Raising the roof: Solar for renters and apartment dwellers

At Stucco Apartments, a student housing cooperative in Sydney, residents successfully retrofitted an embedded network with solar and batteries to provide locally generated solar electricity to all apartments. Read the full story in ReNew 139.
Tenants and residents of strata complexes have traditionally struggled to access solar. Dr Björn Sturmberg and Anna Cumming look at how these groups can join the solar revolution.
This article was first published in Issue 142 (Jan-Mar 2018) of Renew magazine.

In Australia, we have an ‘energy trifecta’ of famously abundant sunshine, infamously high electricity prices and efficient solar supply chains. It’s no surprise then that Australians have embraced the option of rooftop solar systems at record rates. By September this year we’d collectively installed over 1.7 million solar systems, and in Queensland and South Australia every third house is solar powered. Forecasts all agree that the solar boom is far from over, particularly now that the advent of affordable household battery systems is fuelling the divergent dreams of either becoming a ‘gentailer’ (generator–retailer) of your excess solar power in a peer-to-peer network, or defecting from the grid entirely.

While the growing ubiquity of solar is a wonderful outcome environmentally, socially it is causing tension between the ‘solar haves’ and ‘solar have nots’. To be clear, the solar haves are in fact saving all Australians money on their electricity bills [1] through their supply of excess solar power to the wholesale market at times of high demand. Still, the cheapest source of electricity for the Australian home is behind-the-meter solar and those who cannot access this are being left behind to bear the full burden of skyrocketing electricity prices.

One main reason for being locked out of solar is not owning your own roof. Renters and apartment dwellers make up more than one in three Australians and have traditionally struggled to access solar; the grid is also missing out, as all those roofs represent significant untapped solar potential. Happily, the demand is there, and options are emerging even for these tricky market sectors.

What’s the problem?

Renewables are a bit like a bar tab: the free drinks are delightful, but someone first has to hand over a credit card. In the case of solar systems on rental properties, that someone is the owner, and the solar juice flows solely to the tenants. In apartments the drinks are on the body corporate account, and the party involves all the residents.

More formally, this is known as a split-incentive problem: one group bears the cost (the capital cost of the solar system) while the benefits (free solar electricity) are enjoyed by another.

How is solar different to an air conditioner?

The split-incentive isn’t unique to solar. Pretty much any investment an owner makes in their rental property will be enjoyed solely by tenants and yet owners frequently invest significant capital into renovations and appliances. Similarly in apartment complexes it is commonplace to share the costs and benefits of common areas and common assets, despite not making precisely equal use of these assets. So what makes investing in solar different to investing in an air conditioner or renovating a shared garage?

While air conditioners and garages have tangible benefits that become apparent immediately on use, the benefits of solar systems are intangible, noticeable only on infrequent electricity bills. This is compounded by the relatively high cost of a solar system (though prices have dropped dramatically in recent years), mistrust of the energy market and the perception that solar is a nice-to-have feature rather than a must-have.

All this has so far prevented all but the most motivated landlords and apartment buildings from embracing solar. However, both the uptake of solar and its acceptance as a basic liveability feature of a 21st century building can be accelerated by a variety of solutions that help resolve the split-incentive problem and make the value-sharing explicit.

What are the options for landlords and renters?

As a tenant, you might get lucky and find a suitable rental property that already has solar; failing that, your first hurdle is to convince your landlord to install it. Good estate agents may assist, or you could approach a community group like Corena (see below) for help to make your case. If it’s out of the question for the property owner, or solar isn’t suitable for the property due to overshadowing or other technical reasons, consider playing your part in the solar revolution by investing in projects elsewhere: ClearSky Solar is one not-for-profit enterprise that connects community investors with renewable energy projects.

Some landlords are able and willing to install solar on their rental homes without any expectation of compensation. For example, Libby Kartzoff and her partner Gary Fry own a rental property in Bellingen, NSW; the benefit from the 1.5 kW solar system goes directly to their tenant. “We think of our tenant as the custodian of the property and appreciate someone who wants to live here long term—passing on the benefits of the solar system is, to us, an important part of that exchange,” explains Libby. “We regard owning a rental property as a privilege and if the reduced bills for the tenant means that they can have additional opportunities in life, then that’s a good thing.” She also mentions that they have a much-loved garden and lots of fruit trees on the half-acre block and value the fact that their tenant Sam is a keen gardener. They are currently participating in a network voltage regulation trial through which they have upgraded their solar system to 5 kW; this will further reduce Sam’s electricity bills.

