The Forces and play
There are three significant forces at play that create a massive new opportunity.
- The economic force – The Spread – Power costs are rising and the cost of Solar is falling. The spread between Solar and Grid means there is growing disparity between the two. Solar is reducing each by 20% year-on-year. Grid is increasing 5–10% year-on-year mainly driven by incessant rise in the cost of carriage of electricity over the pole and wires and loss of share of spend – because of these two trajectories the spread will widen.
- The social force – Another powerful force is the growing social acceptance of Renewables in Australia. People are now more conscious of sustainability and have voted with their wallets. In Australia there are 1.5 million homes that have solar. They want sustainability from the places where they live and work. This social pressure will continue to force politicians to accommodate the social need for incentivising renewables- both parties now will fan these flames. A good example is the move to Virtual Net Metering. Increasing RECs.
- The Technology Force – The IoT is a massive technological movement, that came from nowhere, which now enables us to monitor and control any device. This breakthrough now enables monetisation of assets in ways never contemplated. IoT makes it possible to solve the split incentive problem. This force drives innovative business models, like the sharing economy where Uber and Airbnb have decimated incumbents using other people’s assets. ( Usership Model )
The IoT changes the relationship between the device – a thing – and a person. Redefining that relationship changes everything creating value through delivering a service – asset-as-a-service.
The Big Idea
Solar panels collect energy. Matter lets landlords sell it.
A property investor can create a new income by selling their tenants cheaper, cleaner solar power.
In this new market a landlord can install an asset, like solar, on their premises and sell on-site power to their Tenants. This new market opportunity is massive globally over 100 million sites, in Australia its potential is over 1.5 million sites and about nearly of all businesses. 30% of society rents in Australia.
In Australia the Total Addressable Market for Digital Solar Market is $1.9 billion without factoring significant adjacent market opportunities.
These forces are not a threat unless you are a traditional utility – it is a fast moving opportunity, The Market is known as “Digital Solar”. Think solar with smart technology that turns it into a service.
It is defensible – big moat
An amazing characteristic about this market opportunity is that utilities’ hands are tied – they cannot compete with the landlord on cost, service and market access. The landlord owns the roof.
Utilities that do enter do so eroding their existing revenues and undermining their business model. The Australian Utility business model is based on a large centralised plant where they ship power to the places that need it. If the utilisation intensity drops the losses are massive.
Utilities need to compete with Landlords who don’t face shipping costs and can produce power at a cost below what a utility can deliver it to the Landlord’s property.
Here is the interesting thing about this opportunity.
Matter doesn’t compete with the Utility — Matter competes against other ways that a Landlords can increase yield in their rental property like a renovation, new air conditioning. It just happens that the service displaces grid power.
This leaves the market wide open and utilities extremely vulnerable. The moat is massive. The threat large to the centralised power business model.
You will see new investment flow into this whitespace market and also see a shift of investors money from utilities with centralised plants to this market – fuelling this growth.
Why would you invest in a centralised power plant and risk it being stranded?
The challenge in this market is how to deliver services to both the landlord and the tenant in a way that preserves, or maximizes the value and manages or reduces the risks.
The market will see many entrants over the coming years driven by extraordinary wealth creation. Players in the market need to be able to reduce costs year-on-year whilst doing a land grab. There are many traps for young players.
Although we invented the big idea and are first to market we see ourselves as one such player in this vibrant Market. Our secret sauce is the investment we have made in our technology, processes and people to deliver this service and be first to scale. Its the time we have taken to work out what works and what resonates with the customers.
Today, at Matter, we can do this at the highest quality at an attractive price point and a reliability that creates extraordinary returns for landlords and savings for their tenants. We have an unassailable three year lead in technology and know how.
Matter is able to deliver to a landlord the ability to produce power at their site for between 7 to 9c kWh – this enables them, in many cases, to make over 20% return whilst their tenants save 15%–25% on their grid power bill.
The losers from this disruption are the Utility, because they need to ship electrons to the site over poles and wires and in Sydney this can cost up to 26c kWh. And in other places up to 12 cents.
An illustration of Value
- Assuming a conservative 80% of the solar power produced is consumed, this new asset is expected to generate:
- $1,400 of additional income in the first year; And
- $53,000 over the lifespan of the system.
This investment pays itself over a period of just over 3 years and yields 47% IRR over 10 years. If t was completely funded over 5 years the increase n cash flow to the investor would be $11,000 over ten years.
How Does it Work
Tenant’s already spend money on electricity that they could be spending with their landlord.
A landlord can legally sell solar power produced onsite at a discount to tenants grid electricity – supplying tenant with their daytime power needs not only saves them money and sets the investment property apart from the rest, it creates an additional income stream.
Installing a solar system and Matter’s metering service within a rental property provides tenants access to lower cost, cleaner electricity. During the day, when the sun is shining, they can draw electricity from the property’s solar panels, avoiding expensive, peak grid electricity. They’ll still use grid electricity at night time and when the solar can’t cover all of their needs but they’ll see a big reduction in their grid bill.
The way the service works is:
- The landlord recover their investment in the solar system by charging for the solar power tenants uses at a discount to their grid electricity bill
- This discount can be set by the landlord – typical business case the discount is set at 20% off their grid tariff
- Matter then bills monthly for the solar used and remits the payments