Novel financing solutions are needed to help businesses and individual customers buy and install solar energy solutions, financial institution Nedbank Commercial Banking transformation and sustainability head Mark Boshoff said during a webinar on solar energy and its future in South Africa hosted by Nedbank and energy solutions company AW Power on November 10.

He said alarming price escalations over the past few years in solar energy solutions for businesses and individual citizens of the country necessitated a creative strategic approach to creating funding solutions for customers.

”We had to relook the offering completely. It's not like financing a motor vehicle or a factory machine. It is a unique asset that has totally different characteristics,” Boshoff explained.

He noted two key factors that differentiated solar energy installations from other kinds of investments. The first was that it was a piece of infrastructure that generated something of value, and the second was that it took longer than most revenue generating investments to pay itself off.

He said a typical asset, such as new machine installed in a factory, for example, would start producing income quickly and pay for itself within the first two years.

Boshoff noted that the “sweet spot” for solar installation to pay for itself was eight years.

Meanwhile, typical finance products take about five years, placing solar assets as outliers.

In addition, the second hand market for solar assets is virtually non-existent.

“Solar is a grudge purchase because we already pay for electricity, and we expect to go to the switch and for the lights to come on. You now suddenly have to generate your own electricity at huge cost. It's not cheap. So we had to have a look at what can we do to make this cost as little as possible, especially in terms of the financing,” Boshoff said.

He noted that providing a tailored financing solution for solar was critical for Nedbank not only because of the environmental imperatives associated with embracing renewable energy and reducing dependence on fossil fuels but also because it was beneficial for Nedbank’s bottom line.

Boshoff noted that loadshedding and other power outages forced businesses to halt operations, thereby reducing their ability to generate revenue and pay for services, such as the financial services that Nedbank provides.

By providing a means for businesses to install solar power at their operations, Nedbank can ensure its customer base is somewhat shielded from the impact of loadshedding and can, therefore, remain in business.

“It works for everybody. It keeps your business going and it also reduces the risk to the book at the end of the day. It reduces the impact of price increases on your bottom line, so you become more profitable,” Boshoff said.

Because of the longer payback period, compared with other investments, Nedbank offers solar financing for up to ten years.

Additionally, Boshoff said, the bank would not charge a different interest rate because of the asset class. Rather, the bank would simply apply a standard risk-rated pricing approach to help determine terms.

Typically, a loan for a solar installation would appear similar to an overdraft or term loan, he said.

“We also had to take into account the savings that are made on this product. You're now producing energy and don’t need to get it from Eskom or the municipality,” he said.

Boshoff cited tax breaks and allowances that could be taken advantage of for those taking the direct ownership approach, making the investment even more attractive.

“If you structure this thing very carefully, and you plan it very carefully, it will actually not cost you anything additional to what you already are paying to the municipality for it, or to Eskom.

“We can basically redirect what you would be paying for electricity to Eskom or to the municipality towards paying off assets that are fully functional and allow you to essentially have electricity for free,” he said.

Boshoff said Nedbank would play a role in helping customers vet and select verified and reputable installers to ensure the installation was done correctly.

“The South African Photovoltaic Installers Association has an accreditation process that works very well. We'll also have a look at fair pricing just to make sure that is within the ballpark and to make sure that you're not being overcharged,” he explained.

He said Nedbank was not only invested in solar energy but would also look at financing other renewable energy options, such as wind and hydro, for example.