Australia: Integrating solar PV with the commercial property sector: can it be done?
Landlord & Tenant alert

Why should commercial landlords and tenants be concerned about solar power? Read on . . .

The Australian solar photo-voltaic (PV) market could tip the 10,000 MW (10 GW) mark as early as 2017, according to a ground breaking report recently released by leading solar market analysts Sunwiz and Solar Business Services (Report).²

The five-year forecast says that the Australian solar PV market, which is currently at 2.5GW, will likely grow three or four fold by 2017. The actual outcome will depend on the speed of the growth in the largely untapped commercial sector, the pace of large utility-scale solar farms and the industry's ability to penetrate more challenging parts of the residential sector.

One of the most extraordinary findings of the Report is that many parts of Australia could reach "saturation" point in the owner-occupied residential solar market. The Report shows that the national average penetration rate is running around 20%, but many areas are at greater than 35% and some localities are already at 90%. It concludes that penetration rates in the range of 50% - 75% are "entirely probable" and that moving forward, the solar industry will have to target the more challenging sectors, such as the rental and high-rise markets.

The Report also states that, in 2014, the commercial solar PV market could be between 150MW - 350MW. If the top end of that predicted range is reached, that would equate to commercial solar energy usage which equals the levels of the entire solar market in Australia in 2010. As to where the predicted range eventually ends up will depend on how utilities react to the impending "solar juggernaut" and whether they impose higher standing charges that will reduce the attractiveness of solar energy to commercial enterprises. If it does take off, the Report suggests, the commercial market could play a significant role in the Federal Government's Renewable Energy Target.

Consistent with the rise in interest around commercial solar, project developers and panel manufacturers are increasingly turning to solar leasing as a means of deploying solar with no upfront cost. Under these types of structures, businesses can start saving on energy bills from the moment their solar system is switched on, with no deposit and zero payback time. Lease terms are often less than 10 years, at which time the system can be purchased for an amount equivalent to a couple of months' lease payments. Savings can be up to almost 30% compared to mains-supplied electricity for businesses.

Recent developments from Australia's energy market regulators and operators tend to support the Report's findings. Last month, the Australian Energy Market Commission (AEMC) hosted a workshop titled 'Connecting Embedded Generators – stakeholder workshop on connection process' (Workshop). The purpose of the Workshop was to canvass a range of stakeholders' views on the optimal approach for connecting embedded or distributed generators (such as solar PV) to the grid (via connections to distributed network service providers or DNSPs). The Workshop addressed (and proposed a number of solutions to) the following issues:

• Lack of information on connection requirements and potential connection costs and charges for distributed generation
• Differing perceptions between applicants and DNSPs, together with a perceived lack of consistency amongst DNSPs in their approach to assessing connection applications
• Timeliness of the initial enquiry process, where inconsistent requirements may occur in respect of solar PV equipment which already meets "standard" technical provisions
• Timeliness of the application process, where the current Chapter 5 (of the National Electricity Rules) requires the applicant to propose negotiated access standards.

The scope and depth of the enquiry currently being conducted by the AEMC will be gratifying to both solar PV project developers (seeking to install and connect solar PV on commercial property) and those who own or manage properties which ultimately will end up hosting the panels.

For those looking to install solar PV panels on commercial property, consideration must be given at the outset to the nature of the legal relationship. If it is the commercial landlords themselves who are installing the panels, then the arrangements may be quite straightforward.

However, where panels are being installed and operated by third party project developers, consideration will need to be given to the various rights and obligations of each party: the property owner who permits an installation on their land, the project developer who retains ownership of the solar panels and the tenant(s) who are the end user(s) of the solar energy.

A project developer's preference would usually be that the relevant rights be granted by way of a lease, which would provide exclusive occupation rights. However that might not be practical given the nature and location of the installation on a rooftop or some other common use area.

In many cases, a non-exclusive licence may be the preferred arrangement – this will inevitably necessitate a compromise of the project developer's rights. Added complications of security of tenure, registration of documents on title and deemed subdivision rules may also be relevant to the legal framework of the arrangement.

These points show that, not only are there significant financial considerations to be assessed in relation to these types of arrangements, but the legal and jurisdictional framework may also impose specific requirements on the structuring of the transaction.

With the increasing trend towards 'green leases' and some commercial landlords imposing minimum 'renewable energy' requirements on tenants, this area is becoming increasingly relevant in the commercial leasing sphere.

As well as getting the numbers right on the financial aspects of the arrangement, landlords, tenants and third party project developers all need to give consideration to getting the legal framework of the deal right at the outset, in order to avoid potential complications down the track.

Footnotes

¹Morris, N. (Solar Business Services) and Johnson, W (Sunwiz), 'Australian PV Forecast Report 2012-2017' (March 2013).

²Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.