# Insuring solar panels



## Smurf1976 (17 April 2009)

I'm about to put some solar panels on the house roof and am wondering about the insurance aspects of this. Over $12,000 worth so I need to get this right.

Anyone have any experience or comments about this before I talk to the insurance company? It's a fairly average single story suburban house and they're going on the roof.

Main things I'm worried about is that, whilst I think it's pretty unlikely, theft or vandalism wouldn't be impossible since the panels will be very clearly visible from the street. Obviously they're not the easiest thing to steal and the panels are stronger than most think, but I'd rather be properly insured just to be safe.


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## drsmith (17 April 2009)

While not related to insurance I'm curious as to how much generation capacity $12000 will buy and how much electricity it will generate in a year.


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## pilots (17 April 2009)

Yes we know some one who will have to wait 12 years to get back what they have outlaid.


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## Smurf1976 (17 April 2009)

pilots said:


> Yes we know some one who will have to wait 12 years to get back what they have outlaid.



That's about right only if there's zero inflation over the next 12 years. Possible but I doubt it...

Here's the maths for those interested.

Total cost is about $12,800.

Your taxes will be paying $8000 of this (that ends after 30th June, hence my reason for doing it now).

Electricity consumers, via the Mandatory Renewable Energy Target, will be paying another $800 or so of my costs.

That leaves me to pay $3975 (quote I've obtained). I've arranged finance for this (not committed as yet) as follows:

50% financed at 0% (fixed) with no fees, repayable over 2 years.
Remaining 50% financed at 0% for just under two months, then transferred to a rate of just under 5% (variable) which I plan paying off in about 3 years time (hopefully).

So, your taxes and power bills are paying almost 70% of the total cost. I'm paying the rest, using some free finance to make a few $ along the way.

Electricity production will be about 1500 kWh per annum which will save about $275 on power bills assuming no change in rates.

So all up it's about a 7% yield on a very conservative investment. Unless electricity prices crash for retail consumers (I'll get one of those flying pigs if that happens...) there isn't much that can really go wrong as long as the sun keeps shining and I've got the panels insured against theft or damage. There's a 25 year warranty on the panels and they ought to last longer than that.

Looking ahead, I'm outright bullish on energy prices in the long term. Climate change / carbon, rising gas prices globally and under investment in new low cost generation in Australia doesn't point to lower prices. Nor do the politics - for purely political reasons it's possible that we'll see premium rates paid back for solar-generated power once the government's funding of such systems ends. That's speculation but the idea is certainly out there and once the government funding of the grant ends, there's more chance of it happening I'd say.

Return of my capital? Obviously it's an illiquid investment but I'd assume it will add at least some value to the house. Changes to the rules will more than double the cost of such a system in 3 months time and it will be about triple in a few years (excluding any change in the actual cost of materials and labour). So I don't think we'll see too many of these being installed, thus keeping it as a reasonably unusual feature of the house. No guarantees, but if I sold the house I'd probably get at least something back from my solar investment. Not that I'm planning to sell, but anyway...

I've argued pretty stongly elsewhere on ASF that putting solar panels on roofs isn't really a sensible thing either technically or financially when there are far cheaper forms of centralised renewable energy generation. I'm not at all keen on the idea in that sense because it just doesn't stack up as a means of generating power (financially). 

BUT if the taxpayer is footing 70% of the bill and I'm getting 100% of the profit from selling electricity back at 4.5 times its actual value then it becomes a reasonable proposition for me to do it. Worst case we get no inflation and I'm stuck with a low return investment. But if we get high inflation then I'll look a lot better just like those old hydro schemes that now return well over 100% pa on the original investment due to the effects of inflation. Solar's very similar to hydro financially - all the costs up front and it basically just sits there once it's built with not much needing doing to keep it running. That's a pretty good hedge against inflation.

And I just like the idea of having a power station on the roof - note my avatar (control panel from a real power station) and my numerous posts in various threads on the subject of power. 

