While the renewable energy industry is optimistic that the solar tax incentives announced in Finance Minister Enoch Godongwana’s Budget speech would stimulate the industry, there were concerns that photovoltaic equipment was targeted at the high-income sector of the population and not catering lower down.
From March 1, 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables.
There would be no thresholds on the size of the projects that qualify, and the incentive would be available for two years to stimulate investment in the short term.
“As announced by the president, we will also introduce a new tax incentive for individuals to install rooftop solar panels to reduce pressure on the grid and help ease load shedding,” he said.
Individuals who installed rooftop solar panels from March 1 would be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000.
This could be used to reduce their tax liability in the 2023/24 tax year. This incentive would be available for one year.
Changes to the Bounce Back Loan Guarantee Scheme were also proposed to incentivise renewable energy, rooftop solar, and address energy-related constraints experienced by small and medium enterprises.
The government would guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
The Treasury would launch the Energy Bounce Back Scheme in April 2023.
In response to the Budget, some industry players said the emphasis on sustainable energy and the potential for green energy was reason for hope to start turning the energy crisis around.
The allowance for homeowners for up to 25% of the value of the solar kit up to a maximum of R15 000 means that a homeowner can invest up to R60 000 in a solar kit to get the maximum tax benefit of R15 000.
Lulalend chief risk officer Garth Rossiter said, “Again the government has raised the Loan Guarantee scheme as a mechanism to incentivise renewable energy, rooftop solar, and address energy-related constraints for SMEs. The success of this, as we have said continually over the past few years, will be determined by the distribution of these funds. This has been ineffective over the past few years - the government needs to look at smarter options to ensure this funding reaches businesses faster than traditional methods.”
The South African Wind Energy Association (Sawea) said the incentive opportunity presented for renewable energy companies was not significant enough for the industry to accelerate development at the rate that it required.
“The government has not provided anymore support, guidance, or insight into the growth of the market for the industry to accelerate quickly enough to tackle the energy challenges we are facing – at the rate and pace that we require,” said Sawea CEO Niveshen Govender.
Bernard Mofokeng, the head of tax at CMS, a corporate law firm, said the expansion of the renewable energy tax incentive to businesses to claim 125% deduction in the first year on all their renewable energy spend with no limitation on generation capacity was welcomed.
“It would have been better if business could have received a rebate on their spend as it would have assisted them immediately in addressing their cash flow needs. For households, the rooftop solar incentives will go some way in assisting them to install solar panel to cover their energy needs though the relief will again not be immediate,” he said.
He said though for those households who did not want to be heavily reliant on Eskom, the maximum R15 000 per individuals would not be enough unless the cost could be somehow spread among the household members.
Jeff Miller, the founder of the Twelve B Green Energy Fund, which allows green energy investors to qualify for SA Revenue Service-approved tax deductions, said the incentive would encourage businesses to definitely look to invest in solar, which will assist with the energy crisis in South Africa.
“The minister is to be congratulated on his foresight to increase the Section 12B tax allowance from 100% to 125%, this move will give our investors an increased return from 14% to 18%, which is an unbelievable return for a moderate risk investment,” Miller said
The Southern African Alternative Energy Association (Saaea), which represents and actively promotes Renewable Alternative Energy Solutions said the incentives would bring more renewables to the industry, though there were concerns that Eskom was over-protected when more could have been done for the renewables sector.
Greenpeace said the incentive was an essential element of the Just Transition, which must also be accompanied by a feed-in tariff.
“The government must, however, invest in tackling the heart of the problem, which is the continued reliance on fossil fuels for our electricity needs. The Just Transition must be handled with utmost transparency,” said Chris Vlavianos, Greenpeace Africa Communications Officer.
Momentum Investments said the licensing threshold raised for embedded generation and pipeline has grown to more than 100 projects (9 000MW), aiming to establish the Energy Security Bill and relieved regulatory impediments for independent power producers.
It said this amounted to R4 billion in tax incentives for household rooftop solar (for one year) and a R5 billion extension of renewable energy tax incentives for businesses for two years.