How to Finance Solar in South Africa: Every Option Available to Businesses in 2026
The most common reason South African businesses delay going solar is not technical complexity or scepticism about the technology — it is the upfront capital cost. A commercial solar system for a medium-sized business typically costs R500,000–R2 million, and many business owners cannot or prefer not to deploy that amount of capital in a single lump sum.
The good news is that there are multiple financing structures available that make solar accessible without a large upfront cash outlay. In several of these models, the monthly finance payment is lower than the electricity saving from day one — meaning going solar is immediately cash-flow positive. This guide covers every financing option available, with honest assessments of the pros and cons of each.
Important: This guide provides general information only. Tax laws change and individual financial circumstances vary. Always consult your accountant and a qualified financial adviser before making financing decisions.
The Section 12B Tax Incentive: The Most Powerful Tool Available
Before discussing financing structures, it is essential to understand the Section 12B tax deduction, because it profoundly changes the financial mathematics of solar for any profit-making business in South Africa.
What Is Section 12B?
Section 12B of the Income Tax Act provides a capital allowance on assets used in the generation of electricity from renewable energy sources, including solar photovoltaic systems. The allowance was significantly enhanced in 2023 and currently stands at:
- 125% of the cost of the installation, claimable in the year the asset is brought into use
- Applies to systems with a generation capacity of 1 MW or less (which covers almost all commercial rooftop installations)
- The system must be used for purposes of trade
- Both owned assets and financed assets qualify (subject to specific conditions — consult your tax adviser)
What Does This Mean in Practice?
Consider a business that installs a R1,500,000 solar system (panels, inverters, batteries, and installation costs combined). Under Section 12B, they can deduct R1,875,000 (125% of R1,500,000) from their taxable income in year one.
If this business has a taxable income of R5,000,000 and pays corporate tax at 27%, the deduction reduces taxable income to R3,125,000, generating a tax saving of R506,250. In effect, the government subsidises approximately 34% of the solar installation cost through the tax benefit.
For businesses in higher effective tax brackets or with significant taxable income, this is a transformational incentive. It means the effective payback period on a solar investment is dramatically shorter than a simple electricity-saving calculation suggests.
Option 1: Cash Purchase
Paying cash for your solar installation is straightforward and maximises your long-term financial return. You own the asset outright, face no financing costs, and receive the full benefit of the electricity savings and Section 12B deduction from day one.
When Cash Purchase Makes Sense
- You have available capital and alternatives earn less than solar's effective ROI (typically 20–35%)
- Your credit profile makes financing expensive
- You want maximum simplicity and no ongoing financial obligations
- You are purchasing the solar system as part of a broader property improvement
The Opportunity Cost
The main consideration against cash purchase is opportunity cost: is solar the highest-return use of your capital? In most cases, a South African business earning 20–35% annual return on a solar investment will struggle to find a better risk-adjusted alternative. But businesses with high-return growth opportunities may find that financed solar makes more sense than tying up capital.
Option 2: Asset Finance (Hire Purchase / Instalment Sale)
Asset finance is the most common way South African businesses acquire capital equipment. Under a hire purchase or instalment sale agreement, a finance company purchases the solar system on your behalf and you pay monthly instalments over a fixed term (typically 24–72 months). At the end of the term, ownership transfers to you.
Key Features
- Typically requires a 10–30% deposit (varies by lender and credit assessment)
- Fixed monthly repayments provide budget certainty
- Interest is deductible as a business expense
- Section 12B allowance may be available depending on the structure — consult your tax adviser
- The asset appears on your balance sheet
- Repayment terms of 3–7 years are common for commercial solar
Current Market Rates (2026 Indicative)
Solar asset finance from South African banks currently prices at prime plus 2–5% for well-qualified businesses. At a prime rate of 11.25% (as of early 2026), effective rates range from approximately 13–16%. Some specialist green finance lenders offer more competitive rates for solar-specific lending. The IDC and Eskom Development Finance offer concessional rates for qualifying larger projects.
Cash Flow Impact
The key question for asset finance is whether your monthly electricity saving exceeds your monthly finance payment. For a well-designed, appropriately sized system financed at market rates, this is often — but not always — the case from month one. Run the numbers carefully before committing.
Option 3: Operating Lease (Solar Rental)
Under an operating lease, you rent the solar system from a finance company for a fixed monthly fee. The finance company owns the asset throughout the lease term. At the end of the lease, you may have options to renew, return the equipment, or purchase it at market value.
Advantages
- Typically zero or minimal deposit required
- The system does not appear on your balance sheet (relevant for businesses with balance sheet leverage constraints)
- Lease payments are fully deductible as an operating expense
- Some operating leases include maintenance and insurance, simplifying the ownership experience
Disadvantages
- You don't own the asset, so you don't benefit from the Section 12B allowance (the lessor claims it)
- Total cost over the lease term is typically higher than an outright purchase or hire purchase
- End-of-lease terms need careful attention — residual values can be significant
Option 4: Power Purchase Agreement (PPA)
A Power Purchase Agreement is the most innovative solar financing structure in the South African market and the only option that requires absolutely no upfront capital and no balance sheet commitment. Under a PPA:
- A solar developer installs a system on your premises at their cost
- The developer owns and maintains the system throughout the agreement term (typically 10–20 years)
- You buy the electricity generated by the system at a fixed rate, typically 10–30% below your current grid tariff
- You save money from day one without any capital outlay
- At the end of the agreement, you typically have the option to buy the system at residual value, extend the agreement, or have it removed
Who PPAs Are Best For
- Businesses with good credit but constrained capital budgets
- Businesses that want zero upfront cost and immediate savings
- Businesses that prefer to outsource solar maintenance and management
- Businesses with long-term tenure at their current premises (PPAs require lease security)
PPA Considerations
PPAs are more complex legal arrangements than straightforward equipment purchases. Key terms to scrutinise include: the tariff escalation rate (many PPAs include annual escalation of 5–8% — less than Eskom's historical increases, but worth understanding), minimum consumption commitments, termination clauses, and the buyout formula at the end of the term. Have a lawyer review the PPA before signing.
Option 5: Green Bonds and Sustainability Loans
Several South African financial institutions have issued green bonds or established sustainability loan facilities specifically for renewable energy projects. These may offer:
- Preferential interest rates (below standard asset finance rates)
- Longer repayment terms
- More flexible security requirements
- Alignment with ESG reporting requirements that some businesses need to satisfy
Institutions with green finance facilities for businesses include Nedbank (Green Savings Bond programme), Standard Bank (sustainability-linked loans), Development Bank of Southern Africa (DBSA), and the Industrial Development Corporation (IDC).
Which Financing Option Is Right for Your Business?
The right choice depends on several factors unique to your situation:
- Do you have available capital? — Cash purchase maximises long-term return. If capital is tied up in higher-return activities, finance instead.
- Is your taxable income significant? — The bigger the tax benefit from Section 12B, the stronger the case for outright purchase or hire purchase (where you own the asset).
- Do you value simplicity? — A PPA is the simplest structure from an operational perspective, but the most complex legal document.
- Is balance sheet management a priority? — Operating leases keep the asset off your balance sheet.
- What is your credit profile? — Better credit means better rates on all financed options.
Whichever structure you choose, ensure you model the full 10-year cash flow impact — including electricity savings, finance costs, maintenance allowances, and tax effects — before making a decision. A reputable solar company or your financial adviser can assist with this modelling.
Next Steps
Start with a professional assessment of your energy consumption and site. This will give you the system size and cost, which you can then model against different financing structures. Read our guide on calculating your solar ROI for the methodology, and explore our solar solutions overview to understand which system type fits your needs.