A schemes journey to power | A community scheme solar case study
27 September 2024 | Marion Fogell
In this case study, Marion discusses why her body corporate opted to go the alternative energy solution route through the installation of solar panels on the common property, she further sets out the processes and finances associated with the project.
Background of the scheme
This is a Cape Town inner-city scheme, consisting of two blocks with flat roofs, each with ten floors, comprising of eight residential floors and two basement garages. B block is double the size of A block, and each block has four and two lifts, respectively. The blocks were built in the 1960s and sectionalised in 2002.
There are over 300 sections, with roughly one-third owner-occupied, one-third long-term lets, and one-third short-term lets. Most of the units are studios, though there are a number of one- and two-bedroom flats.
The scheme is secure, well-managed, and financially sound. Administrative and reserve fund contributions together are around R35 per m² per month, which, according to Marion, is considered low compared to similar schemes in the area. The reserve fund is approximately one year’s total contributions, and normally they have about one month’s administrative contributions in the bank account. Their arrears are low, and the few owners that remain outstanding for a significant period are referred to CSOS for the relevant dispute resolution proceedings to be followed.
The owners are generally inactive, but satisfied. Since the new rules came into effect in 2016, they have not achieved a quorum of 33.3% at any Annual General Meeting (”AGM”), necessitating adjournments. Four of the six current trustees have been in place for more than ten years, and they do not hold elections as all nominees are accepted.
Each flat has its own electricity contract with the city, so the body corporate is only responsible for common property power. The two blocks are on separate erven, so the electricity systems must be kept separate.
Solutions to their power problems
The scheme installed a UPS system in 2015 to protect the CCTV, security, and access control systems from load shedding and other power failures; the batteries were replaced as necessary.
In line with regulations, the lifts each have a backup battery to provide power, allowing them to descend to the floor below and open the doors in case of a power failure.
Each of the five garage doors has its own battery backup, designed to keep them operational for a few hours during a power failure.
Many emergency lights with battery backup were installed in the passages and stairwells over the past few years.
Surge protectors were added to the two main distribution boards after some damage caused by load shedding.
By 2021, load shedding had become a serious issue not only for the lifts and lights, but also because the existing battery backup systems could no longer keep their safety, security, and access systems operational during higher stages of load shedding.
What was the solar solution?
Preliminary investigations into installing solar power were conducted in 2015, and generators for the lifts in 2021. Both were rejected due to cost concerns.
By 2021, several companies had offered to install solar panels on the roof, either at their own cost, to sell power back to them, or at their cost. They had no way of comparing the feasibility or compliance of these proposals, and soon realised they needed professional assistance.
They appointed a consulting engineer who inspected the site, arranged for load profile tests, and prepared a tender brief. This included a full solar backup of the B block common property infrastructure, which had to meet peak demands as indicated by the load profile study, include strong warranties on components, and ensure the panels would be securely attached to withstand high winds without compromising roof waterproofing or maintenance. Additionally, it had to comply with City of Cape Town regulations to allow future feed-back into the municipal grid if permitted. Several contractors were invited to tender, and three responded.
Meanwhile, funding for the project, estimated at R3.5 million for B block alone, was explored. We approached three funding providers for loans of up to R5 million over five years. One offered a considerably lower cost solution, which was provisionally accepted.
What decisions were being considered?
Two special resolutions were included in the agenda for the November 2022 AGM:
That the solar power system described in this document be installed on the B block roof to provide electricity to B block common property - this was what they considered to be a reasonably necessary improvement to common property.
That the body corporate may borrow up to R4 million, including finance charges, for a period not exceeding ten years to fund the project.
Details were provided, including background, motivation, summary, costs, source of funds, tender reviews, and recommendations. A similar project for A block was proposed to follow shortly. As anticipated, the AGM was adjourned due to a lack of quorum.
A week later, at the reconvened AGM, around 22% of members attended. The chairperson stepped aside to motivate the proposal. Many questions were raised and answered, with some owners expressing concerns about the financial risks. Despite this, there was broad support for the project. Votes in favour of the resolution were 62% by number and 66% by participation quota (“PQ”), which was insufficient to pass the required special resolution. However, the majority support was encouraging.
The trustees, motivated by owners, decided to hold a Special General Meeting (“SGM”) to vote on the solar proposal again. As load shedding had intensified, a proposal for A block was also included, though no load profiling or quotes had yet been obtained, and would not be during the holiday season. The project consultant estimated the A block project cost at 50% of B block, based on comparable consumption and roof space.
A notice was sent for the SGM on 28 February 2023, with the following special resolutions:
B-block
A solar power system would be installed in B block to provide electricity to the B block common property at a cost not exceeding R4 million. This would be an improvement to common property that is reasonably necessary.