As for the original question of insurance, I haven't confirmed this officially yet but it seems they would be considered part of the building and are insurable as such. So if that's correct then I just need to add a bit to the insured value of the house which, I'm assuming, will make very little difference to the premium (I'll check before going ahead with this whole idea though).


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## doctorj (18 April 2009)

As a financial investment, I wouldn't do it as you describe.  Even ignoring the marginal increase in your insurance expenses, the back of the envelope calc looks like it has a negative NPV.  What may get it over the line is if you're able to sell unused power back into the grid - from memory you could in WA, but I've got no personal experience with that.


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## Uncle Festivus (18 April 2009)

Smurf,
I'm looking into this too, so just wondering about a few of the finer details - 

What company will be supplying and or installing the system?
It will be grid interactive, so if there is a blackout you still have no power?
How does the interactive part work ie is there a change over relay that syncs to the grid frequency, and drops out on loss of grid power?
What size are the panels?

I'm going to ask my accountant if it will be tax deductable seeing how it could/maybe be used to power the puters/office power that I trade with - yes, it's a long shot


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## Smurf1976 (18 April 2009)

doctorj said:


> As a financial investment, I wouldn't do it as you describe.  Even ignoring the marginal increase in your insurance expenses, the back of the envelope calc looks like it has a negative NPV.  What may get it over the line is if you're able to sell unused power back into the grid - from memory you could in WA, but I've got no personal experience with that.



To me, the panels themselves are a form of insurance. A hedge against inflation and a guaranteed source of something useful (electricity).

In terms of inflation, if I go back to 1995 then for domestic electricity for general use it's averaged 8% a year since then. Yep, it's roughly tripled in 14 years and with the global oil and increasingly gas situation, talk of carbon caps etc plus governments around the world doing thier best to stoke inflation I do think we'll see prices continue to rise. 

I will also state my view, somewhat cautiously, that electricity supply is now where water supply was 20 years ago. Lack of proper long term planning and a growing notion in government that some form of restriction on usage is preferable to increasing supply. Indeed discouraging consumption and enacting a form of socialism is the reason, officially acknowledged as such, for the 8% inflation in unit rates for electricity over the past 14 years - actual costs sure haven't increased at that rate. Hence I'm biased toward owning some solar panels even if it's not strictly profitable - worst case the loss in actual $ terms isn't going to be much.

As for selling power to the grid, 100% of the power able to be generated will be generated and will automatically either supply my consumption or be exported to the grid (paid at normal rates).

Financially it's not great I'll readiliy acknowledge that. It's somewhat a gamble but it's one that, due to legislative change, won't be available at anywhere near this price in just a few weeks' time - so it's now or never. If we get high inflation, and by that I mean simply a repeat of the past 14 years, then it starts to look better financially. And it looks good in practical terms if we do end up going down the socialism / restrictions track we seem to be very firmly headed towards (same in a lot of countries by the way, most notably UK and Australia).

Worst case it's comparable to me lending someone $3975 repayable over a decade with no interest. The loss won't send me broke.


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## drsmith (18 April 2009)

I don't have time this evening but I will come back to my original question in light of the information you have provided.

In the interim though a question about the finance.


Smurf1976 said:


> That leaves me to pay $3975 (quote I've obtained). I've arranged finance for this (not committed as yet) as follows:
> 
> 50% financed at 0% (fixed) with no fees, repayable over 2 years.
> Remaining 50% financed at 0% for just under two months, then transferred to a rate of just under 5% (variable) which I plan paying off in about 3 years time (hopefully).



How have you managed to get finance for 0% and in particular, was the finance arranged as part of the sale of the panel ?

The curiosity here is whether this is the same kind of finance arrangement as interest free deals offered in retail stores.


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## Smurf1976 (19 April 2009)

drsmith said:


> How have you managed to get finance for 0% and in particular, was the finance arranged as part of the sale of the panel ?
> 
> The curiosity here is whether this is the same kind of finance arrangement as interest free deals offered in retail stores.



