i am your guide to solar finance for business

Energy savings and resource efficiency

Business

Outright purchase

You buy the solar system from your cash account and  you have no further payments to make.

Also known as self-funded

Scenario

Below is one possible illustration of how the cash flows and benefits of the outright purchase option could work under a realistic, but hypothetical scenario. 

Solar project

Solar system size

30kW

System cost

$46,285

Replacement inverter cost (Assume new inverter is needed after 15 years.)

$9,355

Cost of daytime grid electricity

$0.21 to $0.28 / kWh

Capacity charge

$0.34 / kW / day

Finance conditions

Proportion financed

N/A

Term

N/A

Interest rate

N/A

Residual payment

N/A

The chart below illustrates the annual cash flow outcomes based on this scenario.

Self funded cashflow analysis for an example 30kW PV system

In this chart you can see that:

  • The upfront costs are all borne in year 1, resulting in negative cash flow.
  • The remaining 25 years the solar system delivers positive cash flow outcomes through energy bill savings.
  • The exception is year 15, when this scenario assumes the inverter needs replacing and cash flow dips slightly. 

Because this is the only option without finance costs, the value of the investment grows the most, even though it has the lowest starting point. It finishes up exceeding all other options with a final Net Present Value of around $66,000. It also has the lowest Levelised Cost of Electricity at $0.11/kWh. 

On the other hand, the high upfront cost means the Internal Rate of Return at 26% is one of the lowest for the solar finance options considered. However, compared with many other business investments it is still a very attractive option.

Finance details

Period

Principal

Interest Rate

N/A

N/A

N/A

Fees, charges and other payments

You pay for maintenance of the solar system throughout its life.

Accounting and tax

  • You own the solar system.
  • The asset and liability appear on your balance sheet.
  • You may claim tax deductions for depreciation of the asset. 

Advantages

  • May increase the value of your property with the solar system attached.
  • You immediately save on power bills for the life of the system, freeing cash for other investments. 

Disadvantages

  • High upfront cost, potentially affecting your ability to pay your bills or invest in growing your business.
  • You are usually responsible for the ongoing maintenance and operation of your system. 

Risks

  • The large upfront purchase could put pressure on your budget: make sure you can afford it.

 

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Page last updated: 10 December 2015