The body corporate would apportion the budgeted cost of the B block project among owners by PQ. Owners would then be allowed to pay their share as a lump sum or over five years with interest.
The body corporate would borrow funds for the B block project for up to five years, less the amounts collected by lump sum.
A-block
A solar power system would be installed in A block at a cost not exceeding R3 million. This would be an improvement to common property that is reasonably necessary.
The body corporate would apportion the A block project costs among owners by PQ, with lump sum or five-year repayment options.
The body corporate would borrow funds for the A block project for up to five years, less the amounts collected by lump sum.
The trustees began a period of intense lobbying to ensure adequate attendance and support for the SGM.
The meeting was attended by 56% of members by PQ, with roughly one-third attending in person, online, and by proxy. After extensive discussion, over 90% of members supported both resolutions.
What was the implementation process?
The consultant was appointed as the project manager, and together with the building manager, they swiftly initiated both projects. There were a few contractual issues with the main service provider, but these were quickly resolved. It was agreed that the same solution and service provider would be used for both blocks, and measurements and quotes for A block followed shortly thereafter.
Contracts for the installation and the funding were signed after the required resolutions were passed. The project manager ensured that all terms were favourable, which likely saved more than his fees. The funding company and our managing agent provided substantial support and ensured that all applicable rules and processes were followed.
Storerooms near the main DB and meter rooms in both buildings were identified for the batteries and inverters, and routes for the cabling were established. Forced ventilation was installed, as well as specialised fire extinguishers. The roofs were inspected, and designs for fitting the panels were finalised to allow for future cleaning and maintenance, while ensuring the structures would withstand frequent high winds. Scheme staff applied another coat of silver paint to the roofs in preparation. Parking bays were identified for equipment staging.
The solutions included online monitoring of both systems, so wireless access points and cables were purchased and connected to the scheme’s network.
The B block installation went live in early July 2023, and A block followed in late August. Both systems' performance was monitored and reviewed to establish optimal settings and ensure that the batteries would last even during extended load-shedding on cloudy winter days.
Analysis of the system data soon showed that both blocks would benefit from twelve additional panels and an additional inverter for B block. These could be covered by the contingency budget and were promptly approved and installed. In October, strong winds lifted and damaged some panels; these were replaced at the installer’s expense, and additional counterweights were added.
How were the financial aspects going to be managed?
The owners approved their contributions to the B block project, equivalent to about five months’ administrative contribution, totalling R2.8 million, and anticipated approximately 50% more for the A block project. However, cost savings on the B block project and lower-than-expected costs for the A block project resulted in no additional contribution being required from owners for the A block project. The trustees resolved to transfer the surplus from the administrative fund for the financial year to the solar project, which the owners greatly appreciated.
New ledger accounts were established so the solar project could be tracked and reported on separately.
R1 million was drawn from the funders to pay deposits to the service providers, followed by another R1 million shortly after to cover progress payments. Owner lump sums soon exceeded R1 million, eventually totalling over R1.5 million.
A number of owners requested to settle their lump sums after the original deadlines, often due to changes in ownership. A settlement table was created for each section per month, which the Managing Agent now manages. After the final payments were made, R500 000.00 was repaid to the lender.
In summary, the total project cost was approximately R4.5 million, with R1.5 million funded from admin surpluses, R1.5 million from owner lump sums, and R1.5 million from a loan. The loan will be repaid through "solar levies" paid by the owners over the balance of the five-year period. These levies were increased in January 2024 in line with the interest rate (linked to prime) paid to the lender.
The payback period for such a project is difficult to estimate, but with the expected increases in electricity costs, it is likely to be between five and ten years.
Conclusion
Upon project completion and handover, the insured value of the scheme was increased by the cost of the installation, which amounted to less than one percent of the previous value. This resulted in a slight increase in insurance premiums.
All accounts related to the project have been settled, and the income from owners paying monthly “solar levies” now closely matches the repayment amount being made to the funding company.
A project income statement will be included in the annual financial statements at year-end.
We have a twelve month warranty on the system installation workmanship, during which time the main service provider continues to monitor system performance to ensure minimal use of city power while maintaining sufficient battery reserves to endure four-hour load-shedding periods during nighttime. The individual components are covered by manufacturer warranties, which are significantly longer.
We are mostly "off-grid" on sunny days, and city power usage, and therefore costs, have been significantly reduced. We expect this financial year’s electricity costs to be about twenty-five percent of last year's. However, it appears that we will not have enough capacity to sell excess power back to the city.
Are you considering solar in your scheme? Don’t hesitate to contact us today on 061 536 3138 or at info@tvdmconsultants.com for community scheme related advice.
About the Author:
Marion Fogell, an owner and a pivotal member of the community schemes industry. Marion is also very active on the Sectional Title Facebook group.