Industrial and Commercial solar PV projects

SOLA secures R400M to finance solar PV projects for Commercial and Industrial properties through Power Purchase Agreements

A clean fund for the future

The SOLA Group has secured R400m in order to build commercial and industrial solar PV facilities across Southern Africa. The renewable energy fund, Orionis, will enable 40 MW of solar PV projects to be built without capital expenditure by the electricity off-takers.

The deal is a result of a partnership between the SOLA Group, African Infrastructure Investment Managers (AIIM), and Nedbank Energy Finance, who have partnered to provide affordable solar PV solutions for businesses that are in dire need of electricity security.

Chris Haw, chairperson of the SOLA Group, believes that  the clean energy solutions created by the fund are timeous.
“This partnership brings together three highly experienced entities whose combined skills offer consumers clean energy solutions at a time when our country desperately needs it,” he said. 

“This partnership brings together three highly experienced entities whose combined skills offer consumers clean energy solutions at a time when our country desperately needs it”

SOLA’s extensive track record of developing and building solar PV has allowed for the development of the Orionis fund, which will have the ability to fund 40 MW worth of projects. The forthcoming pipeline already includes 15 MW of solar PV Power Purchase Agreements, including several breweries and other industrial facilities around South Africa. The consumers pay for their clean energy directly, through a PPA tariff that is typically 20% lower than Eskom or their municipal provider’s rates.

The financed model would allow sectors focused on short-term cost reductions in their Opex budgets, such as FMCG companies, the opportunity to tap into solar power. This would allow reductions in operating costs and in carbon emissions, which are generally very important to industrial sectors. The financed solar PV is provided through a legal arrangement called a Power Purchase Agreement.

What is a PPA? 

A commercial solar PPA enables a fully integrated solar photovoltaic system to be installed and provide electricity to the entity through a customised monthly payment plan, typically at a tariff that is 20% lower than Eskom. PPAs can also include the option to take ownership of the PV system at the end of the financed period, with no upfront installation costs. The conditions of power purchase are detailed in the PPA which is negotiated directly with each client to ensure the agreement is workable for both parties.  

How do clean energy funds reduce opex?

As mentioned, financed renewable energy projects will enable industrial facilities to access secure and cheaper power, and free up capex for investment into their core business activities. But how does this work? 

Over the last few years, reduced costs of embedded electricity generation such as solar PV have interrupted the traditional model of electricity production. In other words, solar PV power is rapidly becoming the cheapest form of power to procure globally. In order to fund solar PV projects, however, large sums of capital are needed in order to permit, design, construct and keep the solar PV operational – similar to a regular utility such as Eskom. 

Whilst companies can opt to buy their PV systems outright, through an Engineering, Procurement and Construction (EPC) option, there is often little need for the entity to own the PV system themselves, as their main goal could be to reduce their operating expenses. Without available Capex, companies would need to secure financing in order to fund the construction of these projects.

SOLA’s PPA offering, through consolidating the finance, design, construction and operation of solar projects, allows companies to access cheaper finance than procuring it individually. “Operating at scale allows SOLA to provide lower tariffs and more competitive rates, reducing costs of financing,” adds Haw. 

For large commercial and industrial companies, PPAs enable flexible procurement of electricity, allowing them to consume the cheapest electricity available at a given time whilst also reducing their carbon footprints.

How financed solar PV can support the African Economy

Allowing small-scale, and flexible embedded generation of electricity is a key aspect to transition to a low-carbon economy, as it allows for increased penetration of renewables. 

Supporting the further deployment of small-scale embedded generation (SSEG) plants, according to Council for Scientific and Industrial Research (CSIR) Energy Centre, will also create thousands of full-time jobs and help to grow hundreds of small businesses across the country. The SOLA Group currently employs 50 full-time staff members for its South African operations, and the construction of 40 MW of solar PV projects through the fund is likely to create an additional 880 jobs in the coming years.

