Eskom: with the current levels of load-shedding in sunny South Africa, the mere sight of that name may raise your blood pressure!
And you know that the problem isn’t going to be solved any time soon, despite the addition of a Ministry of Electricity. So, if you want to keep your lights on a solar power system may be on your wish list — but such systems come with a significant price tag.
What to do?
First up, embrace overall energy efficiency as this will reduce electricity consumption and allow you to buy a smaller and less expensive Photovoltaic System (PV). Consider ensuring your hot water system is as efficient as possible using timers, heat settings and insulation. Install LED low-energy lighting and switch to gas for cooking. Once you have done that, calculating your electricity needs is the first step in determining your ideal system.
And then you have a few options as to how you get your hands on it.
There are 3 ways to get the benefit of a solar energy system in South Africa
- Buy it outright
- Enter into a “rent-to-own” agreement with a solar company which allows the user to own the system after a certain period, typically 5-7 years
- Enter a subscription agreement with a company offering “solar-as-a-service” where you pay monthly to enjoy the benefits of a solar energy system which gives you power continuity
Here are three factors to take into account when comparing these options:
Factor 1: Affordability
A typical PV system should take approximately 8 years to offset initial installation costs, so an outright purchase will probably provide you with the best return on investment.
Electricity prices will most likely continue to increase as Eskom tries to compensate for the loss of income due to reduced demand and its ever-increasing debt.
Rent-to-own and subscription-based models avoid large upfront costs and offer a low monthly fee which allows you to access these solar benefits immediately, however, this funding method may result in an overall higher cost when compared to an outright purchase.
Factor 2: Maintenance
When buying a system, a credible and experienced installer is key as you pay the installer their margin upfront and trust that the system has been installed and configured correctly. You will need to pay call-out-fees and costs for replacement components and consumables as and when the need arises.
With solar system installation currently in high demand, the risk of encountering a fly-by-night installer is higher, so get a referral from someone you trust.
The benefit of the rent-to-own and subscription models with regards to reliability is that the solar company makes its money over the life of the contract, not upfront, and so is incentivised to ensure a quality initial installation that continues to work optimally.
Factor 3: Selling your home later
Purchasing a solar system may increase the value of your home, given the increased demand, making it more attractive to a potential purchaser.
However, a buy-to-rent solar solution probably only makes sense if you foresee yourself remaining in your home until the end of the typical 5- to 7-year agreement period.
Solar-as-a-service means that you do not own the solar system hardware. As a result, should you decide to move (and the new owner of your home does not wish to continue with the existing contract) you will need to cancel the solar company contract which is likely to attract financial consequences.
Final assessment
With our sunny climate, there’s good reason to explore how you can take control of your own power supply and take the step towards using renewable energy.
At the same time, the pros and cons of purchasing vs. leasing a solar system need to align with your financial situation. This is a good time to update your long-term financial plan and make sure you’re taking everything important into consideration.
Speak to your CERTIFIED FINANCIAL PLANNER® professional for objective advice as to what makes good financial sense in your current situation, taking into account your long-term investment goals.
Christopher Pecego, CFP®
B.Com
