In South Africa Solar systems are generally financed in 3 different ways and each one has it positives and negatives.
Outright purchase of the Solar System:
- Client purchases the solar system and pays the capital cost upfront which has the following benefits:
- SARS Section 12B allowance for renewable energy machinery; Section 12B of the Income Tax Act provides for provides for an accelerated capital allowance for movable assets used in the production of renewable energy (as opposed to the five-year write-off period in section 12C) on the cost of the asset and can be claimed in full, even if the asset is used for only part of the year of assessment owned by the taxpayer and includes the cost of its installation or erection. Finance charges are however excluded. More specifically, it allows for a deduction of the full amount over one year if the solar system is below 1MW or on a 50|30|20 basis over three years if Solar system size exceeds 1MW.
- In a commercial business, the savings that are garnered reduce the cost of doing business and therefore reflect directly on profits for the life of the business.
Lease/Rental of the Solar System
- Solar lease (sometimes referred to as a rental) agreement, where the client leases/rents the solar system for a specified period (Dependant on the size and cost of the system) 10 years and then owns the solar system at the end of the lease.
This option has the following benefits:
- Monthly rental is a tax right off
- Use money you would be paying Eskom to pay for your Solar system
- from the start, payments are less than the savings achieved
- Frees up cash flow
Power Purchase Agreement PPA
- (PPA) Financing
- A PPA is signed between the financier and the client where the client enters a contract with the financer to purchase the solar energy produced by the system for a period, typically 10 – 20 years. System maintenance and repairs are the responsibility of the financier for the contract period.
- Despite PPAs being typically reserved for large scale installations where the power produced is sold to energy companies such as Eskom, Green Wave has facilitated PPAs for smaller size installations and can do the same for you.