Solar leasing firm aims to enlighten customers
The commercial use of solar energy was a relatively novel concept back in the 1980s and Singapore, a still developing nation, had yet to embrace so-called green energy in a big way.
But that did not stop local start-up Sunseap Group from taking a punt that free energy delivered from the sun would prove to be a long-term money spinner.
The firm manufactured systems for German partners. Government subsidies in Germany for green energy back then ensured cash for the partners – and continued business for Sunseap.
These power systems, with solar panels placed on the roof of the premises where electricity is being supplied and in other open spaces, were sold and used largely in Europe at that time.
Then in 2010, with more Singapore firms having jumped on the green energy bandwagon, Sunseap found another niche. This involves leasing out solar power systems to companies in Singapore that are unwilling to fork out, upfront, the millions of dollars such systems may cost.
The business model is structured in a way that customers are charged per unit of electricity produced, with little or no cost for renting the equipment. The electricity is cheaper than power bought from the grid, to make the deal more attractive to customers.
It also means no large upfront payment as the cost of solar energy for the customer is spread out over the length of the leasing contract, which is typically 20 years.
"This model stems from a need in the industry here," said Mr Frank Phuan, director of Sunseap Leasing – the subsidiary in the group dedicated to solar leasing.
He said as electricity is expensive in Singapore, customers are keen to find a cheaper alternative.
Sunseap is able to turn a profit even after offering a modest discount to the electricity tariff here.
In countries with lower electricity tariffs, the company would not be able to earn a profit if it were to offer a discount to those rates. The solar energy systems it offers typically supplies 15 to 20 per cent of customers' power needs, estimates Mr Phuan, with the rest of the electricity having to come from the national power grid.
The leasing business is a recurring source of income, whereas revenue from operating the manufacturing business is dependent on sales of the systems.
Sunseap's manufacturing plant is located in a Boon Lay Way industrial estate and employs about 30 staff. Sunseap Leasing employs another eight staff.
Manufacturing brings in about $5 million of revenue a year, said Mr Phuan, 37, whose father founded the company and is in charge of the manufacturing business.
Sunseap Leasing has $28 million to $56 million worth of contracts in Singapore, which will be realised over the length of the deals of typically 20 years. There is a range in the revenue values because the actual turnover will depend on electricity tariff rates.
An ongoing challenge for Sunseap lies in trying to keep pace with technological changes in the green energy sector, said Mr Phuan.
Another key challenge through the years lies in changing the mindsets of consumers.
"People always have the impression that solar energy is more expensive than energy from the grid," said Mr Phuan. "But we've been trying to educate them."
The cost of solar power is competitive compared to electricity from fossil fuel, said Mr Phuan, reflected in the fact that Sunseap Leasing is able to offer a modest discount to the prevailing electricity tariff rate. "When we give them savings from day one, it is an easy sell," he said.
In 2011, the firm received a boost from the Government.
Sunseap inked a solar-leasing agreement with the Housing Board to power some blocks in Punggol. It has since signed more agreements with the HDB.
The company wants to take its leasing model overseas. It opened a branch in Australia last year and is in talks with state governments to lease solar systems to them.
It is also in talks with Malaysia and Japan partners and hopes to have projects in these countries by the end of the year.
Sunseap also wants to grow the Singapore market. From focusing on government bodies and large companies, the firm now wants to lease its systems to smaller companies and even owners of residential landed properties. In January it inked a leasing deal with a small food and beverage company.
The eventual aim is to list the leasing business on the stock exchange. The manufacturing business will be kept private.
Article published by: Asia One, Jonathan Kwok