.
What the chart below also reveals, however, is the disappointingly low number of start-ups currently working to address these market gaps, even despite the very real promise of a potential new solar goldmine.
But more than just a missed opportunity for the market, the lack of access to the benefits of PV for renters and apartment dwellers has been a growing socio-economic concern, that threatens to divide the country between solar haves and have nots, as we reported last year.
Feeling this divide most keenly are the nations renters. The EnergyLab report notes that renting is cited as one of the main barriers to installing rooftop solar – second only to cost, according to one recent Australia-wide study.
The key reason for this, it says, is that renters who install solar are unlikely to get a good return on investment, particularly given the vast majority of lease periods are shorter than the average four-to-five year payback period for a PV system.
Interestingly, the report finds “surprisingly little” connection between household income and solar uptake.
“While households in the lowest 20 per cent of incomes do have significantly less solar than the rest of the population,” it says, “the second, third and fourth quintile have almost identical solar uptake (Figure 16).
“The reason for low uptake in the lowest quintile could be that such households are more likely to rent or that they have lower credit ratings and are therefore less able to finance a solar installation,” the report continues.
“While it is undoubtedly important that income isn’t a barrier to enjoying the benefits of solar, the 3-7 percentage-point variance between income quartiles wasn’t deemed to be a significant enough opportunity to focus on in this paper.”
On the landlord side of the equation, the report says the barrier most often cited is the “split incentive problem,” which lands the owner with installation and maintenance costs, while delivering the main benefits of cheaper power to the tenant.
For apartments and semi-detached dwellings, there is some overlap with rental properties, as a great deal of apartments are leased.
Otherwise, the main culprit preventing solar installation on apartments is the strata title – the often complex legal arrangement between the individually owned units and the collectively owned common property.
As the report notes, rooftops are typically considered common property, so any decision to install PV would require approval from the body corporate, through which every individual property owner usually has one vote.
But there are initiatives underway already to bridge this solar gap, thanks to technology and software-based solutions from start-ups we have reported on in both RE and One Step, including Prepaid Solar, Matter, SunTenants, and the recently launched SunYield scheme, by Stoddart Group and Powershop.
And outside of the industry, governments and councils are also working to boost rental and public housing market uptake of solar, with the offer of incentives, no up-front cost repayment deals, and other policy mechanisms.
The second two areas where solar uptake is lagging are less obvious, but could be almost as lucrative to canny installers and entrepreneurs: first home buyers and commercial and industrial properties.
On first home buyers, the report found that people living in the first property they had purchased were a good deal less likely to have rooftop solar than other owner-occupiers.
Only 11 per cent of first home buyers have solar, compared to the national average of 21 per cent and 30 per cent for other homeowners (Figure 5).
Why? EnergyLab conceded that it struggled to find any real research explaining why this group were less likely to install solar, but has offered a couple of its own theories.
One is that first home buyers were less likely to have the finance to install solar, on top of the huge cost involved in buying a first home. Another is that, with many first home-buyers being DINKS (double income, no kids) they would not be home enough to warrant investment in .
As for commercial and industrial buildings, the report says that this sector – which makes up about 16 per cent of the nation’s total roof space – has remained relatively neglected. Although recent industry reports suggest that could be changing rather quickly.
As many Australian SMEs appear to be discovering, the large, flat rooftops that typically come with C&I buildings are well suited to solar PV, as are the hours of business.
But, as with apartments and rental properties, problems of strata title and split incentives can get in the way. As can the “slender” roofs of many industrial buildings that are unable to bear the weight of solar panels.
And then there are the economics, which – despite continually falling system prices – have been slower to reach the “no-brainer” point for business than they have been for the residential solar market.
The report notes that while the payback period for C&I solar currently stands at around 3.5 years, a recent survey has shown that about 50 per cent of businesses are looking for a ROI of less than three years.
But this time-frame is rapidly decreasing, the report notes, and coupled with solutions for negotiating strata titles and lease agreements – and finding lightweight solar solutions for those slender rooftops – could unlock another 3GW of installations, and $3.5 billion of investment.
Finally, for those first home buyers that have been overlooked, the report notes that entrepreneurs might be able to capture this market through specially tailored financial products – offered at the point of purchase.
A successful bid to win over this market segment could yield another 70,000 rooftop solar installs, the report said, worth around $400 million of investment: not a goldmine in itself, but enough to provide “a foothold from which a startup could expand to other products or customers segments.”