New Business Models for Commercial Solar Thermal

30.06.2015
A large solar thermal system on the roof of a bank in Geneva. (Photo: Helvetic Energy)
A large solar thermal system on the roof of a bank in Geneva. (Photo: Helvetic Energy)

Which approach works best for commercial solar thermal? Several participants presented their successful business models in a webinar organized by the International Solar Energy Society (ISES). S&WE recaps the most interesting points they mentioned.

The market potential for commercial and industrial solar thermal applications is huge. This was explained by Nicholas Wagner, analyst at IRENA, in his presentation. He talked about REmap 2030, a Renewable Energy Roadmap for the industry sector, which explores the potential, cost and benefits of doubling the renewables share in the global energy mix. Until 2012, about 450 million m² of solar thermal collectors had been installed, which made up less than 1 % of industry applications. If we continue the same way as before 2012 (business as usual scenario), the number of solar thermal industry applications will most likely only rise to 3 % in 2030. REmap has a much more ambitious goal: in 2030 roughly 4 billion m² of collector area should deliver around 30 % of the industry’s final energy needs.

Some industries are more suitable for solar thermal

Manufacturing industry areas which have, according to IRENA, the highest potential for the use of solar thermal process heat are the petrochemical industry and less energy-intensive industries such as textile, food processing and tobacco. In some regions, such as India, process heat generation is already cost competitive with fossil fuels. If there was a reasonable price on CO2-emissions, low-temperature solar thermal could – on average – even get cost-competitive compared to fossil fuel boilers worldwide.

Mr Wagner also mentioned some limiting factors for the growth of the solar thermal industry. Besides the limitation to 250 °C hot steam of current concentrating technologies, he talked about the space limitation of existing manufacturing plants. For him this space limitation meant that new manufacturing plants would be built especially in Asia during the coming years.

Calculating project profitability the right way

Tobias Schwind of Industrial Solar presented some internal rate of return (IRR) calculations for solar concentration applications and explained, why this is a better indicator for project profitability than the payback-time. The main reason is that renewable energy investments are long-term investments into infrastructure. Therefore one cannot compare renewables to other investments, e.g. into core-business equipment, since those investments have a much shorter payback time. Mr Schwind also stressed that since the IRR is influenced by a lot of factors such as the system size, interest rates and possible incentives, the IRR-expectations of a project should reflect its specific risk-profile.

His main summary of the current market situation was that commercial solar thermal had a huge potential and was gaining market momentum.

Customers want safety and service

Christian Holter of the Austrian Solid GmbH talked about his company’s experience with ESCo’s or energy service companies. Solid specializes on large solar thermal systems with capacities above 350 kW. His take-away message was that customers are always wary to invest their own money and that every customer needs to see a financial advantage in a project.

In his experience, some of the main reasons for customers not investing were firstly that they were afraid of the risks of an unknown technology (which applies to solar thermal, since a lot of customers have no real idea whether there are any risks). Secondly, they missed not having the experience of real benefits such as savings and operation and maintenance services if they just invested up-front into a solar thermal system. Thirdly, the new investment almost always had to compete with the available budgets for the customer’s core business and therefore it was often cancelled for the benefit of other investments.

Solid’s conclusions were to simply start a long-term operation and maintenance contract with customers, to dispel their fear about technological risks. Monitoring the solar thermal systems is rather easy and can be done from afar. It greatly reduces the risk of errors during operation and can also lead to up to 20 % higher revenues in the end, if you optimize the system in the beginning.

Investment funds no longer solely want PV and wind

On average, Mr Holter said, the projects could be financed over 10 to 15 years and were safe investments. Their projects have proven their economic performance and operation and maintenance (O&M) expenses were lower than expected. Still, adequate risk management and legal provisions were required, due to the dependence on single customers.

Although Mr Holter found bank financing to have gotten significantly more difficult over the last years, renewable energy investment funds want to diversify their portfolio and no longer only invest into wind and photovoltaics.

For Solid it is clear that larger systems are easier to finance, since the O&M costs as well as the facilities and administrative costs are nearly independent from a system’s size. Therefore larger systems could cover these “basic” costs much better. Since investors often think about investments above € 2 million when they hear “large-scale”, it may be important to find key persons who also understand some aspects of the technology – especially when it comes to financing a large solar thermal project that requires less money.

Power purchase agreements for dorms

Mr David Hoedeman provided some insight into the US market. He talked about the business model of his company Nextility, which offers solar water heating to customers via an indexed power purchase agreement. Customers include college dormitories, multifamily houses or industrial applications. In general, Nextility’s system works for any commercial building that uses more than 1,500 gallons (approximately 5,700 litres) of hot water per day via a single, central water heating system. 

The business model works like thusly: Nextility installs the solar thermal heating system, pays 100 % of the costs and is responsible for O&M. The customer signs a power purchase agreement (PPA), which guarantees him or her a price always below their utility rate. For this they use a special billing system that calculates how much the customer would have paid for utilities were it not for the new solar thermal system and then names a price below this calculated amount.

No up-front costs

With this system Nextility eliminates all the usual risks for the customer and the need for the customer to pay a large sum up-front. After the PPA has ended, the customer can renew the contract, take full ownership of the solar thermal system and all the energy savings or have Nextility remove the system. If desired they can then hire Nextility for further O&M services.

System performance is monitored with the help of a so-called “SkyBox”, which measures about 15 different parameters such as the collector temperature or the system’s water pressure and can automatically alert the user if there is a problem.

The company profits from certain incentives. Among them is the 30 % federal investment tax credit, which is due to expire at the end of 2016. This is why Nextility has started to expand into photovoltaics business and energy brokerage as well. Besides local state incentives, it also partners with solar project funds. Unfortunately only nine US states support solar water heating with these funds – the rest only supports PV. 

As a conclusion, we see that solar thermal still has large potential in the commercial market – but also a long way to go. Nevertheless, by focusing on the customer’s worries and needs and by offering services which eliminate risks and reduce the need for single, huge investments, solar thermal systems might get a lot more attractive for customers.

Tanja Peschel

Moderator of the webinar organised by the International Solar Energy Society (ISES) was Bärbel Epp from solarthermalworld.org, a website dedicated to news and information about all kinds of solar thermal applications around the world. Four speakers talked about the potential of solar thermal in the commercial sector and presented their business models.

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