“The model of electricity generation that incorporates both centralised and distributed electricity will improve the ability for South Africa to meet energy demand, reduce electricity costs and strengthen resilience to outages,” concludes Haw. 


FMCG industrial manufacturing has great potential for Africa

Solar for the FMCG Sector: Clean Energy Solutions that Work

FMCG players

FMCG is one of the largest drivers of the industrial sector in Africa, presenting a wealth of opportunity for manufacturers and distributors. The industry is comprised of non-durable goods that are produced, sold and consumed quickly. These products take the form of consumables such as beverages, packaged foods, toiletries and over-the-counter medication.

Fast-moving consumer goods (FMCG) are a market with tremendous potential to drive economic growth in the SADC region and further afield. However, the industry is heavily dependent on reliable power, secure and efficient transport routes and strong distribution networks. FMCG typically have a small profit margin but are lucrative when sold in large quantities, thus a reduction in energy costs goes a long way towards bolstering narrow profit margins.

FMCG industrial manufacturing has great potential for Africa

Brilliant technologies and brave entrepreneurs

‘Africa has nine times the solar potential of Europe and an annual equivalent to one hundred million tons of oil.’

In a recent article in the Journal of International Affairs Professor Wim Naudé reports that in a landscape of brilliant technologies and brave entrepreneurs the future is looking bright for African manufacturing. According to Naudé, renewable energy technologies like solar panels and batteries may be expected to improve the competitiveness of African manufacturing.

Peter Diamandis, founder and CEO of the X Prize Foundation, and journalist Steven Kotler note that ‘Africa has nine times the solar potential of Europe and an annual equivalent to one hundred million tons of oil.’

The resources are there and the benefits in terms of cost are undeniable. Notable FMCG industry leader Coca-Cola Beverages Africa (CCBA) recently installed a 574 kWp solar facility at the Coca-Cola Namibia Bottling Company (CCNBC). The project is expected to produce 1,016,760 kWh of energy in the first year of production, with appreciable Energy and Demand charge savings expected in the first year of production. In addition this project results in 901 tons of CO2 reduction per year of operation. Given that Namibia’s solar irradiation levels are the second highest levels in the World (at 3000 kWh/m² over a large part of the country) and NamPower tariff increases are inevitable, it makes considerable sense to look to industrial solar power for cost-savings and decentralised efficiency.

The environmental benefits for your brand

The Learning and Development Director at IRI, Marylee Townshend predicts that given considerable global and local societal shifts in the past year, FMCG brands which stand for something are likely to win out in a competitive environment. Staying neutral is no longer an option as more consumers than ever before are developing a preference for ethical and environmentally-friendly products. This is a double win for manufacturers and distributors who commit to clean energy solutions, in terms of having a stable, cost-cutting energy source and brand success. Notable industry leader Fair Cape Dairies has stepped up to the plate by procuring solar PV  energy to provide clean, noise-free electricity to the farm during the day, while reducing the farm’s total energy consumption by 16% per annum over its 25-year lifespan.

‘Businesses that commit to clean energy, such as Fair Cape Dairies, are helping to lead the way for South Africa’s sustainable development,’ explains Dr Chris Haw, chairperson of SOLA and head of the Solar Finance division.

Plattekloof Village Shopping centre, owned by industry heavy-weight Pick n Pay Retailers, has also embraced clean energy solutions with a 944 kWp solar system on its roof, which is expected to generate 1.4 million kWh of clean electricity per year. Plattekloof Village is part of a growing fleet of shopping centres electing to supplement their electricity supply with decentralized solar PV. Given the recent challenges to Eskom’s ability to supply uninterrupted electricity it is unsurprising that malls, factories and distribution centres are increasingly looking to independent energy solutions. The ample roof space available and considerable daily energy use typified by these organisations makes industrial solar power the ideal solution.