In short, yes it's the same as an interest free deal in a retail store. 

The company selling the panels is quoting the same price now as they were 12 months ago but theye are now quoting that price paid either up front or in installments over 2 years. So I'd be silly to not take the free finance and put the cash elsewhere in the meantime.

The other finance at about 5% is simply me shuffling money about between the solar panel supplier's free finance as that is repaid and other loans I already have.

As I said though, I'm not looking at this purely financially. That's in the same way as someone who modifies a car or puts some new plants in the garden isn't doing it to make money and probably won't (though under some circumstances a profit is certainly possible). It's more about an interest in energy and a fascination with technical things than making money - though obviously I couldn't afford it if the loss was too great.


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## drsmith (19 April 2009)

Smurf1976 said:


> In short, yes it's the same as an interest free deal in a retail store.



With this kind of finance the third party finance company (typically GE Finance) retains a portion of the sale price of the product. This is how the finance company makes a return on the loan during the interest free period. You are effectively paying for the finance through an inflated purchase price.

As an example consider your $12000 solar panel. You purchase the panel and sign a loan agreement for the interest free finance. If the finance company's retention rate is 10% then $10800 goes to the seller of the solar panel and $1200 is retained by the finance company.

Finance company retention rates are closely guarded by both retailers and the finance companies themselves which in my view is wrong.

The bottom line is that you can negotiate a lower price for cash thereby improving the overall economics of the project.


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## Dowdy (19 April 2009)

how strong are solar panels to hail stones?


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## drsmith (20 April 2009)

Smurf1976 said:


> Total cost is about $12,800......
> 
> Electricity production will be about 1500 kWh per annum which will save about $275 on power bills assuming no change in rates......



Stripping away the government incentives I note that the gross yield on the underlying investment is 2.2% which is extremely poor.

Is this the best that can be obtained from currently available renewable energy options at present energy prices ?


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## doctorj (20 April 2009)

Solar might be the most convenient for the home user, but on a commercial scale, it’s not competitive with traditional fuels (gas/coal).  Wind is the current flavour de jour (onshore, but increasingly also offshore, due to NIMBY syndrome).  I’m aware of wind projects in Europe returning 15-20%, but they benefit from legislated minimums of renewable energy used by distributors (and therefore are able to charge a premium or onsell ‘renewable certificates’ created by renewable power production).


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## Smurf1976 (20 April 2009)

drsmith said:


> Stripping away the government incentives I note that the gross yield on the underlying investment is 2.2% which is extremely poor.
> 
> Is this the best that can be obtained from currently available renewable energy options at present energy prices ?



Regarding the finance, the price quoted is the cheapest I've found in terms of $ price and that includes the "free" finance. Yes I'm aware that I'm paying somehow for that finance, but it's still the best deal I've found thus far.

As for the overall investment / renewable energy theme, I'd totally agree that putting panels on roofs is a dud idea in an of itself. I'm doing it due to a personal interest in such things that's become affordable, if not actually profitable, because (1) your taxes and the electricity bills of others are paying 70% of the cost and (2) I'll be selling the power for about 4 times what it's actually worth. 

On that basis It's good enough for me but it's absolutely not a profitable investment or a viable source of large scale energy generation as such. I'd put it in the "welfare" or "tax dodge" category, but it's legal and I simply like technical things like this so I'll take it.

What is viable? Large scale hydro, bagasse and wood are the only major renewable energy sources that are viable as such in competiton with large scale coal or gas-fired generation. And that viability of wood is limited to its use for direct heat purposes rather than power generation.

World electricity production is coal, nuclear, hydro, gas, oil, all others in that order. There's a reason for that = coal, nuclear and hydro are viable and have stable fuel costs. Gas is viable for some applications. The rest aren't financially viable apart from remote areas, as backup etc.

