Rooftop solar in South Africa still faces these major challenges

Although the latest solar tax incentive is a welcomed development for cash-strapped South Africans sitting in the dark, legal experts say the system is likely to suffer ‘teething problems’.

Commercial law experts Anton Ackermann and Margo-Ann Werner at Cliffe Dekker Hofmyer said that one of the major challenges, despite the rebate, remains the initial capital costs required to install solar systems – which may result in the exclusion of low-income households from benefiting from the scheme.

“It is also important to ensure that feeding back into the grid makes financial sense to owners. With additional costs such as bi-directional flow meters, possible connection fees, stringent connection and installation requirements and municipal requirements, feeding back into the grid may result in an additional expense if not regulated properly,” added Cliffe Dekker Hofmeyr.

Further potential challenges will have knock-on effects on Eskom itself.

More businesses and middle-class homes biting the bullet to install solar will likely result in a decline in regular paying customers – further increasing the power utility’s financial woes, the experts said.

“The potential is there for South Africa to quickly add additional capacity to its ailing grid by encouraging the installation of rooftop solar on corporate and residential buildings.”

“We have heard all the right things being said and will wait to see if the regulation thereof will encourage rooftop solar to become a beacon of light during dark times.”

During the 2023 budget speech, finance minister Enoch Godongwana revealed that individuals who install rooftop solar panels from 1 March will be eligible to receive a rebate of 25% of the cost of the panels, up to a maximum of R15,000. This rebate can be applied to reduce their tax liability for the 2023/24 tax year.

While the rebate has been broadly welcomed, solar groups and experts in the property sector have raised concerns over the low amount.

Solar PV association SAPVIA noted that a solar unit would likely cost R95,000 at the very least, but the rebate – capped at R15,000 – is only effective up to R60,000.

Responding to criticism of the low amount set for the rebate cap, SARS commissioner Edward Kieswetter said that the rebate isn’t supposed to be a full-scale solution.

He said that incentives aren’t a perfect measure and typically only aim to encourage specific behaviour.

In the case of the solar incentive, it is in place to encourage private households and businesses to do what they were likely going to do anyway – which is to become a little bit more energy self-sufficient and ease pressure on the grid.

“No incentive is ever enough. How much is ever enough? The real relief that has been provided is the inflation-based adjustement to the tax brackets and the little bit of help with solar. There will always be those who are delighted and those who will wish they received more.”

Feed-in tariff

Under the government’s five-step Energy Action Plan (July 2022), one of the most prominent proposals is to “unleash businesses and households to invest in rooftop solar.”

While the tnewly-announced ax incentives are one part of this plan, effective use of rooftop solar and private generation requires policy, regulation and rollout of a feed-in tariff structure for this type of power.

A feed-in of electricity means the feeding of unused electricity back into the grid, where a person may receive credit on their electricity bill or receive payment as per the agreed feed-in tariff.

The tariff was backed by President Cyril Ramaphosa during his 2023 address to the nation. He said that to incentivise greater uptake of rooftop solar, Eskom will develop rules and a feed-in pricing structure for all commercial and residential installations on its network.

Cliffe Dekker Hofmeyr reported that a recent update on the progress made within the last six months since the publication of the Energy Action Plan provides that a net metering tariff was submitted to the National Energy Regulator of South Africa for approval and that work is underway to develop a net billing framework for municipalities.

The legal experts pointed to Vietnam as an example of the effective use of a feed-in tariff – that South Africa could learn from.

“Vietnam saw tremendous growth of rooftop solar installations for residential, commercial and industrial premises between 2019 and 2020. The success comes with the implementation of two successful feed-in tariff rounds during 2019 and 2020, whereby generous feed-in tariffs were provided, with 9,35 US cents/kWh for 2019 and 8,38 US cents/kWh for 2020.”

The feed-in tariff rounds resulted in adding over 16,449GWp in the space of two years, with more than 9GW of rooftop solar installed during 2020, which resulted in over 100,000 rooftop solar systems deployed over residential, commercial and industrial premises, the experts added.

Vietnam’s success can be used as an example by South Africa to also encourage rooftop solar installations.

In the City of Cape Town, progress has already been seen. Businesses and residents are expected to be paid for feeding surplus electricity into the grid, with a feed-in tariff of R1.04/kWh, which is 25c per kWh more than the approved feed-in tariff of 78,98c/kWh.

Read: Tax breaks for rooftop solar in South Africa come with a big catch