Bank warns against 20-year bonds to finance solar power
Standard Bank says the average cost of installing a solar power system in one’s home is about R170,000, highlighting the effect that Eskom’s inability to provide a stable electricity supply is having on the pockets of consumers.
The figure is based on the spending patterns of at least 250 consumers who used Standard Bank’s LookSee platform to buy solar power systems.
However, the bank says that the actual number of customers opting for solar installations to cope with continuing power cuts is probably far higher as not all of them use the online homeowner’s tool, which it launched in August 2021.
The bank’s analysis of expenditure patterns shows that about 80% of the cost of a solar installation is typically funded by customers extending their home loans, and the balance is financed either by unsecured loans or savings.
But the bank warns that extending one’s mortgage to fund a solar power system is not an optimal use of credit, given the interest incurred over the decades-long mortgage repayment period.
“That R170,000 is generally on a property that’s worth between R1.3m and R1.5m so most people don’t find it cheap,” Steven Barker, head of product at Standard Bank’s consumer and high net worth banking unit, said in an interview.
“I would suspect that 250 number is the tip of the iceberg,” he said. “A lot of clients have probably just financed it or sourced their systems independently of the platform.”
Eskom has been forced to cut electricity supplies for up to 12 hours a day to avert the total collapse of SA’s ..... as a result of frequent breakdowns and continuing maintenance work being done at its dilapidated fleet of coal-fired power stations.
With consumers already reeling from 425 basis points (bps) in cumulative interest-rate hikes since November 2021, which has sent borrowing costs to 14-year highs, many are struggling to cope with the additional burden of alternative methods of providing power for their homes.
“People are battling with utility bills and then also outlaying more on capital expenditure for solar installations,” said Barker. “A lot of it comes down to the cost of putting in battery storage for a reasonably sized system.”
The high cost of solar power installations is the main reason for the majority of consumers opting to extend their mortgages, says Barker.
But Barker warns that this not a financially prudent approach. Instead, he says, cus
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tomers should consider financing such installations over eight years, which is more in line with the typical lifespans of solar power solutions.
“You don’t want to finance it out of a 20-year home loan when the warranties of the system are around eight or 10 years,” he said.
Standard Bank started offering solar installations with associated funding options through its LookSee platform in early 2022, just as SA entered its worst year of load-shedding. It also offers other solutions, via the LookSee marketplace, such as portable battery packs, generators and back-up lighting.
“For smaller housing units, you’re probably not going to go all the way by installing solar,” said Barker. “You’d probably go for a back-up [power] solution.” The LookSee platform also launched a solar score in 2023, which enables consumers to enter their addresses to determine their home’s suitability for solar power.
A home’s solar score is based on its usable roof area, the number of days of sunlight it receives in a year, the angle of roof slope and the cardinal direction of the building.
“Not everyone gets equal sunshine,” said Barker. “There are many different factors to consider: the direction your roof faces, the degree of tree cover.
“It’s also quite important for people to take on behaviour change to help them reduce their dependency on solar and by extension the cost.”