THE RISE OF SOLAR LEASING: Installation affordability reaches new zenith

May 30, 2014

AMONG RENEWABLE energy sources, solar has long been lauded as one with incredible growth potential. Each day, the sun blankets the Earth with abundant energy to carry out a wide range of human functions.

The difficulty has been finding technology to efficiently harness it, and at affordable cost. Fortunately, technology has rapidly improved in recent years, and the price of solar installations has dropped to nearly grid parity.

In spite of these improvements, overcoming inertia has faced barriers, often in terms of understanding how to maximise the organisational returns of solar investments. To make transition to solar easier, solar leasing options have been pioneered in the US and elsewhere, offering organisations a turnkey solution for sourcing clean renewable energy.

Solar leases work by offering a full technology solution, installation, and maintenance where users pay only for the cost of the power generated and used. Since the supplier takes care of all aspects of installing, commissioning, operating and maintaining a solar system, a company is free to focus on their core business rather than capital-intensive projects, returns on investment, and ongoing maintenance. Rather than a finance lease, where repayments are regular regardless of performance of the solar asset, it is a performance lease.

Singapore: the next sun spot
In the Asia-Pacific context, Singapore might at first glance seem like an unconventional place for advancement of solar leasing. It is a relatively small market by regional standards, faces constraints on available land and real estate, has perceived variable weather, and has cloud types that are not conducive to many solar applications.

Still, high concentration of industry and modern building structures provide some of the essential building blocks for solar. There is also a stable investment climate and government support for development of new renewable energy solutions. Last but not least, Singapore has shown leadership by test-bedding many promising technologies in both industrial and residential environments.

Leasing gains increasing acceptance
Spotting market openings, home-grown company Sunseap Leasing moved to introduce solar leasing in Singapore in 2009- 2010 and signed the first two solar leasing projects in 2011.

The company's first major milestone was a 20-year agreement with the Housing and Development Board (HDB) to install a two megawatt photovoltaic (PV) rooftop system in the eco-town of Punggol-Pasir Ris.

"We've been delighted to participate in HDB's efforts to demonstrate the potential of photovoltaic technology in cost reductions," says Lawrence Wu, Director and Co-Founder of Sunseap Leasing.

Prior to solar leasing, small tenders for supply and installation of solar systems on public housing had been initiated. In those instances, the HDB would pay for such installations and Town Council would enjoy the renewable power, but funding for this was limited. Solar leasing made sense as the users of the solar energy can pay for it themselves.

In the Punggol-Pasir Ris installation, solar electricity is used to power common area lighting, lifts and pumps, and other building services. Under the contract, Punggol Pasir-Ris Town Council will purchase electricity from the solar array for 20 years at a discounted price pegged to the cost of conventional grid electricity. The system is capable of producing more than 40,800mWh over the 20-year contract life.

Other significant milestones were swift to follow. In 2012, Raffles Institution (RI) signed a 150kW lease agreement that would see 625 solar modules installed, generating an expected 175,000kWh of power per year. The school opted for the solar array in part due to its environmental policy which aims to improve its practices, and also to educate students and staff.

"It is important for the students and staff to understand the importance of environmental issues. This solar installation will have a deep and lasting social impact that is relevant to our long term goal of producing green champions who will transform RI into an environmentallyfriendly campus," says Mrs Lim Lai Cheng, former Principal at Raffles Institution.

To date, there have been almost 12MW of solar capacity installed and nearly 17MW of solar capacity signed up through these leasing programmes in Singapore under Sunseap Leasing alone. Besides HDB and Raffles Institution, other organisations have included Singapore American School, Eagle Services Asia, Pratt & Whitney, ABB, Cambridge Industrial Trust and Jurong Health Services.

Scaling up: Goldman Sachs backs solar leasing
The real breakthrough came when the company negotiated financial backing for an estimated generation capacity of more than 30 megawatts worth of new projects through a partnership with investment bank Goldman Sachs.

This new funding source will enable Sunseap to mass-deploy renewable power in Singapore at an accelerated pace based on its pipeline of projects, in conjunction with the Intermittent Generation Threshold being raised from 350MW to 600MW.

The partnership came together with both economic and environmental goals in focus.

"We are very positive about the opportunity in distributed solar, and more so in Asia where clean and lower cost energy is needed the most," said Alex Turnbull, Executive Director at Goldman Sachs, who led the funding team. "Sunseap's offering has the potential to lower energy costs, create jobs and reduce carbon emissions all at the same time."

As more investors become familiar with the reliability and quality of solar as a technology and an asset class, it has become possible to expand the pool of available funding and offer clean technology solutions to a broader range of customers at more affordable prices. The funding platform will enable the installation and funding of solar leasing projects on more schools, municipalities, and other public and private organisations.

Growing as a clean energy hub
The advancement in solar leasing in the space of just a few years has demonstrated in one way the growth potential of Singapore in renewable energy towards building a green economy.

"Singapore has become the leading clean energy hub for the Asia-Pacific region which is now the largest market for solar energy. Companies can leverage Singapore's strengths in technology, ability to attract international talent, as well as sophisticated financial market to grow their regional business and develop novel business models such as solar leasing," said Goh Chee Kiong, Executive Director of Cleantech at the Singapore Economic Development Board.

Sunseap has plans to expand internationally and introduce solar leasing to other markets in the coming years. It currently has offices in Malaysia and Australia, with further plans to open up in other regional markets such as the Philippines and Indonesia.

This case demonstrates that companies can move to overcome barriers to renewable energy, find new funding for projects, help organisations champion their environmental goals, and enable green economic development through implementation of new solar projects. While there are many surfaces yet to cover in PV panels, the likelihood of solar advancement is increasingly bright.