Warning over rooftop solar tax breaks in South Africa

 ·19 Feb 2023

President Cyril Ramaphosa’s talk of incentivising rooftop solar is good news for South Africans – but with little detail given on how this will happen, doubts and questions are starting to seep in.

During his State of the Nation Address on 9 February, President Cyril Ramaphosa said that the minister of finance would reveal a tax incentive related to rooftop solar for households and businesses during the 2023 Budget on 22 February.

Additionally, the National Treasury will explore ways to increase access to solar energy for businesses.

Small businesses will benefit from adjusted “bounceback” loan schemes to invest in solar equipment, the president said, and banks and financial institutions will be able to borrow directly from the fund to facilitate the leasing of solar equipment to small businesses.

According to CEO of Business Leadership South Africa (BLSA) Busi Mavuso, how the government implements these incentives is crucial to stimulating off-grid installation and making sure the promises aren’t just empty gestures that benefit the few.

Mavuso said that the government has many options open to it for effective incentives:

  • Government could zero-rate VAT for renewable energy components and investors. Mavuso said this is a simple option wth wide impact.
  • Government could reduce the supply-side cost by removing customs duties on solar panels and other components.
  • Government could target the incentive to the customer by applying grants or additional tax deductions for taxpayers when they file returns. This option would be more favourable for government revenues.

“There are many complex issues to navigate to ensure that this is a success for the majority of the country – a half-hearted approach is not likely to make much of an impact, and there’s a danger that this benefits only high-income earners,” the CEO said.

“For example, even if the state comes in at what I’m told would be a very generous 30% of the total cost that may be claimed back, the high costs of rooftop solar still make that prohibitive to most South African households and small businesses.”

With startup costs to get solar installed and going partially off-grid can range from R150,000 to R350,000 – most people and many small businesses cannot afford even a fraction of those costs, she said.

A further complication is determining what exactly qualifies for the incentivisation.

“Ramaphosa spoke only of incentives for rooftop solar solutions, but to widen the benefit, the incentive needs to extend to investors and other battery-driven solutions – especially considering that storage plays an essential role during peak consumption hours.”

She said that it is imperative that these players also qualify because it would assist the majority of people.

Mavuso added that energy storage facilities are also pricey, ranging between R10,000 and R45,000 to power a full household.

“Prices for solar are also currently elevated as demand is already high. If the tax incentive is effective, demand will likely spike further, causing prices to rise further and only stabilising once supply is increased,” said Mavuso.

“This is where the opportunity lies to generate a wave of new small businesses.”

It is crucial to ensure that the proposed incentive benefits everyone, not only the wealthy, to create various advantages beyond reducing pressure on the national grid, she said.

The increased demand for solar power could lead to the formation of several new small businesses, such as installers, drivers, advertisers, and tax consultants.

Mavuso said incentivisation for private power generation is no cure on its own, but it will make a difference if supplemented by supporting policy geared at also ramping up businesses focused on new energy solutions.

Coupled with the move to allow excess power from rooftop solar to be sold to Eskom to feed into the national grid, various elements are falling into place to stimulate off-grid solutions across the country, said the CEO.

“As always, though, there are some fundamentals to get in place first – primarily a mechanism to enable the feed-in tariff and determining and, importantly, setting the tariff at a feasible level to ensure it is effective.”

“If the incentive is not meaningful enough to benefit the majority, the impact will be diminished. In that sense, when determining the scale of the incentive, National Treasury needs to balance the costs to the fiscus with the costs to the economy that load shedding is incurring and, one feels, err on the side of boldness,” Mavuso said.

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