Solar Operating Lease

With long-term life equipment, like solar, an operating lease is the most common finance solution. There are two main reasons for this;

1. It is an ‘income producing’ asset, and
2. The  taxation department ruling stating solar must be depreciated over 20 years.

With a solar operating lease 100% of your clients payments, like the electricity bill, are tax deductible. While we must charge GST on rental payments, this is claimed back by your customer in their quarterly BAS statement making an operating lease the lowest finance cost option in cash terms. With an operating lease, the asset is owned by the finance company and does not appear on your client’s balance sheet giving them more financial leverage to continue to purchase other assets to operate their business. Even with the new IFRS 16 accounting guidelines solar is one of the few assets where an operating lease will remain unaffected offering enormous financial benefits to your client. #

For a detailed discussion on finance types please read the article “Moving Away From the Gold Plated Grid” published in the 14 June 2018 Ecogeneration journal.

Power Purchase Agreement (PPA)

With the availability of robust solar technology larger solar arrays are now able to be installed with production guarantees.

A commercial solar power purchase agreement takes advantage of these guarantees and, using a pure financial arrangement where a commercial organisation agrees to purchase all the power produced by an installed solar system, an agreed price per kilowatt produced is struck. This is typically 45% to 70% below the current grid price.

The reducing supply of available power from the National Energy Market, as a result of the closure of power stations, is seeing an increase in forward prices driving the interest in PPAs and a more certain future price.  This is particularly so in the case of customers who compete against global peers, and where prices for the sale of their products or services are set by reference to a global benchmark. The impact of rising energy input costs goes directly to the bottom line, and many are claiming they will be unable to continue to operate economically at current (and future) grid based electricity prices.

A commercial solar PPA is designed to deliver a service which provides a guarantee of delivery as robust as the grid at a commercially viable and predictable price point.

Chattel Mortgage

In this option, your client purchases the goods and brings the solar asset onto their asset register providing the finance company a mortgage over the Asset. As the amount financed is the whole amount including GST the consequent payments tend to be slightly higher. The main advantage to this style of finance is the big cash ‘GST hit’ in the quarter your client purchases the asset. Your client claims 100% of the GST paid on the purchase price in their next BAS statement receiving a GST refund which typically will cover three or four monthly instalments – or sometimes used to pay down the loan. The main downside to this facility is payments are NOT tax deductible and only depreciation and interest can be claimed as a tax deduction. With interest rates so low and depreciation over 20 years  the opportunity for a tax deduction is limited. The ONLY exception is where a business qualifies for the instant asset write-off up to $30,000.

A Chattel Mortgage is often selected when a purchase is under $30,000 to take advantage of the tax rules regarding small asset purchases. With this tax feature the whole asset may be written off in one year (subject to ATO guidelines). Even taking this into account, however, it is much more effective to use an operating lease, in cash terms, due to the unique nature of solar.