More Than Sun In Your Eyes: Fedgroup's Impact Farming Solar Offering There are many ways to monetise property investments, but Fedgroup's Impact Farming solar offering combines monetising rooftop space with all the social and tax benefits of green energy. Suraj Lallchand unpacks the benefits for business owners and landlords.

Vital Stats

• Contact Suraj: +27 (0)11 305 2300
• Email: surajl@fedgroup.co.za
• Visit: www.fedgroup.co.za

As a business owner and landlord, have you considered all the ways that you can leverage the fact that you own the building you operate from?

"Landlords of commercial and industrial buildings often don't think about their rooftops, but they're also real estate that can be used to bring additional revenue into the business," explains Suraj Lallchand, Director of Fedgroup Ventures.

"Through our Impact Farming platform, we build grid-tied solar plants that allow property owners to monetise their rooftops."

In order to qualify for a solar plant, the business should use more than 15 000 kWh per month. "As a rule of thumb, this means your electricity bill should be at least R15 000 to R20 000 per month, however we do a full assessment to gauge whether your property is viable for a solar grid." If the property does qualify, there are three options to choose from.

1. Landlord roof rental

"If a landlord has a rooftop available, we can spec it to see how much solar we can put on it. We then lease the rooftop from them and sell the individual panels to investors. The solar energy produced from the rooftop is then either consumed by the property's tenants or by the business itself if the property owner is also the tenant.

"Solar electricity is more cost-effective than Eskom's electricity. It's a grid-tied solution, so businesses generally still use both solar and Eskom. The size of the solar plant, the weather and how much power is consumed during the day versus at night determines how much energy is drawn from solar compared to the city's power grid."

The rental option offers the social perks and carbon credits of running a green business as well as the cost savings of solar versus Eskom's electricity, without the property owner carrying any risk.

"Our investors earn a return between 10% and 12%, you'd make about 15% to 20% as the landlord, and we make a platform fee of 1% to 2%."

2. Lease to Own

"In this case, we will fund the solar plant and the property owner will only pay back as much as they consume every month, at the same rate that they're currently paying Eskom. Within four to six years the system is paid off, and since it lasts 20 to 30 years, the business then benefits from free solar energy for the next 14 to 24 years.

"We created an SPV to finance the solar plant and we amortise the loan until it's down to zero, at which point we hand over ownership to the property owner. This option is essential for property owners who believe that solar is a good option, but want to see that it works before they take on all the risk of the project themselves. They are tied into a contract for four to six years, but they will never spend more than they currently spend on electricity, thus containing their risk."

Because of the Section 12B allowance in the Income Tax Act, which relates to renewable energy tax incentives, even though the property owner doesn't spend the capital outlay to build the solar grid, they still receive 100% of the tax allowance in the year the plant is commissioned. "This is a 100% tax deduction of the cost of the solar plant in that tax year," Suraj explains.

Property owners who choose the rental option do not qualify for the tax exemption, as the investors in the solar panels can claim that tax deduction. But owners who choose the Lease or Build option (below) will receive the full tax benefits.

3. Build

"With the Build option, you finance and therefore own the plant yourself. From the moment it's operational, you benefit from any solar energy produced, at no cost to the company.

"Property owners interested in this option need to determine what their IRR (internal rate of return) is from their investment in solar to see if it makes sense for them. For example, if you can borrow at prime (10%), but your IRR is 20% or 30%, then it's a sound investment. This option is based on the risk the business owner is willing to take on solar, but as is often the case, with higher risk comes a higher return."

The benefits of going solar

• There are tax benefits and carbon credits associated with renewable energy.
• A Fedgroup subsidiary, Emergent Energy, builds the plants, and uses only Tier 1 technology with a 25-year guarantee.
• You earn an income.
• The entire project is measured against triple bottom line — not only financial return, but social return as well.