Stop comparing an Eskom tariff in isolation

Most solar decisions start with the wrong question.

“What’s the price per kWh?”

But solar, whether owned outright or structured as a Power Purchase Agreement (PPA,  is not a tariff decision.

It’s a capital allocation decision.

And capital allocation decisions are not made on price alone. They’re made on value creation.

The Three Metrics That Matter

When finance teams evaluate projects, three metrics usually enter the discussion:

• Payback
• IRR
• NPV

They are not interchangeable. They answer different questions.

Payback: The Comfort Metric

Payback measures how quickly capital is recovered. It feels simple. But it ignores:

• Time value of money
• Cash flows after payback
• Cost of capital
• Alternative uses of capital

Payback measures liquidity. It does not measure value.

IRR: The Percentage Everyone Likes

IRR shows percentage return.

If it exceeds your Weighted Average Cost of Capital (WACC), value is created. But that is only the first hurdle. Because the real comparison is not:

Solar IRR vs WACC.

It is:

Solar IRR vs Opportunity Cost.

NPV: The Value Creation Metric

NPV discounts future cash flows using your WACC.

It answers:

“How much value does this project create above our cost of capital?”

Positive NPV creates value. Negative NPV destroys it.

But even a positive NPV should not end the discussion.

The Real Benchmark: Opportunity Cost

Capital deployed into solar cannot be deployed elsewhere.

Expansion.
New equipment.
Core operational growth.

That is the benchmark solar competes against.

If ownership returns exceed internal opportunity cost → ownership may be optimal.

If not → capital may be better preserved.

That’s where a PPA becomes commercially powerful. If it delivers savings without consuming capital, it improves capital efficiency – even when ownership shows attractive standalone returns.

Tariff is a number. Capital efficiency is the strategy.

Solar procurement is not an engineering discussion. It is a capital allocation discussion.

If you’re evaluating ownership versus PPA structures, this is the lens that matters.

We’ve documented this framework in a short CFO overview. Happy to share it with anyone working through the decision.