Solar boom in South Africa as private investors sweep in with R300 million

National Treasury’s tax incentives for renewable energy projects in South Africa are paying off in a big with, with a new R300 million investment fund successfully closing on Monday (31 July).

The fund is being managed by Westbrooke Alternative Asset Management, which achieved the target by securing investment from numerous private funders in just eight weeks.

The group said it will now invest the capital into South African businesses that install, operate and own small and medium-scale embedded generation solar photovoltaic (PV) projects nationally.

This, it said, will boost private solar generation projects in the country while also giving the investors access to returns and tax breaks as per Treasury’s guidelines.

To incentivise investment in the sector, the Minister of Finance expanded the Section 12B tax incentive to enable investors to claim up to a 125% up-front tax deduction for all renewable energy projects brought into use for the first time between 1 March 2023 and 28 February 2025.

The Westbrook fund allows investors to benefit from owning the underlying solar PV projects and claim the 12B tax benefits.

“After recouping their initial capital, investors will remain invested in a high-quality solar project that will deliver stable and predictable yields for up to 20 years. It’s attractive for investors seeking long-term returns with a capital preservation focus,” the group said.

In turn, the fund will invest in renewable energy projects:

• South African small-scale and medium-scale embedded generation projects are either grid-tied or in a hybrid system (batteries/generators). This will range from project sizes of 100KW up to 25MW, with the ability to invest in larger projects

• Existing and greenfield solar projects underpinned by power purchase agreements and/or operating leases with a focus on commercial, industrial, agricultural and body corporate off-takers.

The group said that it will be focusing on projects that will “move with speed” and assist in fast-tracking project execution, investing in “off-takers” with the certainty of electricity supply and cheaper electricity over the long-term.

Solar boom

The investment is one of the first major funding projects delivered in terms of the new incentives and comes along a massive boom in solar uptake in the country.

The tax incentives delivered by National Treasury were two-fold.

The incentives for funds are not restricted to solar and can encompass many other forms of renewable energies, with the tax break covering various aspects of the projects, including other equipment (batteries, inverters etc) involved.

However, incentives offered to individual taxpayers are restricted to rooftop solar, and only cover the cost of the (new) solar panels themselves.

Despite the restrictions on the individual tax break, rooftop solar in the country is still booming.

Recent analysis by energy experts, using data from Eskom, estimates that South African households have already installed around 4,400MW of rooftop solar capacity in the country, nearly doubling the installed capacity at the power utility that has come from its bid windows.

Imports of solar panels have also reached an all-time high of R3.6 billion in South Africa in the first quarter of 2023, three times higher than the previous quarter. 

The value of imports in the first three months of 2023 is almost as much as the entire value imported in 2022, which was R5.6 billion. 

Gaylor Montmasson-Clair, a senior economist at Trade and Industrial Policy Strategies, said this is due to sustained demand from South Africa’s private sector. 

Read: South African households are beating Eskom at its own game with rooftop solar