Decoding the Commercial Solar Deal: How to Leverage PPAs, Tax Deductions, and ESCO Models to Optimise Working Capital

For large South African enterprises, installing solar is no longer simply an operational response to load shedding; it has become a strategic financial decision. The true value of a commercial solar system lies not only in the kilowatt-hours it produces, but in how its acquisition is structured. Forward-thinking CFOs and Financial Directors increasingly recognise solar as a mechanism for optimising working capital, strengthening liquidity, and mitigating long-term energy exposure.

The central consideration for any organisation is whether to pursue an on-balance-sheet asset purchase (CAPEX) or an off-balance-sheet operational structure (OPEX). The most advantageous route depends on the organisation’s capital availability, tax strategy, and long-term financial objectives.

Maximising Tax Benefit Through Section 12B (CAPEX)

For organisations with adequate available capital, a direct asset purchase provides full system ownership and control. More importantly, it enables access to the significant tax incentive under Section 12B of the South African Income Tax Act.

This allowance currently permits businesses to deduct 100% of the cost of renewable energy assets in the first year the system is brought into use. This accelerated depreciation mechanism has become one of the strongest financial levers in the commercial solar market, allowing companies to materially reduce taxable income in the year of commissioning.

By deducting the full capital cost upfront, businesses substantially reduce their effective cost of capital, enhancing operational efficiency while shortening the investment’s payback period. For companies prioritising long-term ownership and tax optimisation, a CAPEX structure remains a powerful financially rewarding option.

Optimising Liquidity Through OPEX Structures (PPA)

Many enterprises, however, must preserve capital for core operations, making multimillion-Rand solar investments impractical. In these cases, the Power Purchase Agreement (PPA) offers a strategic alternative.

A PPA is a long-term agreement in which the client purchases electricity generated by the system at a predetermined tariff, typically lower than the prevailing Eskom or municipal rate. The key advantage is zero upfront investment. Installation, maintenance, insurance, and system performance monitoring all fall under the responsibility of the solar provider or financier.

This off-balance-sheet structure protects liquidity, helps stabilise long-term energy expenditure, and shields businesses from tariff volatility by converting an unpredictable utility cost into a more predictable operating expense.

Determining the Optimal Strategy

Choosing between leveraging Section 12B through CAPEX or prioritising liquidity through a PPA requires specialist financial evaluation. Both structures offer significant Commercial Solar Finance advantages, but the right choice depends on how the investment aligns with your organisation’s balance sheet strategy.

By partnering with Bidvest Renewable Solutions, businesses gain access to bankable finance models, expert advisory, and a structured comparison of CAPEX and PPA scenarios. With the correct mechanism, solar becomes a strategic tool for working capital optimisation, enhancing operational resilience and securing long-term ROI.

We believe in transparency and flexibility. Our financial models are designed to meet your specific requirements, making the transition to solar clear and manageable. Read more about Bidvest Renewable Solutions finance models and request a consultation from our dedicated team.

Sources

• Section 12B Tax Incentive: National Treasury – Explanatory Memorandum on the Taxation Laws Amendment Bill (2023). https://www.treasury.gov.za/tax/legislation
• PPA and ESCO Models: Industry-standard commercial solar finance documentation within the South African C&I energy sector.