For most landlords, though, financial realities require some sort of arrangement with tenants to ensure a return on investment.

Libby Kartzoff and her partner Gary Fry consider themselves lucky to own a rental property, and pass on the benefits of the solar system straight to their tenant. They used to live in the Bellingen, NSW, house themselves and plan to again in the future, and their half-acre block boasts a much-loved garden and many fruit trees. They value the effort their long-term tenant Sam puts into maintaining the garden. “If you can find a tenant who has similar values to you about sense of place, that’s worth more than another $20 a week,” says Libby.
Ad hoc agreements

The simplest approach to sharing the costs and benefits of providing solar to rental properties is via an ad hoc agreement between the tenant and the landlord. However, as it’s still a relatively uncommon scenario, there is uncertainty about how best to take the cost of the system and the reduced electricity bills into account.

The most common method is to increase the rent to reflect the improved energy performance of the property. The rent increase could be an explicit addition to the existing rent or it could be determined by demand in the rental market. An advantage of this approach is that the future expense (for the tenant) and income (for the landlord) is known with certainty for all parties; however, it could be risky for the tenant as it provides little motivation for the landlord to ensure the maintenance and performance of the system. It’s also tricky to quantify an appropriate rental increase, as it depends on many factors including the size and expected generation of the solar system and the electricity usage patterns of the tenants.

Community energy groups are stepping in to help overcome these difficulties. For example, not-for-profit Corena provides interest-free loans to facilitate landlords installing solar on their rental properties; they also offer their solar expertise as impartial intermediaries to help landlords and tenants assess the value of a particular solar system and calculate an appropriate rent increase.

Another method involves the tenant paying the landlord per kilowatt-hour for the solar energy they use, at an agreed rate lower than the grid import price, plus passing on to the landlord the feed-in tariff for solar that’s exported. This could happen under an ad hoc agreement for any system equipped with solar monitoring, but requires negotiation and trust between the parties and is relatively rare. However, recently, third-party service providers have sprung up to facilitate this option in a more formal fashion.

Pay-for-consumption model

Enterprises (e.g. Matter and Prepaid Solar) offering this solution typically install their own solar monitoring meter and manage the billing of the tenant for solar energy used and exported, passing this on to the landlord minus a service fee.

An advantage of this setup is that the owner is responsible for the performance of the solar system. This seems fairer given that they select the components and installer, and are empowered to carry out maintenance, but is a commitment owners should be mindful of. The tenant receives a small benefit from the solar system in the form of bill savings, provided that solar prices are set lower than grid retailer prices (this is worth checking, as service providers’ fixed prices can sometimes be higher than best-available grid retailers’). The landlord is able to monetise their solar system without raising the rent or handling the monitoring and billing; however, their income is affected by the tenant’s solar usage patterns.

Careful consideration should be given to the financial pluses and minuses of this option, as the additional meter required can cost up to $1500 and service fees are in the range of $10 to $15 per month. A minimal rent increase might begin to stack up well instead.

Hybrid third-party solar management

A new approach, pioneered by Sydney social enterprise SunTenants, is a hybrid model, providing both owners and tenants with their respective lowest risk option. (Disclosure: one of the authors of this article, Björn Sturmberg, is SunTenants’ founder.)

SunTenants gives owners a fixed return on investment by leasing the solar system from them for $132 per kilowatt per year, while charging tenants only for the solar energy they use. They also offer a lowest price guarantee, reducing their standard flat rate of 20c per kilowatt-hour for solar energy consumed for customers who can access grid retail plans with lower prices, thus ensuring that tenants are never disadvantaged for using the solar generation. (The majority of the feed-in tariff that the tenant receives for exported solar is also passed on to SunTenants.)