FMCG challenges

FMCG is a challenging arena with many considerations for facilities managers. These include product placement and competition. Townshend contends that big data is increasingly the driving force behind tactical decisions in FMCG. In addition loyalty card data provides unparalleled insight into consumer behaviour. Given the financial climate in the region, cutting costs and value-for-money is an immediate concern for consumers. Narrow profit-margins in the FMCG industry means that every expense matters; this is when cost-efficient energy management becomes imperative.

Breweries and other FMCG industries can benefit from solar PV

Simplifying Electricity Management

Conservative consumption and optimum production are key to the success of every industrial FMCG facility. A good place to start is a comprehensive look at electricity bills over the course of a year. Following this analysis, spikes in energy consumption will quickly emerge, and from there it will be easier to implement energy-saving regimens. Introducing solar has been proven to result in considerable energy and cost-saving benefits. Once one has identified the peak capacity charges, measures can be made to reduce overall energy costs even if total energy consumption remains constant.

Solar financing

‘Solar finance – through a power purchase agreement – allows these businesses to commit to their targets and reduce their carbon emissions through buying clean energy directly…’

There are two options when considering harnessing the cost-saving benefits of industrial solar.

Firstly there is the outright buy or EPC solution, such as the facility at CCBA Windhoek, which purchased the solar system upfront to save on energy costs. Industrial energy consumers can save significantly by altering their electricity load to peak during the day when the solar PV system is most productive, thus reducing demand charges significantly. In a facility such as the CCBA Windhoek, the cost of the solar PV system is insignificant compared to the amount that it will produce over its lifetime.

The second option is a solar PPA, or power purchase agreement. This arrangement allows businesses to purchase solar PV-generated electricity with no upfront costs, while enjoying the immediate cost-saving benefits, such as the demand charges described earlier. The benefits of solar PPAs for industrial facilities are fixed tariff increases and monthly payment amounts, rather than lump-sum capex investments. Similarly, the solar PV system is not registered as an asset on the facility’s books, but is rather owned and maintained by a solar finance provider such as SOLA. After a few years, the facility can opt to buy back the solar PV system, or take ownership of the system after a specified number of years.

Such an arrangement was entered into by SOLA and Fair Cape Dairies. As Dr Haw explains, ‘Companies such as Fair Cape Dairies that have committed to sustainability goals, may not want to purchase a solar system outright. Solar finance – through a power purchase agreement – allows these businesses to commit to their targets and reduce their carbon emissions through buying clean energy directly. During the day, Fair Cape Dairies will use the clean energy generated on their roof for their own consumption needs, without owning the solar system themselves.’

Dairies can benefit from financed solar PV solutions

As the costs of solar equipment continue to fall, industrial solar power systems in Southern Africa are more viable than ever. Given Eskom’s escalating tariffs, large-scale solar facilities are able to provide consistent power for industrial operations at costs lower than Eskom’s lowest bulk tariff. Solar PV is both a cost-effective and decentralised form of energy, making it perfect for large-scale energy users in the FMCG sector.


Is solar the green solution agribusiness needs?

Agribusiness contributes significantly to a country’s overall industry outlook, particularly because of its links to sectors such as chemical processing and manufacturing. Locally, SADC has identified agro processing as one of three regional priority value chains, along with mineral beneficiation and pharmaceuticals.

That being said, the economic challenge that farmers and agribusiness are facing is a tough one. Over the ten years up to 2017, electricity tariffs to state utility Eskom have risen by 356 percent – four times the rate of inflation over this period. The power utility has requested an additional 15% increase for the 2019/20 period, although the National Energy Regulator of South Africa (Nersa) seldom grants the full requested increase. The coal shortages this November that led to the shut-down of 11 power stations also highlight the uncertainty of the operating climate for South African industry.

In addition to soaring prices of electricity and uncertainty of supply, business in South Africa is affected by climate change. Agriculture is particularly affected by the cycles of rain and drought, as well as temperature, which are both affected by climate change. And because agriculture is, ironically, one of the leading causes of climate change, consumers are now demanding that farming practices meet stringent environmental and ethical standards.

