Solar Readiness for Strata - Section 6 - Financing a Solar System
You may want to watch a video on Two ways to pay for solar on strata.
There are three main ways which have been used to finance solar systems for Owners Corporations / Body Corporates. Some vendor examples by type are listed below:
There are three main ways which have been used to finance solar systems for Owners Corporations / Body Corporates. Some vendor examples by type are listed below:
The actual names of the different types of finance and companies providing that type of finance are:
- Power Purchase Agreements can be provided by the likes of Arc Renewables, Green Guys, Sunstrata etc
- A strata specific operating lease is provided by the likes of Locality Planning Energy but they may also require the Owners Corporation and up to six individual owners to switch to them as energy retailer during a term e.g. 10 years if they install a solar system at $0 upfront cost
- Energy Ease, Plenti and Verdia are not strata specific lenders but do provide general energy leasing options
- Unsecured Lending / Strata Lending is provided by Lannock, Macquarie Bank and Strata Loans. This is because Owners Corporations and Body Corporates are technically unlimited liability corporations.
-Sunshare Communities (a subsidiary of large strata management company Smarter Communities) has offered Allume Solshare + meterboard upgrade as a $0 financed option with a daily repayment rate of ~$1.50 per apartment (billed quarterly) over a 20 year term
Brighte could be used by an individual apartment owner or townhouse owner who wants to do an individual apartment solar system. However, Brighte does not lend directly to Owners Corporations except in the ACT.
The power purchase agreement (PPA) is a very popular form of solar finance in the U.S. market made famous by SolarCity (Tesla Energy). It typically has has a term such as 10, 15 or 20 years for a residential strata scheme installing a solar system over 10kW in size. The rate at which power is sold per kWh during the term to the strata scheme e.g. 19.5c should be lower than the grid import electricity rate on the strata scheme's electricity contract.
- Power Purchase Agreements can be provided by the likes of Arc Renewables, Green Guys, Sunstrata etc
- A strata specific operating lease is provided by the likes of Locality Planning Energy but they may also require the Owners Corporation and up to six individual owners to switch to them as energy retailer during a term e.g. 10 years if they install a solar system at $0 upfront cost
- Energy Ease, Plenti and Verdia are not strata specific lenders but do provide general energy leasing options
- Unsecured Lending / Strata Lending is provided by Lannock, Macquarie Bank and Strata Loans. This is because Owners Corporations and Body Corporates are technically unlimited liability corporations.
-Sunshare Communities (a subsidiary of large strata management company Smarter Communities) has offered Allume Solshare + meterboard upgrade as a $0 financed option with a daily repayment rate of ~$1.50 per apartment (billed quarterly) over a 20 year term
Brighte could be used by an individual apartment owner or townhouse owner who wants to do an individual apartment solar system. However, Brighte does not lend directly to Owners Corporations except in the ACT.
The power purchase agreement (PPA) is a very popular form of solar finance in the U.S. market made famous by SolarCity (Tesla Energy). It typically has has a term such as 10, 15 or 20 years for a residential strata scheme installing a solar system over 10kW in size. The rate at which power is sold per kWh during the term to the strata scheme e.g. 19.5c should be lower than the grid import electricity rate on the strata scheme's electricity contract.
The Power Purchase Agreement is a form of solar finance where the effective interest rate is not easily discernible. It is difficult to get a good Power Purchase Agreement quotation for a residential strata scheme. Due to the extra costs involved around craning, waterproofing etc, a strata scheme may be offered longer term power purchase agreements e.g. 15 years, 20 years. Over this period of time, a strata scheme may end up paying up to 3 times what it would have cost for an upfront purchase of the system in year one.
Check the fine print of any PPA contract which is offered to you. Is there an "escalation rate" where the amount paid for electricity coming off the panels increases with CPI each year, or a larger amount e.g. 3%? Where your PPA is provided by your grid energy retailer, usually the feed-in revenue is captured by the energy retailer and you won't receive a feed-in tariff while you are in the PPA term. However, if you get your PPA from a third party financier and you still will be receiving feed-in tariff's from your energy retailer, check the difference between your PPA rate and your feed-in tariff rate. You may actually find yourself in a situation in the middle of summer in peak solar generation time where for some kWh of electricity generated and fed back into the grid you actually pay more per kWh to your solar financier, than that which you receive from your feed-in tariff electricity retailer.
Environmental Upgrade Agreements (EUA's) are a lending model where a residential strata scheme could get a loan from the Sustainable Australia Fund (SAF) and in conjunction with a participating local council, have the lending to the strata scheme secured by loan repayments appearing on the individual lot owners local council rates notice. In practice, only commercial buildings have been successful in getting a loan through an EUA with the 5 or so local councils who signed up to support the model. The local councils don't have the administrative processes in place to support this lending for strata.
If a strata scheme has sufficient capital works funds to pay for solar, the ROI is better than the interest rate return on cash at bank. For the strata scheme to invest in a common area solar system it may be equivalent to an effective interest rate of 6%, 7% or 8% p.a. or more.
If a special levy is raised to pay for a common area solar system, then the effective interest rate on the lending is notionally the same as the lot owner's home loan interest rate.
You may want to watch a video: Going Deeper - Understanding the financial argument for solar on strata.
Check the fine print of any PPA contract which is offered to you. Is there an "escalation rate" where the amount paid for electricity coming off the panels increases with CPI each year, or a larger amount e.g. 3%? Where your PPA is provided by your grid energy retailer, usually the feed-in revenue is captured by the energy retailer and you won't receive a feed-in tariff while you are in the PPA term. However, if you get your PPA from a third party financier and you still will be receiving feed-in tariff's from your energy retailer, check the difference between your PPA rate and your feed-in tariff rate. You may actually find yourself in a situation in the middle of summer in peak solar generation time where for some kWh of electricity generated and fed back into the grid you actually pay more per kWh to your solar financier, than that which you receive from your feed-in tariff electricity retailer.
Environmental Upgrade Agreements (EUA's) are a lending model where a residential strata scheme could get a loan from the Sustainable Australia Fund (SAF) and in conjunction with a participating local council, have the lending to the strata scheme secured by loan repayments appearing on the individual lot owners local council rates notice. In practice, only commercial buildings have been successful in getting a loan through an EUA with the 5 or so local councils who signed up to support the model. The local councils don't have the administrative processes in place to support this lending for strata.
If a strata scheme has sufficient capital works funds to pay for solar, the ROI is better than the interest rate return on cash at bank. For the strata scheme to invest in a common area solar system it may be equivalent to an effective interest rate of 6%, 7% or 8% p.a. or more.
If a special levy is raised to pay for a common area solar system, then the effective interest rate on the lending is notionally the same as the lot owner's home loan interest rate.
You may want to watch a video: Going Deeper - Understanding the financial argument for solar on strata.
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