Local financial services provider FedGroup is looking to disrupt traditional approaches to wealth creation using solar power.
Unlike traditional wealth creation approaches, where money is invested, FedGroup has introduced a direct ownership network model, which involves the ownership of a physical asset (solar panels) to generate income.
The first project was unveiled this week, and it allows members of the public to own one or more solar panels that form part of a larger solar facility, located on the roofs of commercial and industrial buildings.
The panels can be purchased on FedGroup's online platform and are then installed on suitable sites, with the owners receiving a monthly rental income based on the power generated by the panels. FedGroup then collects and pays over the rental income to the panel owners.
The direct ownership network operates on the peer-to-peer model, where the landlords of sites, the providers and installers of the solar panels, and those wishing to own the panels are connected.
Rental income
One solar panel costs R5 200 including VAT. The rental model has been designed in such a way that insurance, administration and maintenance has been taken into account before calculating the monthly rental income, says Grant Field, CEO of FedGroup.
"At FedGroup, we believe that solar will become a significant supplement to the existing energy supply," Grant says. "Following months of research, we chose solar due to its positive environmental impact; the fact that the hardware technology around solar electricity generation has both improved in quality and efficiency and decreased in price; the strain on the incumbent electricity supply; and the quick installation time of solar projects."
He points out that while solar will likely not become the primary source of power generation in SA in the foreseeable future, the move towards renewable energy is profoundly important environmentally.
"South Africa provides a perfect climate for solar generation, as we have exceptional amounts of solar irradiation, far in excess of some of the European projects we have studied, which benefit from far fewer sunlight hours per day as well as lower irradiance levels, and are still profitable. As such, while a supplementary energy source rather than a viable primary source, solar power's importance in South Africa is set to surge, and we are well poised to take full advantage of this trend."
According to Field, the pilot project indicates panel owners can expect to receive an internal rate of return on the purchase price in excess of 11% per annum, over the 20-year lifespan of the project.
"Because it is a green project, they can also apply for tax benefits, to further boost their returns. At the end of the 20-year term, owners can take physical ownership of the panel, or sell it back at a guaranteed residual value of R1 000."
While the buyer owns the asset, FedGroup is tasked with the management, maintenance, insurance and optimisation of the panels.
"Because the rental income is calculated according to the performance of the panels, they would produce more on sunny days than on cloudy ones, but the sunny South African climate and our particularly high irradiance levels add to the profitability of this project," says Field. "The returns are secured through a contract with the building owner to pay a monthly fee, determined by the amount of electricity generated. The money collected from the building owner every month is then distributed to the owners."
Liquidity provision
Owners are able to track the performance of their panels online at any time. Because the panels are physically owned, FedGroup says it will soon introduce a convenient secondary market to provide liquidity for anyone wishing to sell their solar asset.
In addition to solar panels, FedGroup is in the process of bringing other direct ownership opportunities to market.
"Each project is chosen on merit," says Field. "We chose solar generation as our first project because we recognised the trend towards environmental sustainability in consumers' purchasing behaviour. In addition, consumers understand solar power generation, making it a suitable product for the introduction of the concept of direct ownership.
"The beauty of the direct ownership model is that it can be applied to an almost limitless array of underlying assets, and we have a number of very exciting projects in the pipeline," says Field. "While the asset being sold will differ, the model of direct ownership for wealth creation will remain consistent."
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