Trade and Industry Minister in South Africa, Rob Davies, acknowledged that uncertainty in this arena is hampering economic growth, following his announcement in October that agro-processing is one of the sectors that government will be targeting with incentives to revive South Africa’s struggling economy.

Solar could give a growth spurt

Given this difficult context, it’s no wonder that Agro-processing is in need of bolstering in South Africa. Embedded generation, which is the small-scale production of power within the electricity distribution network, situated close to the place of consumption, is a great solution to counteract the explosive costs, and unreliability, of grid-tied energy. The cost, per kWh, of solar PV (the most common form of embedded generation)  has dropped dramatically in the past years due to increased uptake globally that has pushed down manufacturing prices. Adopting this cheaper source, close to the point of consumption, can lower the running costs of agro-processing plants significantly, giving them a leg-up in tough economic times.

Financed solar through PPAs

However, in order to purchase a solar PV system, businesses need to outlay capital, which might not be the most appealing option for agribusiness, whose capital budget is used for much-needed maintenance and plant upgrades. However, power purchase agreements (PPAs), which are a way of financing renewable energy systems such as solar, are an attractive alternative.

Renewable solutions are now at the point where they can provide a viable and cost-effective alternative for businesses in this sector.

Entering into a PPA in South Africa is a way for agribusiness to shield themselves from Eskom tariff increases, as it is possible to purchase renewable energy at a lower rate than what Eskom can provide, with a fixed tariff increase.

This is particularly pertinent due to Eskom’s recent 15% tariff increase application. Should a large portion of their energy come from solar, agribusinesses can use solar PPAs to shield themselves from the volatility of Eskom.

Renewable energy is also a significant mitigator of environmental harm, because it reduces industry’s reliance on coal-burning power generation, which releases greenhouse gases into the environment. Reducing greenhouse gas emissions is important for agribusiness, who often have sustainability targets.In fact, every industry should be concerned with addressing the realities of climate change – but none more so than agriculture, which is dependent on steady and predictable weather patterns.


Challenges and possibilities for agribusiness in South Africa

Solar PV power plants are also decentralised and can easily provide power in rural areas without having to erect new infrastructure, such as power lines. However, in South Africa, applying for a grid-tied solar PV system on Eskom infrastructure remains a challenge. Eskom’s independent power producer [IPP] connections do make provision certain for low- or medium-voltage connections, but they require a letter of exemption from Nersa, which is almost impossible to obtain without certainty around the IRP – which should be finalised in February, according to the Minister of Energy Jeff Radebe.

The energy landscape has changed significantly since that Eskom’s memo on low and medium voltage connections was released, and solar PV connections are now much more viable for companies and farms that are currently connected to Eskom infrastructure. Many more businesses would now like to opt for embedded power generation. The updated IRP restriction of only 200MW of embedded generation – which is where the low- and medium-voltage connections will be found – limits the generation capacity that the agro-processing industry urgently needs.

If more and more businesses lobby Eskom to allow low- and medium-voltage connections, they will be able to benefit from competitive electricity prices, while also reducing their carbon footprints. This will serve their stakeholders – and the environment they rely on – well into the future.

Solar PPAs are an affordable way to access the benefits of solar electricity

5 FAQs about solar PPAs

In some of our previous posts, we’ve alluded to the benefits of a solar PPA: both as a way to provide more options for business owners wanting to go solar, and as a way of reducing costs in certain sectors. At this point, you may be convinced that solar finance is an affordable way to access green energy for your company, but you may have a few questions. In this blog, we explore the 5 most common questions about the most common form of solar finance, the solar power purchase agreement or PPA.

Why a PPA?

As we mentioned in the previous blog, a solar PPA usually enables an electricity consumer to utilise solar energy at a rate that is cheaper than the existing utility. In addition the ownership of the solar system remains with the PPA provider, and the user only pays for the electricity that they consume, rather than for the overall cost of the solar system – making it an affordable choice for several sectors. Below follow some of the most frequently asked questions about solar PPAs.

