Revolving Fund for Financing of Sustainability Projects

By Bruce Barbour - February 2020

I recently came across a website that was promoting the use of a "revolving fund" for the financing of sustainability projects - primarily the installation of photovoltaic (PV) systems and on occasions other sustainability improvements which have a positive financial return - for the not-for-profit sector.

Before I give you the link to the site I will explain how the system works.

A financing organisation finds a suitable not-for-profit organisation which owns (or has really long term lease or usage agreement on) a building they use for the provisions of not-for-profit services. The financing organisation works with the not-for-profit to determine the size of the PV system they need and an estimate of cost and an estimate of likely savings and repayments. The prime requirement is that the estimated savings are greater than the estimated repayments from the not-for-profit - more on this later. The financing organisation calls then for donations from the public to finance the solar PV system. When the required amount of money is raised the not-for-profit gets quotes for the system. The preferred quote has to be approved by the financing organisation to ensure that the system is of suitable quality - a system that should last 25 years. Once that is achieved the financing organisation agrees to lend the money to the not-for-profit. An order is raised and the system installed and paid for using the lent money. The not-for-profit repays the capital cost to the financing organisation using the savings they make on their electricity bill to make the payment. No interest is charged by the financing organisation.

Now this is where the true power of the arrangement comes into effect - the "revolving fund". The repayments are used to partially or fully (depending on the size of the fund) finance the next solar PV project for another not-for-profit - with additional donations also being called for. And the process is repeated.

The revolving fund is constantly being topped up by new donations. This means a greater number of projects can be funded quicker - rather than having to wait until the first project has paid back its loan. The reuse of the donated funds means that the funds are not just being used to install one PV project but will be used for multiple projects over time, multiplying the number of Watts of PV installed as a result of that donation - this is what makes it attractive to the people donating to the fund. Each dollar they donate is going to lead to the installation of many more Watts of PV panels than if they had used that dollar to, say install more PV on their own roof. It also helps that donations to the fund are tax deductible.

Eventually as the fund becomes large enough it could continue to operate even if no new donations were received. However if new donations continue to be received it means that more projects can be funded.

As an example if the fund size was $600,000 it could be funding, say, 20 x $30,000 projects (though in practice the size of the projects would vary depending on the requirements of the not-for-profit) - each starting at a different time. If the projects repay their loans over a five year period this means that the revolving fund would receive back $120,000 dollars each year. (An average of 4 projects may complete payments on their loan each year.) This $120,000 can then be used to fund a further 4 x $30,000 projects - increasing the number of projects to 24. It would be similar for the following year - increasing the number of projects to 28 - and so on. Thus the revolving fund.

This arrangement has become possible due to the fall in prices of PV systems in recent years.

I will provide a simple calculation to show how it works for a single project. The assumptions made are quite conservative - a greater financial return could be anticipated. I prefer to under promise and over deliver.

Indicative Payback Calculation Indicative Figures Only			Notes
System Size	30(1)	kW	This needs to be determined from consumption patterns.
Average peak solar hours per day - Melbourne VIC	4.6	kWh per kW of panel	Reference:  https://www.yourhome.gov.au/energy/photovoltaic-systems
Efficiency Adjustment	85%		This is to allow for imperfect alignment and installation.
Average Energy Generation per day	3.91	kWh per day per kW of panel
Energy Generated Per Year	42814.5	kWh
Estimated Proportion consumed on site.	0.2(2)		This needs to be determined from consumption patterns.
Cost of Grid Electricity - typical Victorian	30	c/kWh	For large users the structure of electricity pricing is different to this. I have not determined at what level the pricing structure switches. You will know from your electricity bill if the price structure is different to this. Consult your supplier.
Feed In Tariff - typical Victorian	12	c/kWh
Cost Savings
Grid Electricity not purchased	$2,569	per year	PV generated electricity consumed on site.
Feed In Tariff Received	$4,110	per year
Total Cost Savings	$6,679	per year
Cost of System
Cost per kW	$1,000(3)	per kW installed	Can depend on site.
Cost of System	$30,000
No. of Years to Pay back	4.5	Years	Assuming all savings are used to payback loan(4).
Percentage Return	22%

