ENERGY
FUNDING THE SUN
Solar PV financing options for industrial and commercial businesses
As years of mismanagement at energy utility Eskom results in continued power outages and energy tariff increases across South Africa’s industrial and manufacturing sectors; domestic businesses are increasingly looking to renewable energy alternatives to power their commercial operations.
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ooftop 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.
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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