1) How long does a solar PPA last?

In fact, this question gets asked so often that we wrote an article about how long solar PPAs are already, and if you’d like a detailed answer to the question, have a look at that article. The summarised answer is, “it depends”. Whilst as a rule of thumb, the longer the PPA, the greater the  immediate cost-savings will apply, many businesses prefer to enter into a shorter PPA period for a higher tariff, after which time the system ownership is transferred to the energy user. It all depends on the requirements of the client, as well as the overall objectives of the project.

2) Do I have to own the building to enter into a solar PPA?

PPAs ideally take place between a building owner and an energy provider, since the construction and ongoing maintenance, as well as energy distribution throughout the building, will require the building owner’s input and buy-in. However, if the building owner agrees to make the rooftop available for the solar system and the agreement takes the building and end user into account, tenants may be able to enter into a PPA.

3) If it isn’t sunny, do I still pay?

Depending on the type of PPA agreement you enter into, you shouldn’t have to pay if the system is not generating energy (take into consideration though, that even on cloudy days solar systems generate a good amount of power). However, the opposite does apply: if it is very sunny and producing more than what the building is consuming, the client may be liable for a minimum payment for the energy that is wasted, should it not be used. That is why it is essential to ensure that the system is sized correctly.

4)What happens at the end of the PPA?

Depending on the type of agreement, the system may transfer over to the client who then will take ownership of the solar system. This could work well if the building owner wishes to take  ownership of the system after a period of time. However, there can also be “early exit” options, if the property owner is concerned that the building might be sold during the PPA term. Again, each situation is different, and when entering into a PPA it is best to check if the agreement contains provision to either buy the system, or to get the new building owner to assume the PPA, should the building be sold.

5)What is included in the PPA tariff?

Depending on the type of agreement you enter into, the tariff will include the costs of designing the system, procuring all necessary components, and constructing the system on the suitable rooftop or ground-mounted area so that the solar electricity is readily available for the client. The tariff also includes the costs of maintaining the system on an ongoing basis, such as cleaning and part replacement as needed. Typically, these combined costs will be similar, or less than utility based power when comparing on a per-kWh basis.

Are you interested in finding out more? Contact our solar finance department to learn more about our solar financing options.

Fair Cape Dairies 100 kWp solar system

When cost reduction is king: 3 sectors perfect for solar finance

If you’re in business in South Africa, you’re likely feeling the squeeze of a slow-growing economy. Whilst some sectors have been more affected than others, it is safe to say that cost reduction remains a top priority for most facilities managers in today’s economic environment. At significantly lower cost to coal-based power, solar PV is a perfect solution for reducing overall electricity costs. However, for those that do not have the capex to outlay for the purchase of a new system, solar finance options remain a good choice. In this post we’ll explore three sectors that lend themselves particularly well to solar finance.    

What is solar finance?

Solar finance usually involves a Power Purchase Agreement, or PPA, between a producer of electricity and an end-user of electricity. In the case of solar PV, this usually enables an electricity consumer, such as a building, to utilise solar energy at a cheaper rate to the existing utility. In addition, although the solar system may be installed on the user’s rooftop, the ownership of the system remains elsewhere, and the user pays for the electricity that they consume, rather than for the overall cost of the solar system.

  1. The Manufacturing Sector

Industrial processing, particularly the manufacturing sector, remains one of South Africa’s most important, given the potential to create and maintain jobs. However, in a weak economy, manufacturing is one of the first sectors to suffer: and South Africa is lagging behind its regional peers. Although South Africa needs support and policy certainty when it comes to manufacturing, it is also of chief importance that each individual facility maintains its profitability through slick and efficient and operations – and this should include using the cheapest energy.

At a much lower LCOE than grid-based power, solar is a great option for manufacturing businesses. Solar finance is especially relevant as manufacturers are not necessarily interested in owning and maintaining their own solar system – they just need to access affordable and reliable power. By entering into a solar finance option such as a solar PPA, they can maintain low operating costs and remain competitive in a struggling economy.

