Tax sun shines dimly on solar overview
The expected tax incentives for solar installations are in the budget, but they might not be as generous as some had hoped
The National Treasury has finally moved to incentivise a renewable power shift, with two tax measures aimed at encouraging businesses and households to invest in solar panels and take some of the strain off Eskom.
Finance minister Enoch Godongwana described the incentives as a form of “demand management”, designed to assist the ailing power utility.
But he added that Eskom would need to improve the performance of its coal-fired power plants and work with law enforcement to quash systemic vandalism and
budget 2023
corruption, while the department of mineral resources & energy would need to procure additional generation capacity to close the supply gap.
So, how will it work?
From March 1, businesses will be able to reduce their taxable income by 125% of an investment in renewable energy. This expands an existing incentive programme that offered 100% rebates.
There will be no limit on the size of the projects that qualify under the two-year scheme, which is expected to cost R5bn, according to the Treasury.
Practically, the rebate means that a company investing R1m in renewable energy would qualify for a tax deduction of R1.25m.
And individuals who install rooftop solar panels from March 1 will be able to claim a tax rebate of 25% of the cost of the panels, up to a maximum of R15,000. This one-year incentive for which the Treasury has allocated R4bn can be used to reduce tax liabilities in the 2023/2024 tax year only.
Johann Els, chief economist at Old Mutual Investment Group, says the tax incentive for individuals “is probably not enough” and would mainly assist wealthy households. But considering the pressure on government finances and the trade-offs required, it is still reasonable, he says.
Jeff Miller, founder of the Twelve B Green Energy Fund, which invests in residential and commercial solar projects, says the expanded scheme for businesses would boost returns for investors from 14% to 18%. That is “an unbelievable return for a moderate risk investment”, he argues.
Businesses, meanwhile, “will definitely look to invest in solar, which will assist with the energy crisis”, Miller says. “These incentives bode well for South Africa.”
In addition to the tax measures, the Treasury will expand its bounce-back loan guarantee scheme to help SMEs access funding for solar installations.
Under this programme, which will be launched in April, the state will guarantee the solar-related loans that banks make to SMEs on a 20% first-loss basis.
Meanwhile, to limit the effect of power cuts on food prices, a refund on diesel fuel levies will be extended to food manufacturers for two years from April 1.
For the time being, businesses that rely on generators to keep operating through load-shedding must pay levies of R6.12/l for diesel. In other words, 37% of the price of every litre of diesel consumed goes into state coffers.
South Africa’s largest food company, Tiger Brands, said on Tuesday it spent R27m on running backup generators in the four months to end-January. That “has not yet been recovered in price”, it said.
According to the group’s contingency plans for higher stages of load-shedding, it will need to invest R120m in additional generating capacity.
Tiger Brands is also introducing solar power at four of its manufacturing facilities via power purchase agreements.
Since the government lifted the licensing threshold for self-generation plants, the pipeline has grown to more than 100 projects totalling 9,000MW.