The key feature of this model is that the third party absorbs the risks of the solar system’s performance and the vagaries of the tenant’s electricity consumption profile. This arrangement makes them co-invested in the long term viability of each solar system—they have ‘skin in the game’—ensuring the thoroughness of their management and their solar advice to owners.

SunTenants uses a hybrid approach to ensure that both the property owner and tenant benefit from the installation of solar on a rental property.

Solar for apartment dwellers

Whether owner-occupiers or renters, many people live in units or apartments covered by strata regulations; these have their own challenges when it comes to adoption of solar. Options vary depending on factors including the layout of the building, available roof space and engagement of the owners corporation members, and cover the provision of solar electricity to the common areas and/or to individual apartments. (For some apartment buildings, particularly high-rise towers with very limited roof space, solar may simply not be suitable at all and residents are better off investing in community energy projects on better-suited properties.)

Solar for common areas

One option for apartment complexes is to install solar to supply only the common area circuits, provided these circuits have substantial loads during the daytime (lifts, pool heating, garage lights and fans, and so on). The approval process for such an installation is the same as for any other major building expenditure and the technical aspects of the installation are relatively simple, if there is sufficient roof space available. The return on investment for the body corporate can exceed 20%, particularly if the reduced load shifts the retail rates to a cheaper category. These savings benefit all owners via their strata fees.

For many high-rise strata buildings, it makes most sense to install solar to supply only the common area circuits. At Hero Apartments in Melbourne, a 50 kW solar system generates around 53,000 kWh of electricity per year, powering the building’s common area lighting and ventilation systems and reducing annual greenhouse gas emissions by about 66 tonnes. Image: Hero Apartments
Individual solar systems

Of the options to provide solar to individual units, the most straightforward—though perhaps not the most efficient, given the extra wiring and inverters required and the inability to share generation across units—is to install separate solar systems for one or more individual units. The majority of Australia’s multi-unit housing stock is relatively low-rise (up to four storeys), the most likely configuration to have sufficient roof space for this solution. Such installations require the approval of the owners corporation and decisions about fair allocation of roof space, but crucially they don’t require any approvals from energy regulators.

The rise of microinverters is making this option more attractive from a technical point of view: for example, Perth-based developers Psaros recently completed an 86-unit residential complex equipped with 180 kW of solar that uses Enphase microinverter technology to wire the system in such a way that each unit effectively has its own 2 kW solar array. [2]

The core advantage of the individual solar system approach is that it is comparatively straightforward to implement without additional service providers or ongoing costs, and residents benefit from any feed-in tariffs for their unused solar generation. Owners of rental units can use one of the solutions outlined above to share costs with their tenants.

Shared solar ‘splitter’ systems

Multiple companies have recently taken out patents for devices that share the output of one large solar system among the units of multi-unit buildings, billing residents for the solar energy they use—this is called shared solar. Generally, the installation of the system is funded and managed by the company (not by the owners corporation or the individual apartment owners).

Advantages of this approach are that they have low barriers to entry for the apartment owner or resident, as they are not paying for the capital cost of the system, and unlike an embedded network (see next section), residents can opt in or out as they desire. A shared solar setup is also likely to increase the total amount of generated solar used within a building (thus reducing the building’s total grid-import requirement), by sharing the output of the solar system based on each unit’s demand. This model can require a certain altruism on the part of residents, as those who are home less during peak solar generation hours receive less benefit for any signup fee and/or monthly service fee they are required to pay. It remains to be seen whether this unequal sharing is attractive to residents or if each would prefer to manage their individual energy budget, receiving a feed-in tariff for exported power (via the individual solar system model outlined above).

The business models surrounding these shared solar splitter systems are still being developed and may vary between companies. One example is Allume Energy, a Melbourne start-up that is close to installing its first system. Its model involves a small joining fee per apartment to access the energy generated by the communal solar system installed and owned by the company. The resident retains their agreement with their choice of retailer for grid energy supply and is also billed by Allume (at a lower rate) for solar energy used. Residents do not receive a feed-in tariff for excess solar exported to the grid—this is collected by Allume, as the owner of the system—but as the system is sized to cover the average daily usage of the units signed up, any exported amount will be minimal.