Dynachem Industrial manufacturing facility

Dynachem Industrial manufacturing facility, 60 kWp

  1. The Agro processing Sector

Agro processing is a subset of the manufacturing industry but focused on processing raw, agricultural materials. A key growth sector in South Africa, Agro processing has been emphasised by the Department of Trade and Industry, as well at the Eastern Cape’s Department of Economic Development, and for obvious reasons: it accounts for almost 14% of South Africa’s manufacturing sector.

Similar to the manufacturing sector, agro processing runs on a tight margin and reducing operating costs are welcome. Although the input material costs may fluctuate significantly depending on the seasons and weather, entering into a solar PPA will ensure consistently low electricity prices for the processing of the raw materials.

As an added bonus, agro processing plants are often situated in rural areas, where there is access to adequate land for ground-mounted PV solutions, or large agricultural buildings for  rooftop PV solutions.

Fair Cape Dairies 100 kWp solar system

Fair Cape Dairies 100 kWp solar system

  1. The Hospitality and conferencing sector

The hospitality sector is undeniably important to South Africa, with it contributing 9.3 % of the countries overall GDP in 2016. However, the sector is also facing challenges – as disruptive technology such as AirBnB continue to grow and tightened budgets mean less cause for business conference travel.

As any facilities manager of a hotel or conference centre will tell you, running a well-oiled ship is a key aspect of ensuring that their facility remains competitive. This means finding innovative ways to ensure costs are kept to a minimum. When budgeting, planning is very important, particularly because there are several variables year-on-year that can affect the overall cost of maintaining the facility.

This is why a solar finance option is perfect for the hospitality sector: entering into a solar PPA will ensure a fixed escalation on the cost of electricity for several years – meaning greater control when planning energy costs. Ensuring that the building management system is also optimised toward solar energy – for example, ramping up the aircon mid-morning rather than early morning – can ensure even greater savings. The bonus with a PPA, furthermore, is that the system will be operated and maintained externally – giving facilities managers one less thing to worry about.

Century City Conference Centre goes green through solar energy installed by SOLA Future Energy

Century City Conference Centre 260 kWp solar system

Solar finance options are fast-growing way of tapping in to the cost and environmental benefits of solar power. Although these three sectors here are ideal for a solar finance option such as a PPA, it is not only these sectors that can benefit. Contact us to get a sense if a solar finance option will work for you.

Solar finance options make solar PV available to large businesses in Africa

Finance options for rooftop solar PV in Southern Africa

If your business is considering a solar PV system, chances are that you have looked at the advantages of the system in terms of the reduction of electricity acquired from the national grid and reduced carbon emissions, but the most important question will remain: how will a solar system save money for your business?

Although many companies will choose to purchase their solar PV system outright – meaning that after paying a once-off amount for the system, they’ll be able to use the system’s free energy over the next 25+ years – this is not the only option available to go solar. As opposed to purchasing a solar system outright, there are several solar finance options requiring little to no upfront costs, allowing more flexibility for a company.

For companies that don’t want to outlay capex to acquire an embedded solar system for their building, a financed solar solution is a great way to enjoy the benefits of solar – including reduced electricity costs and carbon emissions – without the upfront capital. Solar financing options generally allow businesses to pay only for the solar energy they use, depending on the type of agreement that is entered in to. The following blog explores the various solar finance options for commercial and industrial businesses in Southern Africa.

Introduction to solar finance

Simply stated, solar finance is a way to enjoy benefits of solar PV without the upfront capital costs. Instead of owning the solar system from day 1, businesses can “rent” a custom solar system through various solar finance options. Businesses can therefore still enjoy a diversification of energy sources and reductions on energy costs, without acquiring the solar system themselves.

