Reading the fine print of the solar incentives, load shedding’s silver lining

At first, the response to government’s power moves, announced at the Budget Speech, was overwhelmingly positive.

Energy packages, which offered tax incentives for households and businesses to offset the steep financial toll of load shedding, were introduced. The packages would encourage investment in renewable energy and nudge South Africa one step closer to its Just Energy transition. To manage the energy crisis, a new minister of electricity – later welcomed with a flurry of tweets and memes, in true South Africa style – was appointed.

When it came to load shedding, it seemed that South Africans were finally getting an answer to their long-held question, “What’s the plan?”

Now that the dust has settled, we’ve had some time to read the fine print. Are the packages, in fact, too little too late? Will the new electricity minister have enough… ahem…power to side-step some of the stickier red tape that was curtailing swift action? And how might the household solar tax incentive impact municipal revenue?

The silver lining appeared to be fading fast, growing as dark as an outlying suburb in Stage 6. But perhaps we need to rethink how we’re interpreting the fine print.

Admittedly, this tax relief is not without its limitations and challenges. If you got fed up when load shedding escalated last year and purchased an inverter and back-up battery, sorry – your loss. No tax breaks coming your way.

Secondly, is a not-so-little matter of cost. Solar panels are pricey, costing in the region of R5 000 per panel. The expense deduction offered by Treasury is R15 000, which would buy you around three panels.

This does not mean that R15 000 is deducted from your tax; rather, it’s an expense deduction on your taxable income. In other words, R15 000 is seen as an expense against income and the relevant tax rate is applied. So, if you fall within the lower tax bracket, with a taxable income of up to R237 000 per year, your tax benefit would be R2 700. If you’re among the upper-earning echelons (R1,817 million and more a year), your tax benefit would be R6 750.

Then consider that three panels will be nowhere near sufficient to power a household. To go completely off the grid, you can expect to pay in the upwards of around R250 000. Going off the grid is also not a once-off investment, but rather a lifelong commitment. Solar panels will need to be replaced; batteries will run down over time. And the stimulus package offered is for one year only.

Lastly, is the matter of supply and demand. As consumer desire for all-things-solar ramps up, we can expect demand to surpass supply, which might ultimately render these incentives redundant.

When it comes to municipal revenue, municipalities are rightfully concerned. The South Africa Local Government Association (Salga), which represents municipalities, has voiced its fears, stating that the household solar incentives might strip municipalities of much-needed revenue and compromise their ability to deliver essential services. They highlighted that the incentives only benefit high-energy users, who make up a large portion of municipal ratepayers, thus subsidising the poor.

Once these high-energy users start going off the grid, a question arises about who will foot the bill.

Ultimately, the rich tend to ringfence themselves from government services, preferring to go private. The poor continue to suffer. And the middle class will start to dwindle, as the cost of living skyrockets.

For businesses, however, the future looks bright – and there is real reason to get excited.

For every R1 million spent on solar, companies can enjoy an additional tax benefit of R250 000 (before tax). At the corporate tax rate of 27%, this equates to R67 500 for every million spent.

Of course, companies are the real heavy consumers of electricity, and the more businesses that come off the grid and thus lower their reliance on state energy, the more electricity it frees up for households – particularly those without the means to invest in solar or other energy solutions.

What Treasury has done is create a real incentive for companies to shift to green energy, and put their money where their mouth is when it comes to the ‘e’ in their environemtnal social governance (ESG) principles.

Any transition will present new problems to be solved but we should not lose sight of the bigger picture: these measures are a step in the right direction. Aside from being an acknowledgement of the havoc that load shedding has wreaked on South Africans’ lives, they present a strong signal in support of green energy – not only on a commercial level, but on a household level. This stimulus is not only important for what we need right now as a country; but more importantly, for what we need as a planet.

The real silver lining is that load shedding may be nudging us closer to a more environmentally conscious South Africa.

Hannes van den Berg CA(SA) is CEO at Consult by Momentum.