Why I Recommend Solar to Nearly Every Business Client: A Financial Advisor's View
When a new business client asks me where to deploy retained earnings or how to use available credit facilities, commercial solar has risen to the top of my recommended options list. This might seem like an unusual position for a financial planner — we're usually talking about equipment, property, or working capital — but the numbers are compelling enough that I want to explain my reasoning in detail.
Note upfront: this is a financial perspective, not a technical one. For technical advice on solar systems, talk to a qualified solar installer. For specific tax advice, talk to your accountant. What I can offer is a framework for thinking about solar as a capital allocation decision.
The Return on Investment Case
Let me start with what solar actually earns you. A grid-tied commercial solar system in Gauteng, correctly sized and installed, typically delivers an annualised return on investment of 20–35% when measured against avoided electricity costs and tariff escalation. This calculation includes:
- The electricity saving (the primary return driver)
- The value of tariff escalation protection (each unit your system produces becomes more valuable as tariffs rise)
- The Section 12B tax deduction in year one
- The reduction in load shedding-related revenue losses (which represent an economic return but are often excluded from simple ROI models)
A 20–35% annual return on a relatively low-risk, inflation-linked asset is exceptional by any standard. South African equities have returned roughly 12–15% annually over the long term. Commercial property (net income return) runs at 8–10%. Government bonds are currently around 9–10%. Solar is outperforming most of these on a raw return basis.
The Risk Profile is Attractive
High returns normally come with high risk. What makes solar unusual is that its risks are relatively well-defined and manageable:
- Technology risk: Low. Solar PV technology has been commercially deployed for decades. Panel degradation rates are well-understood and modest (typically 0.5% per year). Major component failures are infrequent with quality equipment.
- Revenue risk: Very low. The "revenue" from solar is an avoided cost — you save money instead of earning it. This is far more stable than a revenue stream from a business activity that depends on market conditions, competition, and customer behaviour.
- Tariff risk: Actually works in solar's favour. Higher Eskom tariffs mean higher savings from each kWh your system produces. Solar is an inflation hedge in the energy cost dimension.
- Installation risk: Manageable through installer selection. Use an accredited, established installer with a verifiable track record and strong warranty terms.
- Regulatory risk: Low for existing installations. The SSEG framework is established. Retrospective policy changes are possible but historically unlikely for existing installations.
The Section 12B Multiplier
Section 12B of the Income Tax Act deserves its own section because it is extraordinary. A 125% tax deduction in year one means that for a profitable business at 27% corporate tax, the government effectively subsidises 34% of the installation cost through a reduced tax bill. This dramatically improves the effective ROI and shortens the payback period.
Example: A R1,200,000 solar system generates a R1,500,000 tax deduction. At 27% corporate tax, this is a R405,000 tax saving. The net effective cost of the installation is R795,000, not R1,200,000. The ROI calculation runs off R795,000, not the sticker price. This makes an already attractive investment significantly more attractive.
Not all businesses qualify in full — the deduction requires taxable income to absorb it, and there are specific eligibility conditions. Your accountant must confirm your specific position. But for profitable businesses with positive taxable income, this is one of the most generous incentives currently available in the South African tax code.
Cash Flow vs Capital Employed
One of the conversations I have repeatedly with clients is the difference between cash flow return and capital return. If a business uses R1 million of its own cash to install solar and saves R300,000 per year, the cash return is 30% — excellent. But if instead it finances the R1 million at 14% (R140,000 per year in interest) and uses the R1 million cash elsewhere in the business earning 25%, the total return picture is even better: 25% from the deployed capital plus 30% saving minus 14% financing cost = a net benefit of deploying cash in the business and financing the solar.
The right structure depends on your business's marginal return on capital, your financing costs, and your risk preferences. This is exactly the kind of analysis a financial planner should help you with before making the decision.
Balance Sheet and Borrowing Capacity
A correctly structured solar installation — owned outright or through hire purchase — adds a tangible, productive asset to your balance sheet. It is the kind of asset that lenders understand and can take security over. For businesses that need to preserve borrowing capacity for working capital or property, a solar operating lease or PPA achieves the same energy benefit without consuming balance sheet capacity.
My Recommendation
If you are running a profitable South African business with meaningful electricity consumption, solar should be on your capital allocation agenda for 2026. The Section 12B window — 125% first-year deduction — represents an extraordinary incentive that may not exist indefinitely. Financing rates are elevated right now but the electricity saving still outperforms the cost of debt for most businesses. And every month you delay is another month of paying full Eskom tariff for electricity your solar system could be producing for effectively free.
Talk to your accountant about the tax position first. Then get a professional solar assessment. Then build the financial model. In most cases I see, the case is very strong.
This article is for general information only. It does not constitute financial or tax advice. Always consult qualified professional advisers before making financial decisions.
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