The demand and technological improvements have significantly contributed to the decrease in the cost of Solar Photovoltaic (PV) systems over the years. Various factors such as increased property value, tax benefits, municipal incentives and reduced exposure to energy price hikes have boosted the demand for PV systems even further. However, one of the main obstacles homeowners and small businesses encounter in the acquisition of a PV system is the large upfront cost of procurement and installation. Doing an outright purchase of the system using available funds is a good option but not always viable for some looking to go solar. Solar financing options like a loan or a solar rental agreement can help you go solar and save on your electric bill.
What is Solar Power Renting and How Does it Work?
Solar rental agreements (or solar leases) might differ somewhat depending on the specific solar system owner. With a solar rental agreement, you enter into a contract with a solar rental company (which owns the system) that entitles you to the benefits of the system (i.e. the energy that the solar panels generate or the fact that you have a battery bank which allows you to store and use energy in the event of a power cut) for the term of the rental agreement, which is generally 7-12 years.
PV Renting Concept Explained:
- Generally, with PV Renting, you have two parties to the agreement: The system owner and the electricity user (normally referred to as the system operator). In some instances, there will be a third party to the agreement if the system owner makes use of a different company/subsidiary to install the PV System.
- The system operator uses the electricity and pays a monthly rental fee to the system owner for a period of 7-12 years depending on the term offered by the system owner in terms of the rental contract.
- At the end of the rental agreement the system operator has the option of buying the system and to operate the system as the system owner after the rental agreement has come to an end. For a minimum of 10 -12 years more, the system operator will be able to use clean solar electricity without any extra costs.
Should your Buy or Rent Your Solar Power System?
We already know that choosing to go solar has substantial financial and environmental benefits. Going solar, however, can be a very expensive investment and often requires a large payment of cash up front. It is vital to consider how you will finance your solar power system. There are three main financing options when you choose to install a solar power system:
- Pay for the system in cash (if you have the capital upfront);
- Buy the system by taking out a loan (much like buying a house)
- Rent the system from the owner (like renting an apartment)
Owning your solar power system produces the highest savings in the long run. You can save up to 50%-70% annually over the lifetime of your solar panels and all of the savings come straight to you. Buying a residential solar power system usually costs between R100 000 and R250 000 (installation included). If you do not have that kind of cash lying around many financial institutions offer loans specific to installing solar. If you own your solar system you enjoy the maximum benefit solar power has to offer.
Renting a solar power system is ideal if you can’t manage the upfront costs of a cash payment, don’t qualify for a loan or don’t qualify for any tax incentives. Solar panels are very durable and require little maintenance during their 25+ year lifespan. Selecting good quality batteries is important to ensure that they have a lifespan longer than the rental period. This can be determined by looking at the amount of cycles a battery can do. Batteries are typically cycled once a day, so a 7year rental contract will have cycled the battery approximately 2500 times. Cheaper batteries have less than 1000 cycles before they need to be replaced. The latest lithium iron batteries, however, can cycle up to 10 000 times which means they can last up to 25 years. Despite the durability of solar panels and the lifespan of good quality batteries such as lithium iron, your system will still need to be maintained at least once a year and if you are worried about maintenance, renting a solar system might be a better option for you as the company that owns the solar system will be responsible for all maintenance and necessary repairs.
Solar Loan vs a Solar Rental Agreement
If you enter into a solar rental agreement, you are renting the system and all its components from the solar company that owns it. If you install a solar power or back-up battery system with a solar loan, you are the owner of the system which allows you to enjoy additional benefits. Owning the system, however, also comes with added responsibilities like the operation and maintenance of the system. Deciding on either a solar loan or rental agreement will be entirely dependent on your needs, preferences and financial capability. Both solar loans and rental agreements offer benefits for homeowners, and there are various factors to consider when deciding between a loan or a rental agreement:
1. Cash Flow:
Both a loan and solar rental agreement can result in immediate savings as your monthly loan or rental payment will be less than your currently monthly electricity bill. The monthly saving from a loan, however, is likely to be higher than that of a rental agreement purely because loans are typically paid off over a longer period when compared to a rental agreement which require regular payments over the term of the agreement. In certain instances, a rental agreement will require some down payment for the installation but can also result in a lower monthly cost.
2. Fixed vs Increasing Monthly Payments:
Solar rental agreements are usually offered for a 7-12-year term, and the terms for a solar loan agreement can vary from 5-20 years. The monthly payments for most solar rental agreements will increase at a pre-determined rate annually whilst solar loan agreements usually have fixed monthly payments. The monthly payments in respect of a loan are likely to be lower than that of a solar rental agreement for the same term, but how much lower will depend on whether the loan is secured or unsecured.
3. Tax Incentives:
The owner of the solar power system qualifies for a tax incentive in terms of the Income Tax Act. This tax incentive allows system owners to claim back 100% of the cost of the solar power system upon installation. This tax incentive is not available if you are renting the solar power system. The tax incentive further only applies to businesses and not individuals.
4. System Operation and Maintenance:
If you opt for a solar rental agreement, the rental company owns the system and will usually offer a service and maintenance program to cover any issues that arise during the contract term. You generally also have free online technical support to assist with system performance and interpretation of data as displayed in the system monitoring software. If you take out a solar loan to buy the system, you, as the owner will be responsible for the operation and maintenance.
5. Time Spent on Processing Financing Applications:
Solar rental agreements can be approved and signed in a matter of minutes either online or at your home. Solar loans on the other hand generally take much longer to approve as there are often additional checks and steps required by the financial institution such as property appraisals, title deed searches, and bond applications that can take several weeks.
6. Availability of Solar Loans vs Solar Rental Agreements:
While almost all financial institutions offer loans, PV renting is not offered by all South African solar companies.
7. Selling Your Home:
When you want to sell your home during the terms of the rental agreement you will either need to buy out or transfer the rental agreement to the new property owner. If you have taken out a loan to finance your system, your options will vary depending on whether your loan is secured or not. Regardless of the type of loan, homes equipped with solar power systems tend to sell faster. You could perhaps even recover a higher amount with the sale of your property than what you owe on the system.
Common Terms Included in Solar Rental Agreements
|
Term Length |
The term length of the rental agreement will depend on the particular solar provider, but residential solar rental agreements are usually for 7 to 12 years. |
| Performance and Maintenance | The solar rental company (system owner) will monitor the performance of the system to ensure that it is operating optimally for the duration of the rental agreement. The rental company is also responsible for the system maintenance and repairs. |
| Monitoring | The majority of solar rental companies offer free online support with your monitoring software on your desktop, tablet or mobile phone to track the performance of your system and to assist with the interpretation of data. |
| Buy Out of System | You can buy the solar power system at any time during the rental term at the price defined in your rental contract. |
| Selling Your Home | If you decide to sell your property, you can transfer the remainder of the rental term to the new homeowner or buy the system from the rental owner yourself and include it in the sale of your property. |
| End of Rental Term | At the end of the rental term as stipulated in the rental contract, you can either buy out the system, have the rental company remove the system, or leave the system in place and renew the rental agreement with the rental owner. Â Some rental contracts renew automatically unless otherwise stipulated so be sure to know the exact terms. |
| Installation and Removal Fees | Â Some rental agreements still require once off installation fees, separate from the monthly rental fee. If and when you relocate or which to have the system removed, most rental agreements will stipulate a removal fee and re-installation fee if applicable. |
PV renting is an innovative financing option that allows homeowners and small to medium sized companies to benefit from this clean reliable energy source. For more information on Alumo’s rental service and rental packages visit our website at www.alumo.co.za