Major push toward third party ownership Down Under

Clean Energy Week continues in Sydney this week and announcements have come thick and fast from renewable energy bodies the CEFC and the Australian Renewable Energy Agency. The CEFC in particular has injected $120 million into third party ownership of PV Down Under. The cleantech finance corporation said that PPAs or leases would help Australians to install solar, in situations where the upfront capital required may be problematic.

“Our new offerings are an important development in solar PV financing in Australia because they include both power purchase agreements (PPAs) and solar leasing,” said the CEFC’s CEO Oliver Yates today in Sydney. “While relatively new here, these products are well established overseas and make it easier for householders and businesses to access solar power because they don’t have to source the upfront capital needed for equipment and installation.”

However, some in the Australian cleantech community question remain as to whether the solar leasing model will serve the Australian solar industry and consumers well. Last month GTM Research published data it said indicated that third-party ownership, either through PPA or under lease, will reach its peak in the U.S. this year. Third party ownership is predicted by GTM Research to account for 68% of residential market share in 2014 before declining.

“It is an exciting time for solar and it’s a great announcement and it’s going to bring on the next wave of solar and bring the investment community into solar in Australia, which hasn’t happened to date,” said Sungevity Australia’s managing director Nick Lake, in an interview with pv magazine. “Until now it’s mainly been mum and dads financing their own solar generation on their roofs and now we’re going to get institutional money coming in.”

Sungevity is one of the leading solar lease providers in the U.S. market, and was cofounded by Australian Danny Kennedy. The firm launched in Australia in 2012 and has since expanded its Australian workforce to 30 people, based in Sydney. Sungevity uses an online platform, tools and satellite imagery to identify suitable solar rooftops and cut down on customer acquisition costs. Sungevity’s Lake said that he was not worried the entrance of competitors such as SunEdison, assisted by the CEFC, will challenge Sungevity’s position in the market.

“We actually like that the third party model is gaining some traction here,” said Lake. “So it will be good to see broader consumer awareness around third party ownership.”

Sungevity Australia is set to launch a solar PPA product next week with Lake saying it has the potential to further unlock the commercial rooftop space.

“We certainly see an opportunity in the small and medium enterprise (SME) market,” said Lake. “Larger corporate customers have the ability to access low costs funds, but in the SME space we see a good opportunity for the PPA model.”

CEFC investment

The CEFC’s move to kick start third-party ownership is divided across three investments. U.S. PPA pioneer SunEdison will enter the Australian market on the back of a $70 million investment by the CEFC, to offer both leases and PPAs to Australian consumers. Local module producer Tindo Solar picked up a AUD$20 million investment to offer a PPA product in partnership with the Solaire Income Fund. And Kudos Energy got a $30 million investment, to roll out PPAs to commercial properties and apartment or multi-dwelling residences. This latest CEFC round of investment brings its total funding of solar in Australia to AUD$200 million.

Kudos Energy’s David Jones recently told Australian renewable energy website RenewEconomy that the third-party ownership market segment in Australia could grow to be worth tens or even AUD$100 billion.

“With the depth of the capital markets in Australia, and the size of the super [superannuation or retirement] funds and their search for quality investments, we see this market genuinely taking off,” Jones told RenewEconomy. “We think this is the start of something substantial.”

Unlocking institutional investment

One of the key drivers of solar in the U.S., which is the most mature solar leasing market, has been funds flowing into the industry from institutional investors and companies looking for tax equity. The solar Investment Tax Credit has played a large role in securing this flow of investment, however Yieldcos are now providing an additional driver.

Australia’s CEFC is looking to facilitate similar institutional investment into renewables and this week announced an AUD$80 million cornerstone investment to create the Australian Clean Energy Infrastructure Fund. The fund seeks to raise a further AUD$300 to $AUD500 million over the next three to five years. The CEFC hopes that the fund will provide a vehicle for large institutional investors, such as superannuation funds, to investment in clean technology projects, including solar.

“Australian superannuation funds have been increasing their investment in infrastructure over the last decade and have an estimated AUD$40 to $65 billion now invested in the sector,” said CEFC CEO Oliver Yates. “At the same time, a growing number of these funds and their members want to invest in the clean energy and new energy efficient technology sectors… The establishment of Australia’s first clean-energy focused wholesale infrastructure platform will meet this need and help develop this market for the benefit of existing investors and attract new institutions to the sector,” he said.