Opinion – From Grain to Grain: Understand how investing in energy savings can generate returns greater than those of the financial market

We have been following the rise in electricity tariffs and the outlook does not look promising. Thus, many begin to look for alternatives to circumvent the increase in cost. Saving measures have been known to everyone since the 2001 energy crisis. Unplug equipment from the outlet, replace older equipment with more efficient ones and keep lights off.

However, in recent years, a new modality has gained space in the home of Brazilians. Investment in what is commonly called a solar panel has grown. However, the question remains whether it pays off, given that an initial investment is required. This was the doubt of the reader Alexandre.

I looked for my friend José Euclides (pictured above), with whom I worked for almost a decade, because I knew he had installed it. José Euclides is a great manager of quantitative funds. So I knew that if he installed it, he should have done the math accurately.

To my surprise, he confessed that another co-worker from the same period, Adriano Montanhole, installed it. So it was easy to contact and talk to understand if it pays to install this type of equipment.

I worked together with Montanhole for 12 years at Banco Itaú. He was a fixed income fund manager. While many want to migrate to the financial market and the charming area of ​​investments, he left that area and went to the real economy. In our interview, he explained why he chose the photovoltaic sector as his area of ​​activity.

Currently, Montanhole is a partner in two companies in the sector, A3 Brasil Energia aimed at projects and installations and Solar Invest aimed at condominiums, clubs and NGOs that wish to install the solar energy system, but do not have available resources or financing.

Below I transcribe part of the conversation we had this week.

What motivated you to change your performance from the financial market to this new activity?

Many reasons, but I’ve always liked the real economy although the financial sector excels at analysis and projections which I admire a lot too.

Using this power of analysis and prediction, I observed photovoltaic technology and realized that its expansion was and will continue to be inevitable due to the numerous advantages it offers.

Generating your own energy is fascinating. With this technology we transform sunlight into something essential for our modern life. In addition, you “keep” energy credits that can be used for up to 5 years and a system can supply more than one property of the same owner.

What are the advantages of having your own generation at home?

The most sought after advantage is financial. With the implementation of the system, the consumer can drastically reduce their energy bill, without any impact on energy use in the consumer’s home or business.

You can compare the purchase of a photovoltaic system to a financial investment, in which you make an initial outlay and receive in return a positive flow from the monthly energy savings. With this flow, you arrive at an Internal Rate of Return (IRR) much above the interest rate in Brazil.

But the advantages don’t stop there. The consumer who installs the photovoltaic system wins and the ecology and society also win, as they depend less on thermal plants powered by fossil fuels that produce expensive and dirty energy and hydroelectric plants, reducing the need for new dams and their socio-environmental impacts.

Which consumer is it for? Is there a minimum consumption volume?

For any energy consumer. It can be a residence, condominium, club, company of any activity and size, including large companies that have already joined the Free Energy Market.

The market offers solutions for the most different consumption profiles. They can be remote plants that generate energy far from your residence, it can be the acquisition of a system with own or financed resources.

I have several clients who made the following reasoning: “I prefer to exchange the energy bill, which is an expense, for a system financing ticket in the same amount”. When he finishes paying off the financing, the system will generate benefits for the buyer for a long time to come.

Could it be applied to apartments or just houses?

I will use my case as an example. I have a house that I use for the weekends, where I installed my system. First, the system deducts the bill from this house and the excess energy is directed to my apartment, which did not have any physical installation, but deducts the bill with the energy generated in the house.

This is called remote consumption. Thus, a system installed in one location can deduct the bill of other locations, observing the rules of the same ownership of the energy bills and that the benefited properties are in the same concession area of ​​the distributor where the generating unit is located.

Just to exemplify, through this mechanism, it is possible to supply the energy of a network of stores from a single plant, without any work in the stores.

What is the value of the initial investment?

The investment value is directly proportional to the amount of energy you want to produce. Perhaps the best metric is not the initial value, but the number of months to obtain a return on capital. Currently, we must think about 50 to 60 months the cost of a system – remembering that this varies according to the local insolation, energy tariff and labor cost – so a residence that spends R$ 300.00 per month must think in an investment of R$ 15 to 18 thousand.

But, as you are an expert in financial analysis, I can say that residential projects easily exceed the IRR of 15% per year. As the long-term cost of energy is adjusted above the IPCA, we can say that the return is above IPCA+15%, without the income tax charged on investments.

It is also important to note that there are several lines of equipment with warranties ranging from 5 to 15 years. So, depending on the buyer’s choice, you can be sure that his return will be at least double the amount invested until the end of the equipment warranty.

And it’s worth mentioning Michael: Systems to supply very small consumptions, below R$ 300.00 for example, must be analyzed with caution, because there are costs in the process that are not fully proportional and this makes the return on investment time increase. So, check out the accounts that will be presented in the proposed acquisition of this system.

When does it pay off? How is the return calculated?

We can see that in the long term energy rises more than the IPCA, but I like to make the most conservative calculation possible, that is, I do not correct the energy tariff over time, nor the capital invested. Doing the math this way, my system should have paid off with 6 years savings from when I bought it, but the reality is that it paid off in less than 5 years.

You mentioned about a change in legislation. What legislation change is taking place? Does she come to get better?

The current legislation was made in 2012 plus some corrections over time through ANEEL regulations. This regulation aimed to encourage the use of this technology, offering benefits to system buyers. On the 7th, Law 14,300 was enacted, which provides for the maintenance of these benefits until 2045 for existing or authorized systems in up to 12 months. From then on, the new systems begin to pay a portion of the distribution system utilization fee (TUSD) that increases over time.

On the other hand, there were corrections that benefit the sector: such as the end of the double charge of the availability fee and the application of the specific demand tariff for generation – TUSD-G.

The summary is that photovoltaic energy will continue to be very beneficial to owners and the country before or after these 12 months, but whoever acquires it before the change, takes even greater advantages.

How to choose a company to acquire the system for my home?

It is important to keep in mind that a photovoltaic system has a very long lifespan. I know of a plant in England that was created in 1983, that is, it is almost 40 years old and is still operating, so it is important to choose a company with good technical references.

A reputable company trapped by the rigor of the application of technical standards in the preparation and installation of the project, scales the most profitable system to the client – which is not necessarily the one that will produce more energy, depending on the case – and, mainly, a company that is trapped by the transparency and to be there if something unexpected happens.

All systems developed by my company are made with the same rigor that I used in my own home. I believe that the satisfied customer will carry out the process of publicizing their activity without the need for marketing plans.

In addition to purchasing a photovoltaic energy system, are there other ways to invest in this area?

The best of them is the purchase of the system for your consumption. You get the full return on all your consumption, but for a large investor, the volume invested may be little relative to equity.

The investor can look for a specialized company and demand a plant destined for lease, generating permanent income for the investor. This company must advise the investor in two activities: design and install the plant and create a leasing business plan to make the investment profitable.

In addition, in the financial market there are debentures, CRIs and other instruments backed by power generation plants, but in these cases the return is compatible with other fixed income investments and not that of a real activity as in the case of leasing.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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