Why Solar Power Is a Great Addition for New Constructions

17th Sep 18

Cameron Quin

Written by Cameron Quin

New buildings are often financed with bank loans, and this applies for both residential and commercial properties. Even when the owner has the funds to pay the full cost of a property at once, loans are preferred to spread expenses over several years. This frees up the capital for other investments, or for business operations in the case of companies.

The cost of a new building is normally increased with additional features. However, energy efficiency measures and commercial solar arrays can actually reduce building ownership costs. Consider that Australia has expensive electricity compared with most other countries, but also low interest rates. As a result, solar power and energy efficiency are excellent ways to offset interest payments.

Two approaches are viable when adding solar power to a new construction that is financed with a loan:

  • Add the cost of the solar array to the loan amount.
  • Get solar as a service, where the upfront cost is zero. You sign a PPA  to get power from a solar array that is installed on your property, but owned and serviced by the supplier.

Adding the Solar Array Cost to the Loan Amount

With this approach, the loan is used to finance both the new building and the solar array on its rooftop. As a result, the upfront is zero but you can start saving on power bills from the first month of operation.

Considering the high kWh prices of Australia, this strategy will normally yield savings higher than the portion of debt payment that corresponds to the solar array. In other words, the solar array pays off its own cost, while leaving net savings that help cover other costs.

Keep in mind that you own the solar array, even though it was purchased with the bank’s money. Therefore, you are responsible for maintenance and must bear the cost of any reparations not covered by warranties.

Signing a Solar PPA

The upfront cost is also zero with a solar PPA. However, there are important differences compared with the loan financing scenario.

First of all, the solar system provider assumes the upfront cost and is responsible for maintenance. Therefore, you don’t have to worry about servicing the system because that aspect is covered in the PPA contract.

Another difference is that you pay for the electricity delivered, not for the solar system itself. The kWh price is up to 50% lower than your normal tariff, and you get immediate savings once the building starts operating.

The loan financing approach offers slightly higher savings, since you are not paying for a monthly service. However, a solar PPA comes with a lower risk because you are not responsible for maintenance.

Conclusion

Regardless of the approach followed, the end result works in your favor. The solar power system yields net savings that can help cover the loan used to develop the building. Then, once the loan is covered, a solar system reduces the monthly operating cost of the building. Commercial solar systems are not only a clean power technology; they are also an excellent choice from the financial standpoint.

 

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