Solar finance could be a particularly appealing option if:

  • A business does not have capex budget for the cost of a solar PV system
  • A business has a portfolio of buildings and does not want to buy separate PV systems for each; removing the “hassle factor”
  • A business would like to achieve electricity cost savings without impacting the balance sheet
  • A business wants to plan accurately for costs of electricity and wants greater stability with regards to tariff increases

A solar finance option will still entail a custom built embedded solar system being installed on the client’s building, but instead of ownership for the system being with the building owner, it will belong to the finance provider. In this way it differs from wheeling green energy or buying renewable energy certificates. With an embedded solar system that doesn’t belong directly to the business, there is little reason to get very involved in your building’s electricity supply – as long as the power is efficient, reliable and cost effective. Furthermore, dependent on exact structure of the agreement, the solar asset remains off balance sheet, allowing for a greater return on assets.

In contrast, owning one’s own solar system means that the building will have its own embedded power generation that belongs to the business. If the business has a good Operations and Maintenance contract in place and wishes to spend Capex upfront, this is a good option.

However, business owners may want to have even less involvement: as long as the cheapest and most reliable form of electricity is available. In this case, it pays to enter into a solar Power Purchase Agreement with a company specialising in solar PV, who will concentrate on all aspects of the system’s design, operation and maintenance over the lifetime of the system. The business can thus maintain its independence, only paying for the electricity that it uses.

Market overview of solar finance options

There are three types of solar finance agreements which are generally used for commercial and industrial business owners in Southern Africa. They differ slightly in scope and objectives, but the outcomes are similar.

  1. The solar Power Purchase Agreement (PPA).

The first and most common solar financing option is the solar Power Purchase Agreement (PPA).

A business who enters into a PPA agreement will only pay for the electricity that the system generates on a monthly basis, similar to municipal or utility power. This tariff will increase gradually over the years, but dissimilar to utility tariffs, the increases are usually at a fixed escalation that is agreed upon upfront, shielding business from price volatility.

Often  included in this agreement is an “early purchase option”, or an option to purchase the solar PV system anytime after an initial period. This enables flexibility for the business, should they decide at a later stage to purchase the system rather than continuing to pay for the solar electricity through the PPA.

At the end of a PPA term, the client is usually offered the option to purchase the system for it’s residual value or the system ownership automatically transfers to the client for no value. This is an important matter that can affect the starting tariff of a PPA and potential clients must make sure they know who the system belongs to at the end of PPA before entering into it.

  1. A roof rental agreement

A roof rental agreement is the second type of solar finance commonly used. In this type of agreement, a business leases their rooftop to a solar provider who builds a solar system and enters into a PPA to sell the energy from the system. The company entering into the PPA does not necessarily need to be the same as the company leasing the rooftop, which allows for several possible arrangements.

For example, a building owner with tenants could earn rental income from having a solar system installed on their roof and then have their tenants enter into a PPA, who would benefit from cost savings of the PPA. Alternatively the building owner can be the lessor of the roof rental agreement as well as the offtaker of the PPA and decide how to pass on the PPA savings to his tenants.

This option provides commercial building owners a yield enhancement of their property, turning previously unused roof area into income-making asset.

  1. An equipment rental/lease agreement

The third common form of solar finance is an equipment rental or solar lease agreement which is very similar to a PPA, in that a client pays a monthly fee towards the use of a solar PV system. The major difference with this type of solar lease agreement is that the fee is not linked to the output of the system but is rather fixed. In other words, the client would pay a similar amount, agreed in advance, every month, rather than paying for the energy that is generated in a specific month based on an agreed-upon tariff.  

Fixed tariff escalations: risk or reward?

For conservative business owners, signing on to a fixed tariff escalation for energy costs might seem risky. After all, what happens if the costs of state power go down significantly in the coming years?

This is a fair question, and the best way of mitigating this risk is to ensure that the fixed escalation on a solar PPA will be significantly lower, on average, than the utility’s escalation. In general, tariff escalations for many Southern African state utilities are quite high and fluctuate significantly year on year. Generally PPA tariffs increases range between 5-10% per annum, whilst Eskom and NamPower have had 10-year average increases of 13.8% and 13.4% respectively.

