Understanding the Different Options when Procuring Rooftop Solar PV
With solar PV reaching the levelised cost of electricity, the interest by businesses in investing in renewable energy has increased. The installation of a rooftop solar PV system can reduce your business’s electricity bill, provide energy security, demonstrate your businesses sustainability efforts and reduces the carbon footprint. Below we outline key elements of the procurement process.
The PV space has developed very quickly in South Africa and it can be confusing to figure out who you should be approaching to procure energy services from. The graphic below provides a good description of the key players in the energy services space:
There are two ways in which businesses can procure solar rooftop PV:
- Equipment Procurement
This would be the straightforward procurement of the rooftop solar PV system. As the client, you would pay for the system outright and thus as the owner benefit from the incentives such as the 12B tax benefit (accelerated asset depreciation). If your businesses does not have the capex upfront to purchase the system, most of the large banks now offer financing of between 70-100% of the cost of the rooftop solar PV systems with 5-10 years maturity. There is an increasing trend where the savings from the PV system match the repayments on the loan resulting in a cash neutral investment.
When doing a turnkey project like this, it is critical that the operations and maintenance contract (O&M) holds the PV installers to the agreed performance of the system and is clear on the remedial actions if the system dips below the performance level.
- Service Procurement
In this instance the business would be procuring the electricity and not the rooftop PV system. This would mean you would sign a long term contract for the life span of the system (20-25 years) to purchase cheaper electricity without the need for a large capital investment. This is known as a Power Purchase Agreement (PPA). The developer would absorb the costs of installing and maintaining the rooftop solar PV system on your roof. As part of the contract, the annual increase in the cost of the electricity is fixed for the full period allowing your business to hedge against future electricity costs. In this instance, the developer would benefit from the 12B tax incentive.
As the rooftop solar PV system is fixed to your roof, your business would need to take out the additional insurance for the system and the PPA provider (as the owner of the system) would pay you the resultant increase in your monthly premiums
Many PPA providers offer buy-out options allowing the business to procure the rooftop solar PV system at a fair market value. For example, you could purchase the PV system in the 16th year allowing your business to capture the residual value in the out years. At this point, you could then apply for the 12B tax incentive.
Options for Tenants
If you are renting your premises, installing rooftop solar PV is possible. It is critical to get your landlord involved from the very beginning so they are part of the process. As a first step you need to consider the remaining duration of the lease and how this affects the ROI on the system and the payback period – for example if your lease is 10 years and the rooftop PV system will be paid back in 5 years the premises will be receiving “free” electricity for 20 years. This can benefit the current or future tenant. A buy-out clause could be agreed with the landlord to purchase the PV system at the current cost if/when you vacate the premises. The landlord can then negotiate with the new tenant to take over the remaining portion of the PV system. It is also possible to develop shared benefits between the landlord and tenant based on the electricity bill savings from the PV system. Many PV installers would be able to guide you through this process of negotiating with the landlord.
Rooftop Solar PV Prices
Before you receive quotes from PV installers, it is critical to be aware of the benchmarking for different sized systems:
For more information on the trends in the energy services space, GreenCape’s Market Intelligence Report provides an informative overview.
Visit our page on upgrading to a grid-tied solar PV system for more information.
Source: Content kindly provided by GreenCape's Energy Services team. More info here.