There are a few financing options that can be arranged for commercial solar PV. The exact type of finance structure available would be dependent on the system size, client/timeline needs, client characteristics, capacity, capital and other factors. Below is an overview of what a client can expect in terms of available options.
Cash purchase: Purchase the system outright and save from day one. We cover installation, roof and system warranty, O&M (for an annual fee) and energy monitoring. Any tax benefits are yours.
| Cash Purchase | Loan | Lease | PPA | |
|---|---|---|---|---|
| Contract Term | N/A | 4-10 Years | 4-10 years | 12-20 years |
| Down Payment | Paid in full | 30% upfront | $0 upfront, but option to pre-pay part of lease | $0 upfront |
| Tax Benefits (see page 6 for more detail) | Depreciation | Depreciation and interest payments on loan | Depreciation and interest portions if finance lease, otherwise operating lease payments | PPA payments are tax deductible |
| Interest Rate | N/A | 6-9% on USD, 12-13.5% on Kshs | Implied interest rate usually 6-9% on USD, 12-13.5% on Kshs | N/A |
| Payment Terms | N/A | Fixed, Principal and Interest on reducing balance | Fixed, may have an annual escalator | Pay only for power produced |
| Monitoring Software | ✔ | ✔ | ✔ | ✔ |
| Roof and System Warrantee during installation | ✔ | ✔ | ✔ | ✔ |
| Maintenance | O&M contract between client and Illumina Africa | O&M contract between Client and Illumina Africa | Covered: O&M contract between Lessor and Illumina Africa | Covered: O&M contract between PPA operator and Illumina Africa |
| System Ownership | YOU | YOU | YOU for finance lease, LESSOR for operating lease (may have bargain purchase option at end of operating lease) | PPA operator |
Loan: Tap into the available clean energy funding in Kenya to get a longer tenor and lower interest rate. This is viable if you have capacity on the balance sheet to take on more debt, and repayment ability. Collateral is subject to negotiations with our financing partners. We cover installation, roof and system warranty, O&M (for an annual fee) and energy monitoring. Any tax benefits are yours.
| Cash Purchase | Loan | Lease | PPA | |
|---|---|---|---|---|
| Contract Term | N/A | 4-10 Years | 4-10 years | 12-20 years |
| Down Payment | Paid in full | 30% upfront | $0 upfront, but option to pre-pay part of lease | $0 upfront |
| Tax Benefits (see page 6 for more detail) | Depreciation | Depreciation and interest payments on loan | Depreciation and interest portions if finance lease, otherwise operating lease payments | PPA payments are tax deductible |
| Interest Rate | N/A | 6-9% on USD, 12-13.5% on Kshs | Implied interest rate usually 6-9% on USD, 12-13.5% on Kshs | N/A |
| Payment Terms | N/A | Fixed, Principal and Interest on reducing balance | Fixed, may have an annual escalator | Pay only for power produced |
| Monitoring Software | ✔ | ✔ | ✔ | ✔ |
| Roof and System Warrantee during installation | ✔ | ✔ | ✔ | ✔ |
| Maintenance | O&M contract between client and Illumina Africa | O&M contract between Client and Illumina Africa | Covered: O&M contract between Lessor and Illumina Africa | Covered: O&M contract between PPA operator and Illumina Africa |
| System Ownership | YOU | YOU | YOU for finance lease, LESSOR for operating lease (may have bargain purchase option at end of operating lease) | PPA operator |
Lease: Get a fixed monthly rental payment in the case of an operating lease (entire annual payment is tax deductible). We have asset leasing partners and work with them to finance the leases using the same cheap, long tenor funding for clean energy in Kenya. This enables us to create an off balance sheet solution, where you can eventually own the system through formation of a special purpose vehicle (SPV). You save from day one as the savings are more than the lease payments. We cover installation, roof and system warranty, O&M (for an annual fee) and energy monitoring.
