Commercial financing options for solar electricity

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  1. Overview

South Africa has an abundance in natural resources like the sun and wind compared to many other counties around the world. Making South Africa the ideal business opportunity to invest in renewable energy, in order to exploit cutting edge technology to give your business a competitive price advantage over your competitors.

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Eskom has the monopoly to supply electricity at whatever price they want to charge. The past eight years Eskom prices has risen well above inflation, in fact more than 300%. It is possible to fix electricity costs now to below R0,95 cents for the next twenty five years with solar electricity.

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  1. Why would you want to Rent Solar equipment?

 Ownership of equipment

Ownership of equipment isn’t what it used to be. Not when it comes to technology, where your company gets stuck in a cycle of paying for rapidly depreciating assets. Modernization requires an out of the box innovative thinking, not only for your products/services but also for financing methodology.

 Traditional funding techniques

South Africa is starting to follow from international trends, where 65% of equipment is rented and no longer purchased. More and more South African companies are seeing the financial advantages of rental finance agreements.

  1. Advantages of Rental Agreement
  • No deposit required, therefore access to working capital is enhanced.
  • Why use working capital that can be turned into a profit instead of a depreciating fixed asset?
  • Support business expansion and investment – Working capital is freed up thus improving cash forecasting and budgeting.
  • VAT is not capitalized, therefore saving on interest charged over the full term.
  • Maximizing tax advantages for your financial benefit.
  • Streamline fixed and movable asset acquisition – Develop a financial solution that will compliment your specific business vision.
  • Ownership options available at the end of term.
  • Client can chose to continue to rent at an agreed reduced rate.
  1. Direct Capital Investment

This is a simple option of “Outright Purchases” of equipment with capital from the business, thus ownership of the equipment is immediate. Consequently, you know exactly what the upfront costs are.

The biggest advantage to you and your business is that there are no financing costs. Most grid tie systems will pay for themselves in five to seven years with a commercial investment.

  1. Tax Benefits

Rental Agreement

Rental equipment are 100% tax deductible as an operating expense. The capex budget is therefore not affected by capital expenditure constraints and allows the user flexibility to upgrade within the rental period, or the fiscal year.

Valued Added Tax is not capitalized on the agreements, but paid monthly on the rental. This provides valuable savings at the time of upgrade as VAT is only paid for the period the equipment is in use.

SARS Income Tax Section 12(b) Renewables Depreciation

Direct Capital Investment

As from 1 January 2016 Section 12(b) of the Income Tax act was amended from a three year (50% – 30% – 20%) accelerated depreciation allowance on renewable energy, to an even quicker depreciation of 100% allowance in the first year, in respect of photo-voltaic solar energy of less than 1 megawatt. The reason for the change is to accelerate and incentivise the development of smaller photo-voltaic solar energy projects. This is also intended to help address the energy shortages facing South Africa in a more environmentally friendly way.

  1. Return on Investment

A well designed solar solution will provide a significant return on your investment in solar products.  Benefits:

  • Fix your electricity tariff for the next 20 years @ R 0,95c
  • You are not subject to price increases from Eskom
  • The system pays for itself from electricity saved within five to seven years
  • Self-reliant on production of electricity
  • Enable you to have a competitive advantage over your competitors
  • Tax savings
  1. Conclusion

Investment in solar will make a difference to saving our planet. Simultaneously you will save on costs, thus making the bottom line look good with greater profits.

 

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