THE EVOLUTION OFSOLAR FINANCE: powering South Africa’s shift to solar

With rising electricity tariffs and growing sustainability targets, more South African businesses and property owners are exploring solar solutions. Although upfront costs may pose a deterrent, modern finance models can help ease solar energy adoption.

The business case for going solar is strong, but upfront costs have long been a barrier to widespread adoption. Today, innovative and flexible finance models are removing those barriers – making solar more accessible by aligning costs with system performance and unlocking valuable tax benefits.

However, the initial investment remains significant. A 100kWp system can cost between R1.5 million and R3.5 million, while a 1MWp system may require up to R16 million. The real challenge is no longer about making the case for solar – it’s about finding the right way to finance it. This overview explores the strengths and trade-offs of various options, from bank loans and solar developer partnerships to modern financing and refinancing models, helping businesses make a smooth and financially sound transition to solar.

Traditional bank loans

Bank loans are a widely used option for financing solar installations. Some financial institutions offer green loans with preferential interest rates, and businesses benefit from owning the system, which may allow them to claim tax incentives and account for the system as an asset.

However, traditional loans are generally based on standardised lending criteria, which may not always align with the specific costs of a solar project. This can require businesses to adjust the system size or secure additional capital. Repayments are fixed over time and do not vary with system performance, which means businesses need to manage cash flow accordingly. Ownership without a solar developer also means the business is responsible for ongoing maintenance and system performance, which may involve allocating internal resources or appointing external service providers.

Power Purchase Agreements

A Power Purchase Agreement (PPA) allows businesses to adopt solar without upfront investment. The solar developer owns, installs and maintains the system, and sells electricity at a fixed rate per kWh – typically below the local utility tariff – while taking on the financial and operational risk.

However, because the system is not owned by the business, they are not eligible for tax incentives or asset-depreciation benefits.

An alternative structure that enables ownership – while linking payments to actual energy generation – is the Performance-Linked Instalment Sale (PLIS) model.

Modern, risk-free solar financing models

Two notable recent developments include the innovative Performance-Linked Instalment Sale (PLIS) model and Solar Refinancing (Solar Refi), both pioneered by Candi Solar:

The Performance-Linked Instalment Sale (PLIS) model

The PLIS model operates much like a PPA – with no upfront investment, fixed per-kWh payments, and the solar developer handling installation, operations and maintenance. However, unlike a PPA, PLIS enables system ownership and access to key financial benefits.

Previously, businesses could benefit from Section 12BA, which allowed for a 125% tax deduction on qualifying solar systems installed before 29 February 2025. While that window has closed, it’s not all over. Section 12B remains in place – still offering a full 100% first-year deduction on the cost of a solar installation.

This means that a company investing R2 million in a solar system can deduct the entire amount from its taxable income in the first year, resulting in a potential tax saving of R540 000 at the corporate tax rate of 27% at the time of writing.

What sets PLIS apart is its performance-based structure: repayments are aligned with the system’s actual energy output, offering businesses greater financial flexibility and protection.

Solar system refinancing (Solar Refi)

Another recent innovation is solar refinancing (Solar Refi), a compelling strategic opportunity for businesses that have already invested in solar.

Candi Solar refinances the solar asset by either purchasing or providing a loan against the existing solar asset (depending on whether an on- or off-balance sheet option is preferred), injecting new capital into the business. Thereafter, the power generated is provided to the customer at a discount, securing long-term energy cost savings.

In addition, businesses are not burdened with fixed loan repayments but only pay when the solar system performs, thanks to a fixed per kWh tariff, ensuring flexibility, financial predictability and alignment of interests between the parties.

Solar Refi provides immediate financial relief and also transfers all risks, including ongoing maintenance and system performance to the solar developer, eliminating the need to manage operations and maintenance subcontractors, so businesses can focus on core operations.

Successful solar installation

For commercial and industrial property owners, the question is no longer whether to shift to solar but rather how to finance the move in a way that maximises value while minimising risk.

The right solar finance is a critical success factor for financial stability and long-term operational sustainability, which means businesses must carefully assess their financing options to identify modern, flexible and risk-free models that not only eliminate upfront financial barriers but also align costs with long-term energy performance and unlock tax benefits, making the transition to solar hassle-free and financially viable. www.candi.solar