This week’s budget speech is likely to deliver new incentives for the installation of solar power in homes and businesses, and further fuel the boom in an industry that has seen thousands of homeowners install rooftop panels.
Yet some say tax incentives for households will be hard to implement and the focus should instead be on lowering import duties on solar panels, batteries and inverters to cut the cost for consumers.
During a recent webinar, South African Revenue Service commissioner Edward Kieswetter offered the first signal that a tax break was on the way. Referring to tax allowances for renewable energy, he said: “I have already engaged my colleagues to say we should be reviewing what additional provisions we can make to provide some relief and some incentive for people to become more self-sufficient.”
And President Cyril Ramaphosa seemingly sealed the deal when he said in his February 9 state of the nation address that “with a view to addressing the load-shedding crisis, we are going to proceed with the rollout of rooftop solar panels. In his budget speech, the minister of finance [Enoch Godongwana] will outline how households will be assisted and how businesses will be able to benefit from a tax incentive.”
The National Treasury is also “working on adjustments to the bounce-back loan scheme to help small businesses invest in solar equipment, and to allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to their customers”, he said.
Since the advent of daily load-shedding in October last year, South Africa has seen an acceleration of solar-power installations at homes and businesses.
According to the World Economic Forum, South Africa imported solar panels worth $135m (about R2.5bn) in the first five months of 2022, enough to boost the country’s existing solar capacity by 40%.
It is likely this level of imports has been exceeded in the past three months, according to some observers.
“There has been a remarkable surge in demand for subscription solar solutions in recent months, particularly in December and January,” said Andrew Middleton, CEO of solar subscription company Gosolr.
“Though the exact size of the market is difficult to determine due to limited data, our estimates indicate that around 10,000-12,000 households installed solar last year, with subscription or ‘rent-to-own’ options accounting for about 30%-40% of that. This proportion is expected to increase as more customers become aware of the benefits of subscription solar.”
The rental option is one of several new business models that have emerged around solar installations. It is particularly appealing because there is no upfront cost — usually the biggest barrier to a home going solar, since it can cost well over R200,000 for an average house. The rental company also takes charge of repairs, maintenance and upgrades when technology advances.
“In the next five years, it is anticipated the energy-storage sector, particularly batteries, will undergo the most significant technological transformation, becoming larger and more affordable,” said Middleton.
Other solar rental companies, such as Metrowatt, offer outright purchase, rental and rent-to-own options, allowing customers to match their investment to their budget.
Installation set-up varies by company, but the rental options from Gosolr, starting at R1,740 a month, and Metrowatt, starting at R2,095, are typical and allow configuration according to specific needs of a home.
A key benefit, say both companies, is that the savings in electricity costs will eventually exceed the monthly rental cost. This prospect alone, after Eskom announced an 18% tariff increase, is resulting in unprecedented demand. The waiting period for most rental installations is now six-eight weeks.
Reducing tariffs on imported solar components would make the components more affordable for the homeowner.
— Jeff Miller, CEO, Grovest
“The demand for a rental or solar-as-a-service model has skyrocketed over the last 18 months,” said Metrowatt CEO Laurent Pieton.
“Customers have accepted that the supply of electricity is not going to recover in the short term or at all. They now find themselves being forced to make a decision on robust alternative solutions.
“Short-term solutions such as inverters and batteries are no longer viable and generators have become uneconomical to use for extended periods due to rising fuel costs and increased maintenance [needs].
“Solar rentals ensure customers avoid the high initial cost of a solar system in favour of manageable monthly fees, which are offset against their municipal savings.”
Rising demand in the commercial supply of solar energy has inspired South Africa’s first private equity fund. It allows green-energy investors to qualify for Sars-approved tax deductions. Section 12B of the Income Tax Act allows for a tax deduction for qualifying assets used for electricity generation from renewable sources.
“It allows for an accelerated wear-and-tear allowance on qualified assets which are used for the purpose of trade in the generation of electricity from renewable sources,” said Jeff Miller, CEO of venture-capital firm Grovest and founder of its new Twelve B Green Energy Fund. The fund will not invest directly in home installations.
“It will, however, invest in qualified assets that generate electricity — in sectional-title complexes, industrial and commercial buildings. Unless you generate electricity for the purpose of trade, one cannot claim the 12B allowance.”
Miller does not expect major incentives to be offered to homeowners in next week’s budget speech.
“Incentives for homeowners would be hard for Sars to implement and manage. Reducing tariffs on imported solar components would make them more affordable for the homeowner.”
He also believes the government should increase the section 12B allowance from a 100% write-off to a 150% write-off, meaning a fully deductible capital investment in the first year and a further 50% tax rebate. In terms of limits on the allowable size of solar installations, these should be increased from less than 1MW to 10MW.
However, Pieton believes a tax incentive for consumers could have a major impact. “This has been a proven driver in the uptake of solar around the world,” he said.
“California is an excellent example of how successful this mechanism has been. There may also be the opportunity to receive rebates on feed-in tariffs for sending surplus power back to the grid, as has been recently announced by the City of Cape Town. However, this requires buy-in and the necessary billing and administrative processes to be in place by local municipalities. These prerequisites make this unlikely in the short term.”
His proviso echoes the views of Grant Filed, CEO of Fedgroup, a specialist investment outfit that offers “impact investments”, including shares in solar panels installed on business premises. The company is unable to meet demand for solar-panel investments, so eager has the take-up been. However, investing in solar to feed back to the grid is another proposition altogether, he said.
“You might need an enhanced meter that can measure in two directions. There is a limit to how much one can push into the grid. So one can't have a grid that's 100% solar, but at the moment, most of the limits are legislation and lack of education.
“A lot of the legislation has been relaxed, but practically it's not working. We've got many sites that we're aware of where we just can't get proper feed-in tariffs. Cape Town is a lot better, but in the rest of the country the legislation exists, but bureaucracy is holding it back.”
For this reason, he believes the budget speech may not deliver on many expectations.
“A lot of people are sceptical because it feels like another promise. The situation is dire enough that the government is trying. But even if you had everyone's willingness and buy-in, trying to get everyone to align is very, very difficult. But there's nothing like a crisis to get that alignment. We are hearing of a lot of projects that are launching purely because businesses have no choice but to become self-reliant.”
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