Could Investing in Solar be the Best Tax-Free Investment?

Andrew Smith certainly thinks so, but he would. He is the founder of a South African solar company NVmyPower. But listen to what he says to a class and then judge for yourself.

“Some people say buy a Ferrari,” Smith says. “Some people buy exclusive whiskey or a collectors item. This (solar) way, you’re not only saving the planet by going off the grid but you’re increasing your investment.”

In this video, Andrew Smith raises some points about installing solar

“The client always asks, ‘Is it a good investment? How long does it take to get my money back?'”

Smith, in this brief video, “thrashes out” investing R200,000 in a solar system versus in an investment portfolio.

One of the class members says a 10 percent return on an investment would be good, others say lower, so Smith works on an 8 percent return. The first-year return would be R16,000, and over five years compounded it would add up to R272,097. But, as Smith adds, that’s before tax.

In a solar solution, R200,000 would buy you R2,000-R2,500 off of your current electricity bill. Even though the goal with solar is to go off the grid, he says, that investment is an investment in your property, so you can add that onto any future sale of your property.

Next, he deals with electricity hikes by Eskom. He says that electricity prices went up by 12.5 percent in March and again in July, so he works on a 15 percent annual hike in prices. Working on the R2,000 figure from earlier, a 15 percent escalation per year would, over five years, go up to R4,022. For someone who put in solar, he says, that would be R48,000 a year – tax-free – in your pocket. Add to that the R2,000 a month saved over the previous four years.

Someone in the audience brings up the cost of a replacement battery. Smith says a battery lasts about four to five years, and would cost about R40,000.

“One year you buy a battery, then you have free electricity for the next four years,” he says, adding that his company’s solar panels are warrantied for 30 years.

One solar expert who watched the video said that although Smith sounds like an oil-snake salesman, the figures do actually add up. So now it’s up to you to do the arithmetic. Solar or no?