In the Australian context, I've made some long and detailed posts on this subject before. In short, geothermal is the one big hope we've got and I honestly do think there's a fair chance it could be a goer. Other than that, there basically isn't any renewable energy that's financially viable unless someone wants to flood the Tasmanian wilderness for the single largest hydro scheme in the country (in terms of annual output), an idea previously debated at extraordinary length in the early 1980's and ultimately rejected. Other than that, if it's viable then it's "viable" only because there's a subsidy.

If you want cheap power then stick with centralised generation and try to make geothermal work. If it works, then there's a strong argument for more pumped storage hydro to support its operation (lots of technical reasons why we'd want to do this). Solar thermal, which is large scale power stations not panels on roofs, has a role to play but only to a modest extent. Forget the rest apart from crop wastes, firewood and damming whatever rivers don't upset anyone too much.

But in reality, there's a government rebate for solar and it's good enough for me...


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## jonojpsg (20 April 2009)

Hey Smurf, we've just put in a 1kW solar in Hobart for the same price and thoroughly enjoying checking the stats every day.  We're on the sunny Eastern shore down in Tranmere so get plenty of sun most days and have been averaging 4kWh per day since mid March.  Hoping to maintain that or a bit more over the year cycle.

Haven't checked insurance - been meaning to though!

I have no doubt that electricity prices will hike by 8-10% per year over the foreseeable future (in Tas at least), Transend have truckloads of upgrades that need doing, don't know about Hydro but I'm sure they're probably the same.

WHile Aurora currently only pay us back at their chargeout rate (19.5c/kWh) I reckon we might see some premium paid ala SA and Vic who pay 50-100% premiums for solar fed back into the grid.

And we are doing our bit for reducing CO2 emissions.


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## Smurf1976 (20 April 2009)

jonojpsg said:


> Hey Smurf, we've just put in a 1kW solar in Hobart for the same price and thoroughly enjoying checking the stats every day.  We're on the sunny Eastern shore down in Tranmere so get plenty of sun most days and have been averaging 4kWh per day since mid March.  Hoping to maintain that or a bit more over the year cycle.
> 
> Haven't checked insurance - been meaning to though!
> 
> ...



We're not far apart... I'm in Geilston Bay (for everyone else that's only a few km away and also on the Eastern Shore).

4 kWh per day is pretty much spot on with my calculations so it's what I'm expecting averaged over the year.

Monthly production I'm expecting (Jan to Dec in order) is 187, 153, 134, 100, 79, 64, 78, 101, 117, 155, 165, 183 kWh per month. That's very dependent on the panel angle and orientation so will vary from site to site.

As for Aurora, Transend and Hydro:

Aurora's already done a lot of upgrades but that sort of thing never is truly "finished". Aurora has also just become a generation company via the gas turbines (not Hydro's steam turbines on the same site) at Bell Bay. Two of the old turbines have now been refurbished and are in service with the third due next month. The new one, which is larger, is due to start operation in a couple of weeks too and then the combined cycle unit, which is bigger than all 4 open cycle turbines combined, is due late this year.

Transend - yep and they're after some big increases in transmission charges to pay for it. You'd be not too happy if you realised why it's all necessary. Let's just say that's what happens with disaggregation and competition in generation when you can no longer operate generation and transmission as one but instead must be able to cope with huge power transfers as generation shifts around (including import / export). 

Hydro - System load exceeded capacity about late 1997 and that's one of the two reasons (the other being drought) the dams are so low. 24.7% this morning in fact and falling. The system has been running about 40% on imports recently (and was running about 10% from one of the old steam units at Bell Bay until closure of that plant at the end of March). Without those imports and heavy running of Bell Bay in recent years the dams would be literally at zero and the lights would be out (that's fact provable by calculation and not speculation). It's no secret that there's a plan to increase generation both hydro and wind by about 10% in total. The specifics of that plan are being worked out at the moment although it's pretty certain to include construction of Musselroe wind farm in the north-east, hence the sale of the China and India assets to fund it.