Notes:
(1) According to SolarQuotes - under 30 kW the PV systems are usually treated as similar to domestic installations and can be installed by many suppliers who install domestic sized systems. Over 30 kW there are more hurdles that the owner / installer must overcome and additional expertise required. Refer to the SolarQuotes guidelines for commercial installations.
(2) The higher the amount of the PV generated consumed on site the better as it displaces the use of grid electricity. Consequently the organisations that will get the most benefit from a PV system are organisations that operate during the day, seven days per week, 365 days per day. More on this later. The 0.2 proportion used in this table is quite low for buildings being used during the day. If it was higher, say 0.4 the benefit of the PV system, the savings to the organisations, to the organisation would be higher (in this case payback in 3.6 years, 27% return). An example of an organisation that may have high proportional use would be an aged care facility. They operate 365 days per year, day and night. The actual proportion would have to be determined by studying the centre's electricity consumption pattern. For domestic houses the self consumption may be less than 0.2 if the house is not used during the day and electricity appliances have not been switched to operate during the day.
(3) The $1000 per kW is an estimate of cost for larger projects. If the cost is actually $1200 per kW payback will be 5.4 years, 19% return (with 0.2 self consumption). The cost per kW for small good quality domestic PV systems will probably be higher than for a larger "commercial" good quality system. The price estimates are after the Small Scale Technology Certificates (STC) rebate has been applied.
(4) In practice the financing organisation would not require all savings to be put toward loan repayments. Payment would be set at up to 90% of the estimated savings - meaning that the not-for-profits starts getting some benefit straight away. And they get the the full benefit after the loan has been repaid in say 5 or 6 years (or whatever agreed loan length is).

• Solar Quotes 101: A Beginners Guide
• Solar for Your Business "101": a Beginners Guide

As an aside: Governments at all levels should be undertaking large scale installation of PV systems on their own buildings, such as schools and offices. For local government, PV system installation on indoor recreation centres and libraries - centres that operate seven days per week - would benefit greatly due to their seven days per week operations and therefore their greater proportion of self use. The economics for larger systems are starkly in favour. And there are of course environmental benefits. And private companies should also be looking closely at the installing PV systems and investing.

Compare that to their current subsidy for PV - the domestic solar rebate. This scheme initially (2018) started out offering a 50% rebate, up to $2,225 dollars, for a 4 kW PV system (though I understand that the rebate is now less than this - not that their web site says this - at February 2020). If someone buys a really cheap system for $4,450 the Government is getting a doubling of the amount of PV installed per dollar invested (although that may be illusory if a cheap system fails in under 5 years). This is way less than the over six times return of the revolving fund with no interest loans.

Initially I thought the interest free loans should just be offered to organisations in the not-for-profit sector (and possibly local government if they work in the same area), but on reflection it should also be offered to the for-profit sector who are providing similar servicing as the not-for-profit organisations. E.g. all aged care facilities should be eligible rather than just the not-for-profit organisations. (The scheme could include other services later - e.g. kindergarten/day care, etc.) Otherwise the for-profit organisations would be crying foul. And anyway it does not matter where the additional kWh of PV electricity is coming from - it will all benefit the environment - which is the ultimate aim. An aged care facility in the for-profit sector is already getting huge amounts of money from government to provide aged care services anyway - so why should this be different. It will cut the costs of service provision in the long term so the not-for-profit can provide better service for their clients - and so can the for-profit organisation if they choose to use it that way.

Under the scheme it is vital that good quality systems are installed. Otherwise the situation could arise that the system fails in under five years total cancelling out the benefits of the system. The PV systems (or at least the panels installed) should last a minimum of 20 years, preferably 25 or more.

There are a couple of ways of achieving this:

• have a government organised bulk buying scheme for the panels and inverters, ensuring only good quality systems are supported - and that these are supplied at potentially a discounted bulk rate; or
• Have a pre-qualified list of suppliers to provide panels and inverters under the scheme; and
  
• Have a pre-qualified list of installers who install the panels / inverters purchased under the bulk purchasing scheme or from the prequalified suppliers; or.
• Have a pre-qualifed list of installers who also source approved good quality hardware.
  

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