The graph below demonstrates the average tariff increases for South Africa and Namibia’s utilities over the last 10 years. Whilst some years, the increase was lower than the 6% increase typical of a solar tariff, the average increase is much higher than 10% (the grey line demonstrates a typical PPA tariff increase of 6%).

PPA tariff increases in South Africa and Namibia

Furthermore the discount offered by the PPA in year one offers further buffer from the PPA tariff ever crossing the utility tariff.

Conclusion

Solar financing readily makes clean, renewable energy available to a range of energy users in the commercial or industrial property environment. Offering both flexibility and stability, they are a very helpful way of promoting the accessibility of solar PV solutions to business owners across Southern Africa.

Do you have a business that could benefit from a solar finance solution? Contact us for more information.

 

solar leases provide the benefits of solar energy without upfront costs

How long is a solar lease or PPA?

With no upfront costs, solar leases are an attractive option to industrial and commercial property owners. Solar leases, also known as Power Purchase Agreements (PPAs), allow a business to make use of the benefits of solar power (such as reduced electricity costs, lower carbon emissions and fixed tariff increases below Eskom average increases) without a large capital outlay.

How does a solar lease or PPA work?

Solar leases work differently to purchasing a solar system outright. A solar lease will still involve a bespoke solar system being installed, but instead of this belonging to a the property owner,  the owner will “rent” the system through buying electricity from the system at a fixed tariff, for a number of years. This means that the financier will own the system and charge the building owner only for the energy that is generated from the system until the lease term is over. After the end of the PPA or solar lease agreement, ownership of the system will typically transfer to the property owner.

Usually, the solar lease or PPA tariff has a fixed rental escalation, which means that the property owner is shielded from the variability of Eskom tariff increases and allows owners to accurately predict and budget for energy costs into the future. The tariff also covers all annual operating expenditure including operations and maintenance, management of the asset and insurance.

How long is a PPA or solar lease agreement?

No two building owners are the same and each agreement needs to be entered into with the client’s specific circumstances in mind. As a general rule of thumb, the longer the lease agreement term, the cheaper the initial tariff will be. In our experience, there are generally two broad types of lease terms that suit property owners – those with a longer view, and those with a shorter view.

  • Longer term, more immediate savings

Some property owners do not want the risk of abrupt tariff increases and would like to experience the benefits of a solar system immediately, without upfront costs. Generally, these clients are happy to sign a 20 year PPA or solar lease agreement, to ensure a lower tariff upfront  and to enjoy the benefits of solar power immediately. And even after 20 years the system will still provide energy for many years to come. For example current solar panels are guaranteed by manufacturers to perform at a minimum of 80% of their rated capacity after 25 years of operation.  

  • Shorter term for system ownership

Other property owners would like to own the system sooner, and as such prefer a shorter (10 – 15 year) lease term. The shorter term would result in a higher initial tariff than a 20 year lease but the system is paid off quicker resulting in more years of free energy on the back end of the lease.  


What about exiting the lease?

Many property owners are cautious of signing a 20 year lease as they do not have certainty that their building will still be in their ownership after such a long period of time. As such, they should check that their agreement provides flexibility for such instances. For example,  some agreements may state that after 5 years the client may elect to purchase the system outright. In the case of the client selling their premises, the agreement should contain provision to either move the system to their new premises, to buy the system, or to get the new building owner to assume the lease.  

In conclusion: solar lease or PPA terms vary, depending on the type of system and client’s needs

Solar systems are a fantastic way for property owners to save money on operating costs whilst reducing their carbon emissions. Although several property owners decide to own their solar systems, many do not have the capital funds available. In these instances, a solar lease or PPA is a great way to still enjoy the savings that a solar system provides through paying a predictable, low energy tariff for several years to come.

Contact us if you would like to know more about a solar lease for your building or property, or use our solar calculator to work out your projected savings.