Rent-to-Own Solar

While cash/outright purchase is always first prize, it’s simply not practical or affordable for many people on higher asset values – that’s where solar rent-to-own options are especially helpful. There is of course a big caveat – carefully analyse the terms and conditions, escalations and penalties as not all rental deals are created equally.  

Always remember your primary motivation for going solar – to radically reduce your grid electricity costs and financial obligations by taking control of your electricity supply and self-generation – not to create new financial obligations by getting blind-sided into a rental subscription agreement that turns out to be a serious liability. 

One Energy provides a helpful checklist of aspects to interrogate before going into any solar rental agreement:

• A quality hybrid solar system has a good 20-year lifespan, so ideally you want to take full ownership of your system, pay it off quickly and really get the best return on investment on your system. If you pay your system off in 5 or 6 years, you have a good 15 years of free electricity production from your solar PV system. Look to finance or rent-to-own your system over fixed term, but beware of onerous ‘buy-out’ clauses on some rent-to-own options. We cannot emphasize enough the importance of interrogating all the terms and conditions – ask for a sample contract before you sign up and actually work out the financials and do the sums. 
• Be wary of entering into solar-as-a-service (SaaS) rentals or subscriptions without doing the math. It makes little financial sense to pay for solar-supplied energy (kW) where the rental/subscription costs increase annually by around 7%, alongside Eskom’s charges increasing alongside this every year by around 15%. Unless your system is sized to reduce your grid usage by at least 90% or more, you could be in a world of pain with your solar supplied power costing you much more than when you started after 3 years of escalations.
• Solar subscription agreements that last a fixed term, like 5 years for example, and escalate annually, mean that at the end of 5 years you do not own the system and have absolutely nothing to show for the payments made over five years – essentially you simply bought the solar kW per month. Here’s the real clanger – when we took one of the subscription packages and analysed what such a system would actually generate in terms of kW per day – in this particular example it was 25kW – multiplied this by 30 to get the monthly generation capacity (750kW), and then divided this by the monthly rental amount, the cost per kW was R3,80 – much higher than Eskom/council cost per kW!  To add insult to injury, this cost then increases by 7% every year, for the same amount of generation.

Why would you want to pay away a monthly premium for 5 years for pure consumption kW when you can actually own the asset that will be productive for many more years and save you a fortune? On a system that would have cost you R184k on a cash purchase, you end up paying R250k after 5 years on a solar subscription – that’s a R66k premium – on equipment that still has at least another 10-year+ lifespan – and you have nothing to show for it. And you’re paying more per kW than your council charges.  Do the math!   

• Of the solar rental offerings on the market which we analysed, all rental contracts increase the monthly instalments by between 5% – 7.5% upon the annual anniversary of the contract. This means that a monthly rental payment of around R1500 per month in year 1 will escalate each year by around 7% compounded. By year six of your contract (72 months), you will be paying almost R800 per month more! 

The point is you are looking to get your electricity at a cheaper rate than what you can buy from your council or Eskom – an ever-increasing solar rental completely defeats this objective. While these deals may sound cheap to start off with, they soon rapidly escalate as the years go on. Remember that you are also still likely to be drawing some electricity from the grid as it is very unlikely that you will be off-grid completely. Given that electricity prices are likely to increase by at least 12-15% per annum for the foreseeable future, and if your monthly solar rental increases each year by 7% – in essence you could be facing a serious financial liability. 

• Carefully review penalty fees for early cancellation or if you want to buy out your system before the end of the rental period – these vary from supplier to supplier but can be very hefty penalty fees. 
• If you’re on a solar subscription, the solar development company owns the equipment and not the homeowner, so any benefit on rebates, incentives and feed-in tariffs goes back to the equipment owner, and not to you. This is a big sticking point.
• Is the solar subscription provider a solar installation specialist with inhouse technical expertise and qualified service teams, or are they simply a lead generator that outsources the installation to a panel of independent solar installation partners? It may not seem important upfront, but down the line when you need service and back up support for a technical or warranty issue, this can be a significant sticking point as to who services your needs.