Place in the sun

Sun Electric’s Matthew Peloso takes a crack at selling solar power in Singapore by matching owners of rooftop solar panels with consumers who want solar power but do not have the panels.

Surrounded by shipping containers and large cranes, the JTC rooftop stands out with its rows of gleaming solar panels. The neatly arranged flat panels contain the photovoltaic system, which generates electricity. The installation is part of home-grown Sun Electric’s test-bed programme with JTC Corp and SPRING Singapore.

Among the 12 local businesses benefiting from the electricity it generates are restaurant- booking start-up Chope, Sky Tower on Sentosa, seafood supplier Seagift and fitness centre Pilatique Pilates Studio.

Pilatique Pilates, a 2,400 sq ft space in the city centre, is operated by Steven Khoo, a conservationist who religiously recycles plastic bags and uses energy-saving light bulbs. Choosing Sun Electric gives him the opportunity to further his conservation efforts.

Khoo says 80% of his company’s power supply now comes from solar energy. “Solar panels can be very expensive, and it can take up to seven or eight years to recover cost. But now Sun Electric’s programme gives me the opportunity to be part of a sustainability effort without shelling out large capital.” The amount of solar energy received varies each month, he adds, but his electricity bill is expected to be at least 10% cheaper than if he were using conventional electricity.

“A lot of companies have a mandate to meet sustainability targets,” says Matthew Peloso, founder of Sun Electric. “This may include adopting a certain percentage of renewable energy.”

Start-up Sun Electric is the first solar energy company to obtain an electricity retail licence in Singapore, and it matches rooftop owners to consumers who want solar energy but do not own a roof of their own. Sun Electric packages the solar energy into clean energy products and sells them to consumers at 5% to 25% less than the cost of conventional electricity. Rooftop owners stand to make a return of 10% to 15% from the sale of solar energy generated on their roofs.

Sun Electric is also working with about 20 rooftop owners, ranging from logistics firms and an international school to JTC rooftops in Tuas South. Many of them are drawn to the green effort, but the added attraction is that solar energy can also bring in relatively decent returns for building owners. For instance, Peloso estimates that the company’s solar-power generation capacity would grow to 20MW by year-end. This equals 1,250 hours of sunlight and $4.5 million in annual revenue, based on current market rates, which gives some owners up to tens of thousands of dollars in extra income each month.

Peloso says the company will ramp up capacity to 100MW each year eventually and aims to work with more than 40 roof owners. Sun Electric hopes to have 100 small and medium-sized enterprise (SME) customers by year-end.

New business model

In 2012, Peloso, who had just completed his PhD research on solar energy, approached commercial building owners to install solar panels on their roofs. He had hoped to sell the energy back to them, but no one wanted the deal despite the abundance of available sunlight. He says, “They didn’t feel like signing a 20-year power agreement for just a fraction of the energy they generated. And I was beginning to agree with them.”

Clearly, a model that required rooftop owners to buy back all the solar-generated electricity did not work in Peloso’s favour. So, he decided to build a new business model to break into the renewable energy market in Singapore.

Today, Sun Electric has 20 local commercial rooftop owners and 12 SME customers on its programme. It recently launched the programme in the US, the Philippines, Australia and Japan. “By matching people who have roofs with people who want clean energy, the market is obviously a lot bigger,” Peloso says. “And it gives people more options to be part of the sustainable energy landscape in Singapore.”

Last year, clean energy investments broke new records and, according to Bloomberg New Energy Finance, now eclipses that of fossil fuels twofold. More solar companies are popping up in the market than ever before, possibly owing to cheaper solar energy production costs. The cost to build panels, for instance, has fallen 10% a year since the 1980s, based on a recent study by Oxford University.

Sun Electric’s success is an example of how renewable energy start-ups can thrive even if natural gas-generated electricity remains competitively priced, forcing many solar energy companies to come up with creative business models. Often, they include shouldering the cost of buying and installing solar panels to attract consumers. For instance, Sun Electric installs the panels — at no cost — on the rooftops of commercial buildings.

“We work with technicians to build generators on the roofs, and created a smart software system that allows us to operate the energy generated,” says Peloso. “The software provides us with information that we can use to optimise the supply of solar-generated electricity to our customers.”

He adds that the system allows rooftop owners to track the energy generated in real time. Consumers can also monitor their energy usage through the platform.

With the purchase and installation of solar generators easily costing upwards of $1 million for each building, however, clever software is far from sufficient for a viable business. Peloso says the answer also lies in the way Sun Electric structures its electricity products.

