Illuminating Solar Returns

Hsieh-Min Loy
Asia Pacific has great opportunities for solar energy, but does the return on investment really work?

Much of the Asia Pacific region is on prime equatorial and tropical land, with some of the world’s highest solar insolation levels and significant solar energy generation potential. The rapid and sustainable development of solar energy applications plays an important part in achieving grid parity in the region. 

For the region’s developers and building owners, solar energy is becoming economically attractive. Technologies are now more affordable as production costs of solar panel’s components fall, due to manufacturing advances, increased efficiency, and improved scales of production. The challenge for developers and owners is to ensure sufficient return on investment. Typical considerations include:

  • Suitability of the building’s structure and roof,
  • Devising specification for the project,
  • Whether to purchase or to lease the photovoltaic (PV) panels,
  • Exploring the different leasing models,
  • Identifying the funding mechanisms,
  • Analysing payback periods, and
  • Assessing contractual terms and implications.

Leasing is currently the more popular model, as operational and maintenance support is taken care of. However, warranties should be carefully studied as PV panel installation may invalidate the roof and roof waterproofing warranties. Accurate financial forecasts are more difficult in the current climate of volatile oil prices – uncertainty in payback periods are the norm at the moment, typically 12 years as compared to 10 years in 2013. Moreover, business case studies are commonly based on the forecast that commodity prices will continue to be on the rise.

Since the great oil crash of 2014, oil and gas have remained low. According to the oil price chart on Nasdaq, the price for crude oil is currently hovering between US$49 and US$52 per barrel, similar to the price back in 2008-2009 during the financial crisis. It is still significantly lower, considering that the projected oil price is aimed at trading approximately US$100-per-barrel benchmark – a price that was pretty much the norm around 2012. 

However, solar energy has always been regarded as the most feasible source of renewable energy for the city-state of Singapore. In fact, in a time of oil and gas prices fluctuation, this has highlighted the attractiveness of renewable energy’s relative isolation from fuel-price fluctuations. Since investment in power generation is a long-term strategy, changes in the price of oil and gas will not in themselves derail investment in alternative sources of energy as the key element at play is the return of investment over time.

Furthermore, as renewable energy is a technology-driven sector, with the refinement and improvement of manufacturing methods, installation techniques, and development of know-how, one would hope that the efficiency of the solar panels would improve over time, which would benefit the further use of this solar technology.

Faithful+Gould has been supporting one of the largest solar panels installation projects in Singapore.

The Singapore government has been promoting the use of PV panels to be installed across multiple public sector buildings, including residential area. This allows viability to be tested on a large scale. The government’s lead should also result in the industry becoming more competitive and encourage more organisations in the private sector to invest in solar technology. One example is Faithful+Gould's work with an aerospace client. We have been supporting one of the largest solar panels installation projects on an existing site that comprises several buildings, located in the north-east of Singapore.

In China, the rapid developing green building movement (LEED and China Green Building Label) also helps promote the solar energy implementation. Besides PV panels, the solar hot water system is a popular technology for buildings with stable hot water demand, so lower investment and quick payback can be achieved.

At Faithful+Gould, we help clients with the solar energy decision-making process, taking account of the manufacturers’ warranties and the suitability of the building’s structure. We also work with clients to explore all possible sustainability options for their buildings, ensuring that LEED and/or BCA Greenmark are achieved.

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