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Thabiso KaliEnergy engineer · CEM

For finance, commercial and investment people

Own vs PPA vs lease for commercial solar

A business that wants rooftop solar can buy the plant, pay a third party per kWh under a power purchase agreement (PPA), or rent it under a lease that ends in ownership. The same plant, three very different cash-flow profiles.

Inputs

Pre-filled with an illustrative case. Results update as you type. Jump to results

System and grid
kWp
kWh/kWp
%
years
R/kWh
%
Own (cash purchase)
R/Wp
R/kWp/yr
%
PPA
R/kWh
%
Lease (rent to own)
R/month

Includes O&M during the lease.

%
years

You own the system afterwards.

Tax and discounting
%
%

After tax when tax is included.

Results

Lowest present value of cost: Own (cash purchase), R4.9m (R0.79/kWh levelised) over 20 years.

Lowest cost
Own
R0.79/kWh levelised
Own: PV of cost
R4.9m
NPV vs grid R12.1m
PPA: PV of cost
R8.3m
NPV vs grid R8.6m
Lease: PV of cost
R5.0m
NPV vs grid R11.9m

CheckTax view: verify against current law and with a tax adviser. Section 12B gives 100% in year 1 only for PV up to 1 MW (50/30/20 above), only to the owner, and only if the company has taxable income to absorb it; the temporary 125% section 12BA allowance ended on 28 February 2025. A lease that transfers ownership may be taxed as an instalment sale, where the lessee claims 12B and deducts interest instead of rentals.

Present value of what you pay

Rand at 12.0%, over 20 years, after tax. Lower is better.

R0R2mR4mR6mR8mOwn (cash purchase): R4.9mOwn (cash purchase)R4.9m lowestPPA (pay per kWh): R8.3mPPA (pay per kWh)R8.3mLease (rent to own): R5.0mLease (rent to own)R5.0m

Side by side

All three deliver the same R16.9m (present value) of grid electricity avoided.

MeasureOwnPPALease
PV of costR4.85mR8.31mR4.99m
Levelised costR0.79/kWhR1.35/kWhR0.81/kWh
NPV against the gridR12.07mR8.62mR11.93m
Payback against the gridYear 3Year 1Year 1
Upfront cashR5.5mR0R0
Total payments, nominalR8.5mR36.9mR13.9m

Cumulative saving against the grid

Rand, nominal: grid cost avoided minus what each option costs, year by year. Hover for values.

  • Own
  • PPA
  • Lease
−R10mR0R10mR20mR30mR40mR50m01234567891011121314151617181920OwnLeasePPAYear
Show net cost by year
YearGrid avoidedOwnPPALease
0–R5,500,000R0R0
1R1,365,100−R1,419,300R775,625R700,800
2R1,466,936R68,985R818,052R735,840
3R1,576,370R72,434R862,799R772,632
4R1,693,967R76,056R909,994R811,264
5R1,820,337R79,859R959,771R851,827
6R1,956,134R83,852R1,012,270R894,418
7R2,102,062R88,044R1,067,642R939,139
8R2,258,876R92,446R1,126,042R986,096
9R2,427,388R97,069R1,187,636R1,035,401
10R2,608,471R101,922R1,252,600R1,087,171
11R2,803,063R107,018R1,321,117R107,018
12R3,012,171R112,369R1,393,382R112,369
13R3,236,879R117,988R1,469,600R117,988
14R3,478,350R123,887R1,549,987R123,887
15R3,737,835R130,082R1,634,771R130,082
16R4,016,678R136,586R1,724,193R136,586
17R4,316,322R143,415R1,818,507R143,415
18R4,638,320R150,586R1,917,979R150,586
19R4,984,338R158,115R2,022,893R158,115
20R5,356,170R166,021R2,133,545R166,021

Method

Generation in year t
E_t = kWp × yield × (1 − d)^(t − 1)
Own
year 0: capex = kWp × 1,000 × R/Wp; year t: O&M_t = kWp × R/kWp × (1 + e_om)^(t − 1)
PPA
year t: E_t × tariff × (1 + e_ppa)^(t − 1)
Lease
year t ≤ L: 12 × rental × (1 + e_lease)^(t − 1); year t > L: O&M_t
Tax saved (when included)
tax rate × (deductible payments_t + allowance_t × capex) 12B: allowance = 100% in year 1 (≤ 1 MW) or 50%, 30%, 20% (> 1 MW)
Grid cost avoided
E_t × grid tariff × (1 + e_grid)^(t − 1) × (1 − tax rate if included)
Comparison
PV(cost) = Σ net cost_t ÷ (1 + r)^t, levelised = PV(cost) ÷ Σ E_t ÷ (1 + r)^t NPV vs grid = PV(grid avoided) − PV(cost)

Assumptions

  • All three options deliver the same energy and it is all used on site. PPAs usually charge for every kWh delivered, so export or curtailment would raise the PPA's effective cost.
  • The company pays tax and has enough taxable income to use every deduction in the year it arises. The section 20 cap on setting off assessed losses is ignored.
  • Section 12B as summarised: 100% in the first year for PV up to 1 MW, 50/30/20 above. Only the owner claims it. The 125% section 12BA allowance applied only to assets brought into use from 1 March 2023 to 28 February 2025.
  • The lease is treated as an operating lease (rentals deductible, O&M included). If it is an instalment credit agreement, SARS may treat you as the owner: you would claim 12B and deduct interest rather than rentals.
  • No residual value at the end, inverter replacement, insurance excess, VAT or finance costs. The discount rate stands in for the cost of capital.

Sources

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