South Africa Open for Solar Investment Opportunities With New tax Incentives

South Africa revealed new tax incentives to inspire investment in the supply of clean power to help the country from worsening blackouts.

The continent’s most industrialized country has been laboring under a devastating energy shortfall for months, largely due to under-investment in power utility Eskom’s aging and poorly maintained plants.

Finance Minister Enoch Godongwana said that starting March 1, 2023, businesses would be able to reduce their taxable income by 125 percent of the cost of an investment in renewables.

 “We will also introduce a new tax incentive for individuals to install rooftop solar panels to reduce pressure on the grid and help ease the scheduled blackouts, also known as load-shedding”, he added while presenting his annual budget to parliament 

Recently in response to the same crisis, President Cyril Ramaphosa declared a national state of disaster and appointed an electricity minister to aid in strengthening the response to the crisis.

Earlier this month South Africa suffered blackouts over the past decade but more recently, they have become “more persistent and prolonged” and are wreaking havoc on the economy, in particular the country’s freight and logistics network, Godongwana said.

According to the minister’s speech, the government wants to promote the use of solar panels on residential rooftops where a refund of 25% of the cost of the solar panels will be permitted, subject to a maximum of ZAR 15 000. 

The refund applies in respect of new solar panels (excluding inverters and batteries) brought into use between 1 March 2023 and 29 February 2024. To qualify for the allowance, solar panels must be purchased and installed at a private residence and a compliance certificate issued from March 2023 to 29 February 2024 is required.

 

There is also a proposal to temporarily expand the tax incentive which is available for businesses to promote renewable energy. Currently, the cost of assets generating renewable energy can be deducted over three years on a 50%/30%/20% basis, or in the case of photovoltaic solar energy generation up to 1 megawatt, a deduction of the entire cost is permitted. 

The incentive will be generously increased to a 125% deduction (of the cost of all renewable energy assets in the first year. To qualify for the deduction, the asset must have been bought and used for the first time between 1 March 2023 and 28 February 2025.

The incentive program for urban development zones will be extended to 31 March 2025 to allow for further engagement.

“The minister sent a strong message that the government is failing to produce energy so it would rather incentivize people to produce their own and welcome more private investment,” said political economist Lumkile Mondi.