Wednesday’s budget speech is likely to deliver new incentives for the installation of solar power in homes and businesses – and further fuel a boom in the industry.
Sars Commissioner Edward Kieswetter offered the first signal two weeks ago, during a PSG webinar, 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.”
Since the advent of daily loadshedding at the end of October last year, South Africa has seen an acceleration of solar power installations at home and businesses, in an industry that was already mushrooming. According to the World Economic Forum, South Africa imported solar panels with $135-million in the first five months of 2022, which it said was enough to boost the country’s existing solar capacity by 40%.
It is likely that this level of imports has already 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,” says Andrew Middleton, CEO of solar subscription company Gosolr. “Although the exact size of the market is difficult to determine due to limited data, our estimates indicate that around 10,000 to 12,000 households installed solar last year, with subscription or ‘rent-to-own’ options accounting for approximately 30 to 40% of that figure. 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 home going solar, since it can cost well over R200,000 for an average home. The rental company also takes charge of repairs, maintenance and upgrades when the technology advances.
“In the next five years, it is anticipated that the energy storage sector, particularly batteries, will undergo the most significant technological transformation, becoming both larger and more affordable,” says Middleton.
Other solar rental companies, like Metrowatt, offer outright purchase, rental and rent-to-own options, allowing customers to match their investment to their budget. Installation setup varies by company, but the rental options from Gosolr, starting at R1740 a month, and Metrowatt, starting at R2095, 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, following Eskom announcing an 18% tariff increase, is resulting in unprecedented demand. The waiting period for most rental installations is now 6 to 8 weeks.
“The demand for a rental or solar-as-a-service model has skyrocketed over the last 18 months,” says 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 un-economical to use for extended periods of time due to rising fuel costs and increased maintenance intervals. Solar rentals ensure customers avoid the high initial cost of a solar system and 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 that allows green energy investors to qualify for SARS-approved tax deductions.
Section 12B of the Income Tax Act No. 58 of 1962 allows for a tax deduction for qualifying assets used for electricity generation from renewable sources.
“It allows for accelerated wear and tear allowance on qualified assets which are used for the purpose of trade in the generation of electricity from renewable sources,” says 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.”
He 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,” he says. “By reducing tariffs on imported solar components, this would make the components more affordable for the homeowner.”
This includes tariffs on imported components like solar panels, batteries and inverters.
He also believes government should increase the Section 12B allowance from 100% write-off to 150% write-off, and to increase the allowed cap from less than 1 MW of power to 10 MW.
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 says. “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 both 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 group that offers “impact investments”, including shares in solar panels installed on business premises. The company is unable to meet the demand for solar panel investments, so eager has the takeup been.
However, investing in solar to feed back to the grid is another proposition altogether, he says.
“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 already, 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 skeptical just 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 everyone’s 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.