As for the price, well I think there's more chance of me flying to Melbourne on the back of a pig than a drop in household electricity prices. Big industry isn't happy either - the prices they are paying now are a lot higher than the general public realises. If the public knew the facts and figures, I don't think you'd hear anyone saying they're not paying enough. More likely, you'd hear a lot of people asking "how can they keep going if they're paying that much?" and worring about jobs. Indeed...

As for the 19.236 cents you're getting for the solar or paying for your consumption, you'd be shocked to realise that only about a third of that is for electricity from the Hydro. The rest is transmission, distribution, retail and GST.


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## basilio (23 April 2009)

Congratulations on your analysis and decision to install PV on your roof Smurf.  With the Gov rebate and what will be an increasing cost of electricity it is a sound long term investment. And your analysis makes very good sense. (Flog it to the PV companies perhaps?  )

Just wondering if you had considered establishing the capacity to upgrade your system in the future? For example putting in a higher capcity inverter,( say 2kw) and adding further solar panels later perhaps when thin film solar becomes cheaper and more established ?

Cheers


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## Smurf1976 (23 April 2009)

I've now found a better deal on the panels and inverter.

In short, the cost will now be zero with either government or other electricity consumers paying all my costs other than that associated with the deposit, which is refunded when the gov rebate is paid.

Now, even if it's only $280 a year that's not a bad return on effectively nothing invested...


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## drsmith (23 April 2009)

Smurf1976 said:


> I've now found a better deal on the panels and inverter.



Hopefully with no more of that interest free nonsense.

I can understand individual households going for this given the extent of government subsides but what I'm curious about is whether this represents the best return for overall investment (including the subsidies) relative to other renewable energy alternatives. 

If for example we run the figures again but this time on a total cost of $10000 then the gross yield is 2.8%.

For comparison purposes, what yield would an investment in wind power generate (after running costs but before depreciation) ?


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## basilio (23 April 2009)

Some good opportunities around on the topic of solar panel installation.

Just came across a company called Beyond building energy which offers the 1 kw installed deal or $495. 

http://www.beyondbuildingenergy.com/BBEnergysaver1000.php

Operates in Northern NSW, SE Queensland, Melbourne and Geelong.  Also if you get 50 households together they will develop a package for you.

Cheers


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## Smurf1976 (24 April 2009)

drsmith said:


> Hopefully with no more of that interest free nonsense.
> 
> I can understand individual households going for this given the extent of government subsides but what I'm curious about is whether this represents the best return for overall investment (including the subsidies) relative to other renewable energy alternatives.
> 
> ...



The deal is $2500 deposit, refunded when the gov grant is paid to the company.

Not included is the meter change to accommodate the solar, but the electricity distributor will in my case do this for free. 

So all up, the cost is the lost return on $2500 while waiting for the grant. Other than that, it's free. The company is Nu Energy. www.nue.com.au operates in all states except WA and NT.

As for return on investment, that's not really how the commercial electricity industry looks at it since the scale of investment is ultimately limited by the size of a slow growing market. That's different for the smaller companies but for those who are dominant it's a reality. 

It comes down more to outright $ profit after assuming some fixed rate of return on capital. 

A key reason for that is there's a huge difference between fixed versus variable costs for different generation sources. For example, hydro, brown coal and solar are almost totally the original capital cost + return spread over the life of the project (which could be a century in the case of hydro), with ongoing costs less than 5% of the total. Also these costs are non-recoverable by means other than generation and sale of electricity - you can't just pick up and move a dam or brown coal mine and power station.

On the other hand, open cycle gas turbines are predominantly fuel costs, which are variable going forward and can be avoided by shutting the plant, with the capital cost far less significant. Also, you can always relocate the plant interstate or overseas without too much hassle and that's not unusual.

So it's not so much about x% return, although that is obviously relevant to an investor, but overall profitability. That is, what is the cheapest option for generation of x megawatts assuming I can get the capital and pay some given return on it.