| Cash Purchase | Loan | Lease | PPA | |
|---|---|---|---|---|
| Contract Term | N/A | 4-10 Years | 4-10 years | 12-20 years |
| Down Payment | Paid in full | 30% upfront | $0 upfront, but option to pre-pay part of lease | $0 upfront |
| Tax Benefits (see page 6 for more detail) | Depreciation | Depreciation and interest payments on loan | Depreciation and interest portions if finance lease, otherwise operating lease payments | PPA payments are tax deductible |
| Interest Rate | N/A | 6-9% on USD, 12-13.5% on Kshs | Implied interest rate usually 6-9% on USD, 12-13.5% on Kshs | N/A |
| Payment Terms | N/A | Fixed, Principal and Interest on reducing balance | Fixed, may have an annual escalator | Pay only for power produced |
| Monitoring Software | ✔ | ✔ | ✔ | ✔ |
| Roof and System Warrantee during installation | ✔ | ✔ | ✔ | ✔ |
| Maintenance | O&M contract between client and Illumina Africa | O&M contract between Client and Illumina Africa | Covered: O&M contract between Lessor and Illumina Africa | Covered: O&M contract between PPA operator and Illumina Africa |
| System Ownership | YOU | YOU | YOU for finance lease, LESSOR for operating lease (may have bargain purchase option at end of operating lease) | PPA operator |
PPA: For projects above 200kWp, we are able to offer a PPA structure to help generate OPEX reductions immediately. This enables you to offset project execution risk because you can pay only for power produced. Equipment, Financing, Installation, O&M and insurance are all covered under the PPA. We can work to structure a PPA that offsets FX risk, and also protects the customer incase utility rates fall.
| Cash Purchase | Loan | Lease | PPA | |
|---|---|---|---|---|
| Contract Term | N/A | 4-10 Years | 4-10 years | 12-20 years |
| Down Payment | Paid in full | 30% upfront | $0 upfront, but option to pre-pay part of lease | $0 upfront |
| Tax Benefits (see page 6 for more detail) | Depreciation | Depreciation and interest payments on loan | Depreciation and interest portions if finance lease, otherwise operating lease payments | PPA payments are tax deductible |
| Interest Rate | N/A | 6-9% on USD, 12-13.5% on Kshs | Implied interest rate usually 6-9% on USD, 12-13.5% on Kshs | N/A |
| Payment Terms | N/A | Fixed, Principal and Interest on reducing balance | Fixed, may have an annual escalator | Pay only for power produced |
| Monitoring Software | ✔ | ✔ | ✔ | ✔ |
| Roof and System Warrantee during installation | ✔ | ✔ | ✔ | ✔ |
| Maintenance | O&M contract between client and Illumina Africa | O&M contract between Client and Illumina Africa | Covered: O&M contract between Lessor and Illumina Africa | Covered: O&M contract between PPA operator and Illumina Africa |
| System Ownership | YOU | YOU | YOU for finance lease, LESSOR for operating lease (may have bargain purchase option at end of operating lease) | PPA operator |
How does my choice of financing impact my financial statements and performance metrics?
| Effect of Operating Lease | Effect of Capitalized Lease or Debt | |
|---|---|---|
| Assets | Lower | Higher |
| Liabilities | Lower | Higher |
| Net Income (in the earlier years) | Higher | Lower |
| Net income (later years) | Lower | Higher |
| Total net income | Same | Same |
| EBIT (operating income) | Lower | Higher |
| Cash flow from operations | Lower | Higher |
| Cash flow from financing | Higher | Lower |
| Total cash-flow | Same | Same |
Key implications of operating leases vs. finance leases on financial ratios
| Ratio | Effect of Operating Lease | Effect of Capitalized Lease |
|---|---|---|
| Return on Capital |
|
|
| Return on Equity |
|
|
| Interest Coverage |
|
lower |
| Debt Ratio |
|
|
To gain a more detailed understanding of finance options and their implications, please download our Solar PV Finance Literature