The interest in alternative energy solutions in South Africa has surged in recent years, offering a spectrum of options from basic fixes like Uninterrupted Power Supply (UPS) devices to more comprehensive solutions such as inverters, generators, and solar panel installations, as highlighted by ooba Solar.
Solar energy has emerged as a sustainable option, yet widespread adoption of off-grid power remains limited, notes Dominique dHotman, Head of ooba Solar, a platform facilitating solar installation quotes and financing.
He said that doubts persist regarding solar's accessibility, despite the range of financing options available.
Additionally, solar solutions are tailored to individual power needs, dHotman added.
While the entry barriers for solar financing are low and system acquisition is straightforward, dHotman stresses the importance of comprehensive financial comparisons to determine the most advantageous option for long-term savings.
dHotman underscores the often-overlooked costs associated with solar systems. Homeowners must consider total ownership costs, including monthly financing or rental fees, Eskom's connection charges, and residual Eskom usage due to peak consumption or low sunlight periods.
Breaking Down Financing Options
Asset Finance: The banks offer tailored loans for solar systems -covering up to 100% of the project’s financing.
Yes: With a shorter pay-off period, you own the system - in full - after five years.
No: Monthly instalments are the highest of the various financing options available, due to the shorter financing term and higher interest rate (around Prime +5%).
Government Buy-back Scheme: Introduced during the 2023 Budget Speech, this scheme operates as a loan guarantee for commercial banks seeking to provide loans to households for solar projects. Under this initiative, theNational Treasury will underwrite the initial 20% of defaults on solar loans, thereby easing the loan approval criteria for lenders.
Yes: While it operates similarly to asset finance, instalments are capped at a lower rate of Prime +2% and you own the system outright.
No: This scheme has a short lifespan (the buyer must sign up before 30 August 2024).
Home Loan Finance: The country’s major banks now offer solar financing through an existing bond or as an add-on to a new bond application.
Yes: This option offers the most affordable monthly instalments, as interest rates are often given at a discount to Prime. “For Q3 ’23, ooba Home Loans achieved an average of prime -0.44% for our customers, so the rate discount is significant.”
No: An extended financing term means that the system will take longer to be paid off (up to 30 years).
Escalating Rental Model: Individuals choosing self-financing for their solar solution can opt for escalating monthly rental fees or a 'subscription service' through a solar provider.
Yes: Low monthly instalments and a reduced barrier to entry.
No: Monthly rental costs escalate each year, and the solar system remains the property of the provider after the contract ends.
Year-one savings and costs:
To compare the starting costs of each of the solar financing options on offer, dHotman uses the example of a household with an average monthly spend of R2 250 on municipal electricity (approximately 640 kWh per month).
“Typically, we look at a solar system that can supply around 80% of the household’s monthly power needs. One must however consider the monthly grid connectivity costs, and the remaining20% of the kWh’s still needed from Eskom or the municipality,” he said.
Asset Finance: Banks offer loans covering up to 100% of solar project costs, with full ownership achieved after a five-year payoff period.
Government Buy-back Scheme: Introduced to ease solar loan approval, this scheme caps monthly payments at a lower rate, yet its availability is time-limited.
Home Loan Finance: Major banks extend solar financing through existing or new mortgage applications, offering discounted rates. However, longer repayment terms delay full system ownership.
Escalating Rental Model: Individuals can choose escalating rental fees or a subscription service, providing low initial costs but forfeiting system ownership.
Calculating Costs
To compare the starting costs of each of the solar financing options on offer, dHotman uses the example of a household with an average monthly spend of R2 250 on municipal electricity (approximately 640 kWh per month).
“Typically, we look at a solar system that can supply around 80% of the household’s monthly power needs. One must however consider the monthly grid connectivity costs, and the remaining20% of the kWh’s still needed from Eskom or the municipality,” he said.
Home loan finance offers the greatest monthly savings until year eight, when asset finance takes the lead. This is because asset finance instalments cease after year five, allowing for extra savings during the following three years, dHotman said.
“On the lowest end of the scale is solar rental, which equates to a saving of only R9 286 over 10-years. In comparison to the likes of asset finance, home loan finance and the government buy-back scheme, these savings are low, especially in light of the fact that the solar system doesn’t belong to you.
"Here, you miss out on all the benefits associated with asset ownership. Also consider that over a 10-year period, the amount you'll spend on renting will be more than double the cost of purchasing the system outright.”
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