Green Economy Journal Issue 48

ENERGY
ENERGY
As years of mismanagement at energy utility Eskom results in continued power outages
and
industrial
energy tariff increases
and
across
commercial
South Africa’s industrial and
businesses
manufacturing sectors;
domestic businesses are increasingly looking to renewable energy alternatives to power
their commercial operations.
38
FUNDING THE SUN
Solar PV financing options for
Rooftop solar PV systems are progressively being considered the
most readily accessible off-grid energy solution in South Africa.
According to the DFFE, South Africa’s solar resource is one of the
highest in the world, with an annual 24-hour global solar radiation
average of about 220W/m2. When this is considered alongside the 300%
increase in domestic electricity prices over the last thirteen years, the
growing trend towards solar for businesses appears inevitable.
According to renewable industry organisation GreenCape, rooftop
small-scale embedded solar generation systems remain the dominant
renewable energy technology in South Africa due to price, technical
maturity and ease of implementation. The installed capacity of solar PV
rooftop systems in South Africa has increased from 387MWp in 2017 to
approximately 1.35GW in 2020/21.
On the back of such significant market growth, numerous financial
mechanisms to fund larger commercial and industrial solar PV installations
and operations have emerged in recent years, including Power Purchase
Agreements (PPAs), fixed-roof rentals, lease or rental agreements, upfront
capital investment, and bank financing options.
With the adoption of solar PV systems by commercial and industrial
businesses now mainstream, a significant consideration for these companies
is selecting the most appropriate funding option for their solar project.
POWER PURCHASE AGREEMENTS
PPAs are a popular choice among commercial and industrial consumers,
since the installation, operations and maintenance of the system are
fully covered by the solar services provider. Most often, this funding
mechanism includes insurance and performance guarantees, with the
biggest advantage being reduced electricity costs from day one. This
allows business owners to enjoy the benefits of clean energy from a solar
PV system installed at their premises, at no upfront cost.
“A PPA includes the installation of a fully operating solar system but
removes the hassle of having to maintain, monitor, operate and clean the
system for years to come. Business owners can now enjoy solar energy
and the savings it will generate with zero capital expenditure or operating
risks,” explains SolarAfrica chief investment officer, Charl Alheit.
Following the signing of a long-term agreement, a solar tariff is billed
monthly, based solely on the amount of energy the business produces.
This tariff increases annually at a fixed escalation, allowing businesses to
accurately predict future energy costs. “This tariff is up to 40% cheaper
than the national grid, providing significant savings each month and
over the lifetime of the agreement,” Alheit adds. Businesses that use large
amounts of daytime power and operate five to seven days a week are likely
to generate the highest savings from this funding model.
While ownership of the solar system will remain with the service
provider until the end of the agreement, business owners have the option
to purchase the system during the term of the agreement. Various exit
options are available should a business owner wish to end the agreement
earlier, while any damage to the solar system will be fully covered
by insurance.
FIXED ROOF RENTAL
Fixed roof rentals have become a favoured choice for the owners of
commercial shopping centres and strip malls, as a long-term roof rental
agreement monetises their previously unused roof space. The solar
services provider pays a fixed monthly payment to the property owner for
the use of the building’s roof space, which also produces solar energy for
the property.
The property owner pays the solar services provider for the energy used
based on Nersa or municipal rates, while all other costs, such as system
maintenance, operations and insurance, remain with the services provider.
EQUIPMENT RENTAL
Under a solar lease agreement, also known as an equipment rental, the
installation, maintenance and management of the solar panel and its
components is paid for by the solar PV provider, while the business pays a
fixed monthly lease payment for the duration of the lease term.
The monthly payment is determined based on the estimated annual
production of the solar system.
A lease agreement is unlike a PPA in that the consumer pays a fixed
monthly amount rather than agreeing to purchase the power generated
READ REPORT
Comparison of costs between a PPA and a solar system cash purchase.
by the system at a set price per kilowatt-hour. “Your monthly solar lease
agreement payments remain the same throughout the year, and the risk
associated with the volume of solar energy produced and consumed
resides with the property owner,” says Alheit.
UPFRONT CAPITAL INVESTMENT
Companies able to fund their solar PV project from existing cash reserves
may find the upfront costs startling but the benefits appealing. A mediumsized
commercial system of 200kWp currently costs between R1.9-million
and R2.1-million, excluding battery costs. Benefits to cash-funded systems
include VAT deductions, as well as Section 12b tax benefits and carbon
credits, which can result in additional cost savings of up to 28%.
“However, the business is also solely responsible for all ongoing annual
costs, such as installation, insurance, performance monitoring and
management, which can amount to a minimum of R88 500 per year, along
with exposure to the performance risk of the system,” explains Alheit.
BANK FINANCING
Responding to increased interest by industrial and manufacturing energy
consumers in solar PV solutions, several local banks have structured
innovative finance agreements. Absa, Nedbank, Standard Bank and FNB
all offer loans for solar PV installations, with primary instruments being
term loans, instalment sales agreements, asset and property finance,
mortgage-backed business loans and access bonds. The lending period
for commercial installations ranges between five and 10 years, while the
collateral requirement for the debt funding is often taken against the
underlying property and the system.
“The challenge with receiving finance from the banking sector is that
since they don’t specialise in solar PV ownership, the solar production
risk will remain with you and your monthly repayments will be fixed,
irrespective of the system’s performance. Further, you could be using up
valuable credit lines with the bank,” concludes Alheit.
SOLAR PV AND THE VALUE OF YOUR HOME
Read this article for a new perspective on the potential long-term
value that you can create by installing a solar PV system in your home.
KEY TAKE-OUTS
- Why the reliability, affordability and sustainability of solar PV makes it
a viable and valuable addition to your home
- Trends in the South African residential property market
- Current challenges caused by Eskom’s service
- Saleability and sales premium of adding a PV system to your home
39