Is the light about to go out for residential solar tax breaks?

Is the light about to go out for residential solar tax breaks?

As the country gears up for the National Budget Speech on 21 February, renewable energy is set to be high on the agenda for discussion. Nato Oosthuizen, Partner and Renewable Energy Expert at BDO, reflects on the solar tax breaks tabled at last year’s speech and questions whether these interventions were enough to significantly impact the country’s energy crisis.

“Extraordinary circumstances call for extraordinary measures. The energy crisis is an existential threat to our economy and social fabric. We must spare no effort, and we must allow no delay in implementing these measures.” Rousing words from President Ramaphosa at the 2023 Sona address. The statement was also a prelude to Finance Minister Enoch Godongwana’s announcement that private households would receive a tax rebate comprising 25% of the cost of rooftop solar panels, up to a maximum of R15,000, as of 1 March 2023.

The announcement was certainly a step in the right direction towards easing the burden of the worst loadshedding the country has ever experienced. But a substantial bump in the road still needs navigating – the fact that the incentive, which will help reduce individual’s tax liability, is only available for a year.

With the end date for the incentive – 29 February 2024 – looming, we cannot help but wonder whether the move had the impact the government was hoping for?

According to the most recent Africa Solar Industry Association (Afsia) report, 2023 was the best year for solar globally. In Africa, a new high was recorded with more than 3.7GWp (peak) of solar installations coming online in 2023. Without solid numbers, it’s hard to say how much of this can be attributed to the residential incentive, but this spike in solar solutions is a promising upturn for the country, and the continent, nonetheless.

So, what will the Minister’s next move be as he tables the 2024 budget?

One hopes the Minister takes into consideration the economic ripple effects by extending the tax allowance to give the industry time to expand the market, which could transform our financial outlook. This seems like the logical move in a longer term strategy that views these tax breaks as more than just grid relief, but also a way to develop a national industry that can have a knock on effect for the rest of Africa.

If the incentive is extended, residential solar development could become a major catalyst for the growth of entrepreneurs and small businesses. This would empower much needed skills development and incentivise localised manufacturing of tools and equipment associated with renewable solutions.

In terms of foreign investment, the move would prove that South Africa is prepared to put bold policies in place that support our intention to become a renewable hub for the continent. It would also signal that we’re focused on solutions that not only address our own energy challenges, as well as those of our neighbours, but also significantly contribute to the economy.

We have energy demand that outstrips supply. It’s simple economics. There’s untapped opportunity for small scale investment into communities where solar installation solves the energy crisis for those who can’t afford to invest, with the investor reaping the reward of the deduction. On a larger scale, attraction for international investors becomes more alluring with a much wider pool.

But we simply don’t know if this is the Minister’s intention. Why? Because we have not seen the government’s strategy beyond 29 February.

What we do know is that a year is not enough time. Considering the fact that for the average household, the installation of a basic solar inverter and battery system will cost in the region of R60,000 - 100,000, why would one choose to invest in a long-term solution when there are such  limited short-term benefits?

So I pose this question: Minister Godongwana, you started us on a promising path last year with residential tax breaks. But now that we’re on the road, will you extend this incentive, so that we might reach our destination, showing us and the world that when it comes to renewable development, South Africa is on the right track?