New tax change to boost solar and renewables in South Africa

National Treasury has proposed changing South Africa’s carbon tax laws to encourage the construction and rollout of renewable energy projects in the country.

The draft 2024 Tax Laws Amendment Bill contains the Treasury’s proposal to amend the country’s Carbon Offset Regulations, which will allow taxpayers with embedded generation to reduce their carbon tax liabilities.

According to tax experts at PwC, the current regulations under the Carbon Tax Act allow taxpayers to claim a carbon offset allowance up to 10% of their total greenhouse gas emissions to reduce their carbon tax liability.

The current Carbon Offset Regulations prescribe carbon offsetting in terms of section 19(c) of the Carbon Tax Act. All small-scale renewable energy projects up to 15MW contracted and installed capacity are eligible as carbon offsets.

While the proposed changes aren’t looking to change the 10% maximum, they would push the qualifying threshold up to 30MW of installed capacity—meaning even larger embedded generation projects would be able to claim the allowance.

Treasury hopes this will increase and incentivise additional investment into embedded generation and utility-scale developments.

The 2024 draft TLAB also proposes a technical clarification to provide Eskom with the certainty of claiming the offset deduction for electricity purchases under power purchase agreements that are ceded to the National Transmission Company of South Africa.

This is as a result of the restructuring of the electricity sector and separation of the generation, transmission and distribution functions of Eskom.

Solar boom – and relief for Eskom

According to solar rental group GoSolr, South Africa added 350MW of new solar capacity in the second quarter of 2024, bringing the total to 5,790MW, up from 5,440MW in Q1.

Overall, 586MW of rooftop solar has been added since the start of the year.

The new capacity being added through rooftop solar comes even as load shedding has subsided in the country, with Eskom hitting 139 days of uninterrupted supply.

While Eskom has staged a significant turnaround in its generation fleet and energy availability, the group has also experienced a permanent cut in demand due to the rollout of self-generation and renewables in the country.

“The surge in private renewable energy generation has contributed to this improvement by reducing demand for power from the grid and giving Eskom more room for plant maintenance,” GoSolr said.

South Africa has 9,291MW of installed solar capacity at the end of 2023 (including Eskom’s solar) and is expected to boost this to 28,634MW by the end of 2028.

With the proposed tax changes, the hope is that businesses will be encouraged to bring more capacity online, faster, while also encouraging the investment into the green economy.

The amendments are proposed to come into operation as of 1 January 2024.

Read: Warning over Eskom price hikes in South Africa – as rooftop solar nears 6,000MW