In terms of renewables, solar is pretty much a dud financially especially when it's done on a small scale on houses. Wind stacks up better (large scale) BUT ongoing costs are significant (in some cases higher than black coal and far higher than brown coal or hydro) so it's not so good as an inflation hedge.

Those who build plants which generate the highest % return on investment tend to build low cost, inefficient plants which end up as worthless assets when circumstances change. It's only now that a lot of the oil-fired plants built in the 60's and 70's (internationally) are finally being written off. Many of them have sat idle for years with their owners trying desperately to find some way of converting to gas, coal or anything else that will make the plant run. There's one in NZ that's never actually generated _any_ power at all, since the economics went belly up during construction in the 70's and it was never switched on. A recent attempt to convert it to coal met opposition on environmental grounds - lots of examples like that.

Generally, wind is the cheapest renewable in terms of cost per unit of production unless you've got a good hydro site or a huge pile of free wood waste (eg sawmill waste). Everything else is either site specific, scale limited (landfill gas etc) or costs more (especially solar).


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## doctorj (24 April 2009)

Smurf1976 said:


> Wind stacks up better (large scale) BUT ongoing costs are significant (in some cases higher than black coal and far higher than brown coal or hydro) so it's not so good as an inflation hedge.



What causes the high ongoing costs with wind?  I thought you built a dirty great big post, go to Denmark, buy one of their fancy wind turbines and stick it on top of the afore mentioned post, et voilÃ !  I figure you'd stick a bit of grease on it from time to time and Bob's your uncle.

20 years later you shove the latest Danish wizz bang turbine up the top and complain that you didn't get anywhere as much wind as your consultants forecast.

What creates the big ongoing costs?



> The deal is $2500 deposit, refunded when the gov grant is paid to the company.



It might be worth checking if they'll accept a bank guarantee for the money rather than giving it to them directly.  In this environment you can't rely on people being good on their word...


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## Smurf1976 (25 April 2009)

doctorj said:


> What creates the big ongoing costs?
> 
> 
> It might be worth checking if they'll accept a bank guarantee for the money rather than giving it to them directly.  In this environment you can't rely on people being good on their word...



In short, it's maintenance.

With a conventional steam plant (coal etc) there will be issues but ultimately you're just maintaining one big system - one alternator, one turbine, one boiler and all the parts (there's a lot) that support them.

With a hydro plant it's even simpler. Not much ought to go wrong with a dam, pipeline or penstocks for several decades. Likewise not much should happen to the turbines or alternators. Apart from issues with bearings and clearing trash (tree branches etc) away from the water intake there really isn't much to do.

But with a wind turbine the constantly varying mechanical stresses take a massive toll. And you generally have to maintain maybe 500 turbines to be getting the same annual output that you get from one steam turbine running baseload (based on 3 MW wind turbines at 35% capacity factor versus base load running of a 600 MW steam turbine - these figures are typical). And they're all way up in the air too, which makes things difficult.

It's simply a matter of productivity. Much easier to maintain one machine on the ground that is inherently quite reliable instead of maintaining 500 complex machines under all sorts of mechanical stresses up in the air.

It's the old "mass production" theory here with the only thing that saves the economics of wind being a lack of fuel costs. But even then, sometimes the maintenance costs of wind can end up being higher than the fuel and maintenance costs of coal. 

But unlike most other things, there's plenty of wind, it doesn't upset people _too_ much to use it and it won't run out.

As for the bank guarantee, they I don't think they're willing to accept that but they will accept a credit card payment. I'm looking into this, but I'm pretty sure the credit card company will cover the loss if I don't receive what I've paid for (?). The risk of the company going broke etc did occur to me though as the only real downside of the deal.


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## Happy (6 May 2009)

I am having dificulties in finding NSW company that does this deal, will do search, but I wander if somebody has the link ready?


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## Happy (6 May 2009)

Happy said:


> link




NU Energy say they can offer a free solar system for homes earning under $100,000: 
www.nuenergy.com.au


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