WORDS: EDITORIAL STAFF :: IMAGES: SUPPLIED AND NUPOWER
The demand for alternative power solutions in South Africa has skyrocketed in recent years, with solar power emerging as the most sustainable option. However, many misconceptions still exist around the financing and affordability of system installation.
Alternative power solutions range from simple fixes like uninterrupted power supply (UPS) devices to more comprehensive solutions such as invertors, generators, and solar panel installations.
“Solar has emerged as the most sustainable solution, but we have yet to see a wide spread shift to off-grid and grid-tied solar power,” says Dominique dHotman, head of ooba solar, a platform that provides consumers with solar installation quotes for comparison and assists them in securing financing for solar projects.
“Misconceptions persist about solar being a luxury reserved for the wealthy, despite the wide array of solar financing options currently available. What’s more, solar solutions are typically priced on a sliding scale based on your power requirements. Given the reduced barriers to entry through solar financing and the ease of acquiring systems, including a solar system when purchasing a home, should be a no-brainer by now.”
dHotman emphasises the need for accessible financial cost comparisons, especially with the multitude of financing options available today. “Increased demand brings opportunities. It’s essential to thoroughly compare all the options before committing to ensure you grasp the financial implications and identify the option that yields the greatest long-term savings.”
As an illustration, dHotman highlights the growing rental model, where consumers pay initially less than R2,000 per month. “Although this might appear to be the most affordable way to access a solar system, in the long term, it actually ends up costing you more.”
COSTS OFTEN OVERLOOKED
dHotman explains that when comparing options, many homeowners fail to realise that solar systems are not entirely independent of the Eskom power grid. “You need to consider the total cost of ownership, which includes more than just the monthly financing instalment or rental fee.”
This comprehensive cost accounts for a household’s total electricity expenses, combining three unavoidable components:
- The financing instalment;
- Eskom’s standard monthly connection fee; and
- Residual usage of Eskom’s power (measured in kWh) due to spikes in household consumption beyond the solar system’s capacity or prolonged periods of low sunlight, or even just the less-than-ideal orientation of the house.
FINANCING OPTIONS UNPACKED
dHotman provides insights into the various financing options for solar systems:
- Asset finance
Pros: Tailored loans offered by banks and non-bank lenders can cover up to 100% of the project’s cost. You become the full owner of the system after five years.
Cons: Higher monthly instalments due to a shorter pay-off period and a relatively higher interest rate (approximately prime + 3,5%–5%).
- Government energy bounce-back scheme
Pros: Functions like asset finance but with interest rates capped at a lower level (prime + 2%). You gain full ownership of the system.
Cons: The scheme has a time limit due to its bounce-back intention.
- Home loan finance
Pros: Offers the most affordable monthly instalments, with interest rates often at prime or even discounted to prime. The rate discount can be significant, with an average of prime -0.44% for ooba Home Loans in Q3 ’23.
Cons: An extended financing term means it takes longer to pay off the system (up to 30 years, depending on the bond’s term).
- Escalating rental model
Pros: Lowest initial monthly instalments, and the rental company is responsible for system maintenance.
Cons: Monthly rental costs increase annually, and the solar system remains the property of the provider after the contract ends. De-installation fees apply if you cancel the rental agreement or sell the property without transferring the agreement to the new owner.
DOING THE MATH
dHotman illustrates cost comparisons by using a Cape Town household with a monthly electricity expense of approximately R2,250 (around 640 kWh). A typical solar system aims to cover 80% of monthly power needs, with the remaining 20% still sourced from the grid, which means grid connectivity costs and additional kWh from Eskom or the municipality.
He breaks down the year-one savings and monthly costs as follows:
“Here, home loan financing is the only financing option that offers initial savings upfront, which is a result of lower, inclusive monthly instalments that are calculated at a discount to prime. Once these initial costings are established, we can look to the total costs and savings of the various solar financing options over a 10-year period.”
“Home loan finance offers the greatest savings initially, with asset finance taking the lead from year eight when asset finance instalments cease. This allows for additional savings over the following three years,” says dHotman.
“On the lower end is solar rental, resulting in a mere R9,286 saved over a decade. Compared to asset finance, home loan finance, and the government buy-back scheme, these savings are minimal, considering the system doesn’t become your property. Over ten years, renting will cost over double the system’s outright purchase.”