Shared solar ‘splitter’ systems for apartment buildings work by inserting a box ‘behind the meter’: that is, between the single solar array on the building’s roof and the apartments’ existing electricity meters. The locally generated solar energy is distributed on demand to the apartments that have signed up. Image: Allume Energy
Embedded networks

Often seen in shopping centres and caravan parks with permanent residents, another option for solar sharing in apartment buildings is the most comprehensive but often also the most difficult to implement: the embedded network. In an embedded network, multiple customers (in this case, apartment residents) share a single connection to the grid; rather than buying their power from a grid retailer, they buy it from an embedded network operator that manages the local network of wires and private meters.

In this setup, all apartments must be part of the embedded network. For this reason, embedded networks have fallen into disfavour with regulators because the operator has a monopoly over the electricity supply to the network’s customers, which could be misused. Nevertheless, a recent trend has seen more and more new-build multi-residential developments include embedded networks (a handful with solar too). The regulatory stance makes it very challenging to convert an existing property into an embedded network though (the Stucco solar + storage project in Sydney being a notable exception; see our article in Renew 139), so this path to going solar is probably only really feasible for apartment buildings with existing embedded networks. This is unfortunate, as solar-powered embedded networks with storage embody precisely the resilient microgrids that our distributed energy future should be built of (and, as demonstrated at Stucco, they can deliver substantial savings for residents).

On 1 December 2017, new regulations aiming to introduce an element of consumer choice for embedded network customers came into force; it remains to be seen whether this will alleviate the concerns around embedded network operators’ monopoly. A better approach might be to more closely regulate the activities of ENOs and encourage ethical, possibly not-for-profit operators, ensuring that customers get a fair deal despite the monopoly structure.

The installation of solar in embedded networks is usually straightforward, as the generated power is injected between the grid meter and the individual unit meters and will create savings for the operator who would otherwise be buying this power from the grid. It is encouraging to see a growing number of new-build embedded networks include solar; an example is The Burcham in Sydney’s Rosebery, the 100-year-old former Wrigley chewing gum factory being converted into apartments complete with embedded network and a 52 kW solar array to provide residents with locally generated renewable energy at—the developer Stable Group predicts—around 20% below the market’s lowest retail cost. [3] We can only hope it will also become easier to add solar to existing embedded networks.

This artist’s impression shows the rooftop garden and 52 kW solar array at The Burcham, a project converting the historic Wrigley’s chewing gum factory in Sydney into apartments. The development includes an embedded network to supply electricity, including solar from the complex’s roof, to the apartments. The project is nearing completion and part of the array has already been installed. Image: Stable Group

The options are out there

In conclusion, while it’s certainly more complicated than owner-occupied single dwellings, there are a range of viable solutions and support for renters, landlords and apartment dwellers to join the ‘solar drinks’ and start enjoying the benefits of locally generated, renewable energy.

Anna Cumming
Anna is associate editor of Sanctuary magazine, Renew's sister magazine.
Bjorn Sturmberg
Bjorn is founder of SunTenants.

Environmental Upgrade Agreements

An Environmental Upgrade Agreement (EUA) is an innovative financing method for solar and other building improvements. The property owner borrows money to install the system, then repays the loan via a special charge on their council rates. This enables cheap, long-term finance, because council rates aren’t normally at risk of default.

This is a great solution for rental properties. The landlord is not out of pocket because, with the tenant’s agreement, they can increase rent to cover the loan repayment. The tenant is better off, as their solar bill savings should outweigh the rent increase.

Landlords are often reluctant to borrow money for a building improvement—what will happen if they sell the property? EUAs solve this problem too—upon sale, loan repayments automatically transfer to the new owner.

Unfortunately, EUAs are currently mostly only available for commercial properties due to regulatory issues. However, some councils offer them for residential properties—for example, the City of Darebin’s Solar Saver Program—so if you think an EUA could work for you, it’s worth investigating whether yours does.

This article was first published in Issue 142 (Jan-Mar 2018) of Renew magazine. Issue 142 has a focus on energy efficiency and solar for renters and landlords.
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