Mr Gee Mykrag is considering installing a solar system at his house. The increase in loadshedding has essentially left him with no choice. He has done some research on what is available, obtained a few quotes and collected relevant data. He calculated his average power consumption over the last year as 884 kWh per month and reckons this will remain stable in the future. The current price of electricity where he lives is R2,8824/kWh. He figures a solar system will half his electricity bill per month. For his house he will require a system comprising of 12 solar panels, 1 inverter, and 3 batteries, costing a total of R204 999 (delivered and installed). This is a serious amount of money and Mr Mykrag would not like to make such a large investment without some financial analysis. He believes the system will have a 20-year lifespan after which it will need to be replaced. If he decides to proceed with the solar system, he will need to borrow the money against his existing home loan which currently carries an interest rate of 10,25%.

1. Analyze this problem from a financial point of view: does it make sense to install the solar system? What are your findings and what conclusion can you present to Mr Mykrag? Note: You will need to make some assumptions, including one for the increase in the price of electricity state them clearly.

2. What average annual increase in the price of electricity is required to make the investment viable?

3. If the lifespan of the solar system is only 10 years instead of 20 years, how will this impact your analysis and findings? Repeat 3.1 and 3.2 with the shorter lifespan.

4. What are the main uncertainties that impact on the financial viability of the solar system? Just mention them you do not need to model or simulate them.