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The Real Financial Risk and Return of Commercial and Industrial Solar PV

Thoughts around green energy are rapidly changing throughout the world, and South African commercial and industrial markets are quickly getting on board. Eskom’s struggle to keep the lights on has spiked interest in alternative energy, not just for the planet’s sake, but to keep businesses functional throughout rolling blackouts.

Load-shedding is costing the South-African economy staggering losses year-on-year, and 2021 saw a record 37% increase in downtime as compared to the previous year i. From large shopping centers to privately owned SME’s and farmers across the country, business managers and owners are looking to solar for answers.

The Real Financial Risk and Return of Commercial and Industrial Solar PV

Potential Risks

As with any technology, there are superior and inferior products on the market. Investing in solar should be seen as a long-term investment, and thus emphasis should be placed on the quality of technology installed. South Africa is
infamous for being the dumping ground of inferior quality solar inverters and PV panels that have not made the cut as per European standards.

NERSA and the various municipalities have been pushing regulations to protect the consumer against the purchasing of inferior products, however, there isn’t any effective control over the installer to ensure accredited hardware is
installed.

When investing in these technologies it is greatly important to use providers with a very good understanding of their product performance and safety. In general terms, any commercial solar installation with a warranty of less than ten
years (grid-tied) or less than five years (hybrid systems) might not bring the ROI the supplier is promising.

Potential Returns

The cost of solar is calculated in Rands per Watt installed, weighed against predicted annual generation in kilowatt-hours. This calculation should also take factors into account such as maintenance costs and Eskom increases, tax
incentives and the tax implications of energy savings on cashflow

As the cost of Eskom’s supply has steadily increased, the cost of solar equipment and installation has stabilized. This gap is making it easier for business owners to confidently invest in alternative energy as return on investment (ROI)
can be predicted with fair accuracy.

The initial outlay is purchased at current value, while the lifetime of a good quality solar system can exceed 20 years. Thus, solar technology bought at present value will produce returns based on the future value of Eskom electricity
cost. If the trend in Eskom increases of around 13% per annum continues; energy costs may rise to a staggering R8.71/kWh within the next 10 years, essentially saving the solar-plant owner energy-costs at future value with equipment
purchased at current value.

Typically, the ROI on a capital expenditure (CAPEX) solar system should fall within the range of four to seven years, meaning that the system should pay for itself more than three times over during its lifetime.

Many of the financial investment houses and banks in S.A. offer special rates to their clients for investing renewable energy assets as part of their sustainability drives. The return on investment of such systems can be higher than
returns on leaving money in the bank.

In the case of bank-funded solar systems (typically 80/20), the ROI should be within one year, meaning that the savings generated throughout that year should exceed the initial loan deposit-amount within 12 months.

Tax incentives such as the Section 12Bii allowance permits the solar owner to depreciate the solar system fully within the first year of installation. Thus, profitable businesses who invest in their own solar plant can reap the tax
benefits in year 1, as opposed to asset depreciation over three to five years.

Summary
  • Loadshedding and the cost of electricity is bound to increase substantially
  • Alternative energy is available, and accessible in the South African market, but supplier reputation and quality hardware are the keys to sustainable investments
  • Funding is available and is often the better choice in terms of cashflow and ROI

Written by: Nadia Rossouw, Alternative Energy Specialist. nadia@infoled.co.za www.infoled.co.za

Disclaimer: The views expressed in this article is that of the author and does not necessarily reflect the views of their employer, clients, or business affiliates. The article’s intention is to spark debate on renewable energy technologies and news in Africa, and ultimately drive a societal shift in cleaner energy consumption.

Nadia Rossouw
Nadia Rossouw
http://infoled.co.za
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