Blended model

The company does this through blending solar- generated energy with other types purchased through Singapore’s wholesale electricity market, the electricity futures market and other market participants. The electricity futures exchange is a platform that allows the trade of standardised contracts of electricity products at a certain price in the future. Peloso explains: “The electric market is typically very volatile and the prices change every half hour. The contracts [on the electricity futures market] allow us to hedge against electricity price fluctuations and obtain the power supply base load in the absence of sunlight.” At present, the company blends solar energy with natural gas and other energy mixes in a 1:4 ratio on average, which varies depending on the product.

But this could mean little to no clean energy for the green — and budget-minded — consumer on some months. The company’s cost-effective bestseller, SolarFlex, comes with no promise of a minimum level of solar energy. It has two other products with some amount of solar energy guaranteed. But, customers may need to shell out more than the conventional tariff for its pure solar energy product, Solar100.

Peloso says, “By weighting the amount we need to pay on the electricity market and the cost of solar-generated energy, it gives us an idea of how [to] structure our blended clean energy products.” The company made about $10 million in revenue last year.

Solar set to grow

Global trends show more governments heeding the call to address the effects of climate change, says Suchitra Sriram, senior consultant of energy and environment at Frost & Sullivan Asia Pacific.

For Singapore, which is sunny all-year round, it is no surprise that more efforts will be made to boost the solar power industry, says Sriram. In 2014, the government launched SolarNova programme — a valiant effort to boost public sector adoption of 350MW of solar energy by 2020. Other measures by the local authorities include the Central Intermediary Scheme, which allows contestable consumers to sell solar energy to the Singa pore power grid without going through a tedious registration process. Contestable consumers are commercial consumers that have average monthly electricity consumption of at least 2,000kWh.

Sriram says, “Currently, solar power contributes less than 1% of electricity consumption in Singapore, but the future of solar power looks very bright and the figure is likely to increase to 20% by 2050.”

The industry is also facilitated by a growing number of solar energy companies, each operating on a different business model. Sunseap Leasing operates through solar leasing: Solar panels on customers’ roofs are owned by a third-party and customers pay only for the solar energy consumed. Meanwhile, crowdsourcing platform SunVest, launched by SolarPVExchange, has taken a more creative approach by allowing investors to contribute at least $3,000 for a solar project to receive half-yearly payouts. One of the oldest players in the local scene is Phoenix Solar, which provides a range of services, including solar leasing and building roof and water surface photovoltaic power plants. Its customers include Sheng Siong Group and IKEA store operator Ikano.

According to Brian O’Rorke, vice-president of sales and project development at Phoenix Solar, technology is the true driver in the growth of solar power companies. He says, “The technology has been proven to be reliable; the systems Phoenix Solar installed eight years ago in Singapore are operating consistently well. Business owners see the combination of low technology risk and guaranteed electricity prices as a way to reduce volatility.”

Even as solar power continues to gain traction, the industry is not without its challenges. O’Rorke says the sector faces an acute shortage in skilled manpower and that finding the right talent would be key for any solar energy company to succeed in the region.

Lower energy prices and competition from big utilities firms such as Senoko Power and Sembcorp Utilities are other challenges. Peloso believes there may be opportunity for them to work together. “We can buy natural gas from their generators and sometimes they might buy clean energy from us,” he says.

Seeking more funds

Sun Electric plans to raise funds. Peloso is betting on a growing demand for solar energy products as he prepares to raise up to US$100 million ($134.6 million) to finance its growing operations. “We are considering privateequity partners and strategic investors that can help us meet our short-term goals and help us grow our business in Singapore or break into new markets,” he says. Investors typically pump in US$1 million to US$30 million with an expected rate of return between 5% and 8% a year.

The first round of financing will raise about US$20 million and be used to purchase solar generators. His plan, if all goes well, is to widen its retail operations to residential households by 2H2018.

He is also on the hunt for “sunny cities near the equator” to set up new operations, which may be done through strategic partnerships. “We are looking for places that have no subsidy for electricity and one that has a liberalised energy market,” he says. “We would also consider licensing our proprietary software to third parties or work with local utilities companies.”

Before Sun Electric, Peloso worked and studied in vastly different fields. He researched quantum technologies, worked in real estate and marketing, completed a PhD in solar energy and studied intellectual property law. He says all these experiences helped him through his early years, when he had to build up the company single-handedly.

“If you are an entrepreneur and really believe you have a good idea, don’t settle for imagining it, because it is a lot more rewarding taking an idea that you have in your head and making it work in the real world,” he says.

This article appeared in the Enterprise of Issue 724 (April 18) of The Edge Singapore.

http://www.theedgemarkets.com.sg/sg/article/place-sun

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