Calculating Solar Financing Costs for the Average South African Home

With electricity prices continuously rising and rolling blackouts frequent, many South African homeowners are looking to solar power as a smart alternative energy source. However, coming up with the initial capital costs for a photovoltaic (PV) system installation can still seem daunting. Thankfully, a variety of solar financing options are now available that allow homeowners to pay for their system over time rather than requiring a large lump sum upfront payment.

In this post, we will walk through how to calculate the costs of financing a solar installation for the average South African home. By following these steps, homeowners can gain a clear understanding of what their solar investment may cost on a monthly or annual basis and how long it will take to recoup expenditures through utility bill savings.

Step 1 –

Determine Your Home’s Electricity Usage

The first step is to calculate your average monthly or annual electricity consumption based on past utility bills. For an average South African home of approximately 120m2 in size:

Electricity usage will likely range from 600-1000kWh per month depending on energy efficiency of appliances and number of occupants.

For our example, let’s assume average monthly usage is 800kWh at the current average national tariff of R1.68/kWh. This equals a monthly electricity bill of approximately R1,344.

Step 2 –

Size Your Solar System

To offset a significant portion of household demand, an average home would install a solar system sized at around 2.5-3kW. Using our example consumption:

A 2.5kW solar system would generate approximately 3,000kWh annually in South Africa’s prevailing sunlight levels.

This would offset 75-80% of our average home’s estimated 3,600kWh annual electricity usage.

Step 3 –

Determine Installation Costs

Once system sizing is established, the next step is calculating installation costs:

For a 2.5kW system, total upfront equipment, and installation costs average between R40,000-R50,000 currently depending on components, permitting and installer selected.

Let’s assume a total installed cost of R45,000 for our example average home system.

Step 4 –

Select Your Financing Option

With installation costs determined, the type of financing must now be selected:

Third-party leasing: Monthly payments average R1,500-R2,500 through 20–25-year contracts avoiding high upfront costs.

Bank loan: Interest rates around 9-11% for 10 years would result in monthly payments of ~R1,500-R2,000 repaying a R45,000 loan.

For this example, let’s assume our homeowners take out a 10-year bank loan at 10% interest to own their system outright.

Step 5 –

Calculate Loan Repayments

With the loan amount of R45,000 at 10% over 10 years, monthly payments can now be projected:

Using a loan calculator, the monthly payment for this 10-year, 10% interest loan equals approximately R1,860.

Over the loan term, total repayments including interest equal approximately R83,280.

Step 6 –

Factor In Electricity Savings

Finally, factor in how much electricity costs will be offset each month through solar production:

The 2.5kW system would generate roughly 800kWh per month, saving R1,344 at current tariffs.

The monthly loan payment is R1,860. However, savings offset R1,344 each month, so the net additional cost is only R516 per month on average.

The system would pay for itself within 5-6 years once the loan is repaid, at which point the household enjoys 100% free electricity from solar for decades to come.

So, in summary, for an average 120m2 South African home using 800kWh per month, the projected total financing costs coming to approximately R83,280 over 10 years through a R45,000 bank loan at 10% to own their system outright and benefit long term. Monthly repayments average R1,860 while monthly electricity savings provide R1,344 in offsetting reductions. Factoring all aspects provides a clear financial analysis of the solar investment for any given home.

Of course, each individual home’s calculations will vary based on specific electricity consumption, solar resources, financing products selected, and installation quote received. But following this step-by-step process offers a helpful framework for South African homeowners to evaluate solar financing costs customized to their situation. With declining equipment prices and innovative arrangements continuing to emerge, making the switch to solar power is increasingly achievable for households across the country.

Choosing a Financing Provider

With costs estimated, selecting the right financing partner becomes key. Let’s explore top solar lending companies in South Africa:

• Standard Bank partner GreenchoiceEnergy provides competitive green home loans up to R500,000 over 5-10 years starting at 9.75%.

• Absa partnered with SunExchange offers crowdfunding investment and bank loans tailored to your energy needs from R30k-R1m over 3-15 years.

• Investec provides acquisition and project finance lending customized to technical requirements through terms as flexible as 70% loan-to-value over 15 years.

• FNB facilitates specialized solar equipment financing through The Solarisateur at prime-3% for up to R200k up to 7 years.

Weighing offers entails comparing total interest paid, available terms to suit payback periods, and flexibility in repayment structures like annual lump sums. Ensure customer service commitments meet needs over decades.

Maximizing Savings

Additional cost reductions may come through complementary programs:

• Apply for municipal or utility rebates which typically offer up to R7,500 per residential system directly off installation costs if criteria qualify.

• Factor in capital asset depreciation write-offs businesses realize against taxable income through Section 12L allowance schedules.

• Inquire about performance-based incentives Eskom provides recognizing self-generation via feed-in tariffs paid annually for systems exceeding 5kW capacity.

Government incentive availability varies so sign-up early or combine sources to benefit maximally within localized sustainable programs according to priorities determined through transparency and cooperation application sustaining progress.

Financing Alterations

Flexibility becomes essential in navigating unforeseen life changes impacting budgets over long repayment horizons. Understand options like:

• Loan term extensions: rates may rise but keep monthly costs consistent during difficult patches.

• Refinancing at lower prevailing rates as credit improves accessing better terms if financial profiles strengthen.

• Balloon payments by prepaying extra capital annually potentially cutting years off the amortization schedule saving thousands if options allow.

• Transferring loan obligations on property sale secure future ownership through proper paperwork disclosing residual debt transparently upfront.

Seek providers discussing such contingency provisions to remain financially resilient in unexpected scenarios according to ethics resolving unanticipated challenges cooperatively as understanding grows.

Battery Considerations

Accumulating income or rebates may permit energy storage adding resilience:

• Sized at 2-4 kWh for average homes, high-availability lithium batteries cost approximately R35,000 currently installed.

• Storage increases self-consumption 4-5 times avoiding selling excess solar cheaply back to utilities during daylight.

• Battery financing expands project financing loan amounts often at comparable rates over longer repayment periods aligned to equipment lifecycles.

While batteries significantly grow upfront costs, the right financing structures helps justified by effective usage offsetting tariff escalations for decades ahead through responsive solutions continuously improving lives according to priority determined through cooperation navigating transitions sustainably applying ethics elevating shared prosperity for all within means according consent and care for natural endowments as indivisible whole humanity depends upon preserved cooperatively.

Conclusion

With rigorous planning navigating interconnected factors like electricity consumption, technical specifications, available programs and competitive lending products transparently, empowered financing decisions optimize affordability realizing energy sovereignty through solar power applied equitably across varied income levels according plan advancing sustainability through cooperation resolving obstacles impacting vulnerable communities most severely. Careful vetting selects reputable, experienced financing partners commiting ethical practices upholding intergenerational justice safeguarding natural gifts and livelihoods upon which prosperity depends according teachings elevating dignity, understanding and care for shared humanity’s greater story progressed meaningfully through unity in diversity as global citizens transitioning renewable energy systems sustainably through empathy, integrity and priorities elevating all peoples meaningfully together as conscious family for generations to come within challenges resolved applying wisdom transcending divisions.