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

“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.” These were the rousing words from President Cyril Ramaphosa at the 2023 state of the nation address.

The statement was also a prelude to finance minister Enoch Godongwana’s announcement that private households would receive a tax rebate of 25% of the cost of rooftop solar panels, up to a maximum of R15,000, as of March 1 2023.

The announcement was a step in the right direction towards easing the burden of the worst load-shedding the country had experienced. But a substantial bump in the road still needs navigating — the fact that the incentive, which will help reduce individuals’ tax liabilities, is only available for a year.

With the end date for the incentive looming at the end of this month, I cannot help but wonder whether the move had the effect 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 high was recorded, with more than 3.7GW of solar installations coming online in 2023.

Without solid numbers it is hard to say how much of this can be attributed to SA and the residential incentive, but there is no doubt there has been a spike in solar solutions, and this is a promising upturn for the country, and the continent.

So, what will the minister’s next move be as he tables the 2024 budget next week? One hopes he takes into consideration the economic ripple effects by extending the tax allowance to give the industry time to expand the market, which could transform SA’s financial outlook.

Rest of Africa

This seems the logical move to make as part of 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 the tools and equipment associated with renewable solutions.

In terms of foreign investment, the move would prove that SA is prepared to put bold policies in place that support our intention to become a renewables hub for the continent. It would also signal that we are focused on solutions that not only address the energy challenges of SA and its neighbours, but also contribute to the economy.

We have energy demand that outstrips supply. It is simple economics. There is untapped opportunity for small-scale investment into communities where solar installation solves the energy crisis for those who cannot 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 far wider pool.

But we simply do not know if this is the minister’s intention. Why? Because we have not seen government’s strategy beyond February 29. What we do know is that a year is not enough time.

Consider that for the average household the installation of a basic solar inverter and battery system costs R60,000-R100,000, why would one choose to invest in a long-term solution when there are such limited short-term benefits?

So my question to Godongwana is whether, after he started us on a promising path last year with residential tax breaks, he will now extend this incentive so that we might reach our destination, showing us and the world that when it comes to renewable development, SA is on track.

• Oosthuizen is partner and renewable energy expert at BDO.