Huge increases in the STC rebate scheme mean that large-scale commercial solar has never been more lucrative (we wrote about what is changing and why over here). But knowing your payment options, including finance, is vital to making the best solar investment decision for your business.
The question we have been asked ever since is a reasonable one: that is a significant reduction, but how does a business actually fund the balance?
Finance is widely used in the solar industry to bridge the gap and keep our business clients’ cash ready for their other investment priorities.
No finance option is ‘better’ than the others, they all have their pros and cons. The ultimate goal is to determine the best finance structure that suits your particular site(s), business goals and requirements so that you are ‘cash flow positive’ from day one. This way your monthly savings are greater than your repayments and you are immediately ahead. Many of our customers then reinvest this additional cash flow back into their business to fuel further upgrades and expansion.
There are four routes most Victorian businesses take, our expert commercial team can help you navigate these options. Below is how each one works and what you give up in return.
You purchase the system outright. The rebate is deducted from your invoice before you pay it, so there is no waiting on a payment from anyone.
This delivers the strongest return of the four by a reasonable margin. There is no interest, no fees and no third-party involved. You own the asset, the depreciation is yours, and every dollar it removes from the power bill stays in the business.
The trade-off is the obvious one. A 500 kW system is a substantial outlay even after the rebate, and that capital may work harder in stock, equipment or a site expansion. Plenty of businesses that could pay cash choose not to, and that is a considered decision rather than a missed opportunity.
A bank or equipment financier funds the system and you repay it over two to ten years. Commercial solar is commonly written as equipment finance or a chattel mortgage, which treats the system much like a vehicle or a piece of plant. You own it from day one and the lender holds security until it is paid out. Your capital stays in the business and you still end up owning the asset, so the depreciation is yours and the interest is generally deductible. Because the rebate reduces the amount you need to borrow, we can often find a way to make the repayments lower than the savings – so you’re immediately in front with cash freed up.
Two considerations. It is a liability on the balance sheet, which matters if you have other borrowing planned. Also the maintenance responsibility sits with you – however Winki can assist you with cleaning and maintenance of the system for a fee.
The most popular option. A third-party funds the system, installs it on your roof, and retains ownership and full maintenance responsibility. You pay nothing upfront and simply buy the power it generates at an agreed rate, set below what you currently pay the grid. Terms typically run 10 to 20 years, and most agreements include an option to purchase the system at or before the end of the term.
This option appeals to businesses that want the benefit without the capital request or the debt. There is no capital expenditure to justify internally, no borrowing on the balance sheet, and the provider carries the performance risk. If the system underperforms, the provider has a direct commercial interest in restoring it, because they are only paid for what it actually produces.
What if you do not own the building? That is workable. Our PPA finance partners can structure the agreement so that neither the tenant nor the landlord carries the repayment obligation if you vacate and the property sits untenanted. Conditions apply, so it is worth discussing with us.
PPAs vary considerably between providers, so the fine print rewards close reading. Pay particular attention to the rate escalation, any minimum purchase obligation, and the buyout terms.
The financier purchases the system and you pay a fixed monthly fee to use it, usually over three to ten years, with the option to buy it out or upgrade at the end.
The appeal is simplicity. The payment does not move, it is treated as an operating expense, and it is typically fully deductible. Some businesses simply prefer that to carrying another asset.
You are renting, however, so there is no depreciation benefit and the total cost across the life of the system is higher than purchasing it. Lease accounting standards have also tightened in recent years, so whether the arrangement stays off your balance sheet depends on how the agreement is written. That is a question for your accountant rather than an assumption.
Who owns it | Upfront cost | Balance sheet | Who receives the rebates | |
Cash | You | Full cost after rebate | Asset | You |
Loan or chattel mortgage | You | Typically nil | Asset and liability | You |
Operating lease | Financier | Typically nil | Typically off-book | Financier |
PPA | Financier | Nil | Usually treated as a service contract | Financier |
This usually resolves itself once we have looked at three things: your daily energy profile, how suitable your site/rooftop is for solar, and what your capital is doing elsewhere in the business.
If you can borrow at a competitive rate and the system outperforms it, finance tends to win. If you have capital sitting idle, cash wins. If you lease your building we should discuss your plans to stay in the building, lease terms and ways to de-risk the finance.
The first step is to GIVE US A CALL TO DISCUSS
Eligibility will depend on system size and the installation and connection date. Larger commercial projects need time for design, network approval and equipment procurement, so if you want the system operating soon after 1 October, the design work should be underway well beforehand.
That is not a reason to rush into it; it is a reason not to leave the assessment until next winter.
If you have a large roof and you use power through the day, contact us and we will tell you what the numbers say, including if the answer is that now is not the right time for your business.
Winki Energy, 1300 494 654. Free site assessment, no obligation.
Winki Energy is a CEC-accredited solar and battery installer working with businesses across Melbourne and greater Victoria. We design and install commercial solar in-house, from feasibility through to commissioning. This article is general information and does not account for your circumstances, so please speak with your accountant before making a finance decision.
Answers to the most common questions about solar finance, installation, battery systems and long-term energy savings.
Often yes, but the building owner needs to be part of the conversation. The complication is that a solar system operates for 25 years and most commercial leases do not. Depending on the term remaining, the usual paths are the owner funding it and recovering the cost through the rent, a lease extension that provides sufficient runway, or a PPA where a third party owns the asset and you simply buy the power.
Yes, provided you own the system. Loans and chattel mortgages leave the asset in your name, so the discount comes off your invoice as normal. Under a lease or PPA the financier claims it instead.
No. Completing the assessment, design and network approvals beforehand means you are ready to install when the expanded scheme commences, rather than joining a queue behind everyone who’s been waiting.
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