Financing options and solar ROI


Option 1: Buy the system

If you’ve got the capital outlay to buy your own solar installation, then more power to you! It’s worth the investment to get your business independent from the grid during daylight hours.

Should you buy the solar system you are allowed to depreciate the renewable energy project in ONE year. This equates to 28% saving on the purchase cost. (Section 12b of the Income Tax Act)

The below graph shows an example payback period for a company investing R473 000 (after tax deductions), which resulted in an 80% reduction on their monthly electricity bill of R20 000.
The payback period is usually 3-4 years and the internal rate of return (IRR) around 25%.

 
 


Option 2: Price purchase agreement (PPA)

A solar power purchase agreement (PPA) is a financial agreement where a solar system supplier arranges for the design, permission, financing and installation of a solar power system on your property, at no cost. The supplier sells the power generated to you at a fixed rate typically lower than the local retail rate.

PPAs typically range between 5 and 15 years and the supplier remains responsible for operating and maintaining the system throughout the duration of the agreement. At the end of the PPA term, you can extend the PPA, have the developer remove the system, or choose to buy the solar system from the solar supply company.
The typical PPA rate is R0.90 - R1.50 (ex VAT).
 


Option 3: Finance the system

If you don’t have the capital, most major banks (like FNB, ABSA, Nedbank, Standard Bank) offer asset finance facilities. The loan term and interest rate will depend on your current financial situation.