The business case for reducing carbon emissions

Reducing carbon emissions is increasingly becoming a business imperative. The introduction of tax incentives and the possibility of a carbon tax on the horizon makes reducing greenhouse gas emissions good business sense.

With a view to enable SA to meet its commitments in term of the Paris Agreement on climate change and reduce greenhouse gas emissions, the government has touted the introduction of a carbon tax from January 2019. But, if companies focus on the "carrot" rather than the "stick", they will truly be able to appreciate the benefits of implementing carbon-reducing energy solutions, such as solar power.

Cost-drivers for many businesses are likely to be the ones that produce the most greenhouse gases, such as fossil-fuel generated electricity, business travel, and waste disposal. Supplementing a business’s energy mix with a solar photo-voltaic (PV) system is a cost-effective way to reduce operating costs and carbon emissions in the long run.

To date, tax incentives have been introduced to encourage companies to "go green". In 2013, Section 12L of the Income Tax Act was passed, allowing a company to claim deductions of 95c per kilowatt-hour of energy-efficiency savings made within a year against a verified 12-month baseline.

Section 12B of the same law makes provision for an accelerated wear-and-tear allowance for movable assets used in the production of renewable energy. This amounts to a 28% deduction in a firm’s income tax in the year in which the asset is brought into use, and can be claimed against the entire capital spend of electricity generating assets (including a number of renewable energy technologies), up to 1MW in generating capacity.

Tax benefits make it increasingly financially viable for companies to install rooftop solar and even battery systems. In addition, financial tools, such as a solar Power Purchase Agreement (PPA), assist businesses that don’t have the money for the initial capital expenditure. This solution allows a business to benefit from the use of a solar energy system without having to outlay any capital cost for the system, while enjoying immediate cost savings and long-term energy price security.

While solar-power generation has not yet become ubiquitous in SA, there are several sectors embracing this approach. Retail property developments, for example, have been early adopters, partly because there is a strong correlation between when they use their energy and when the system can generate the most power.

The returns they are able to generate from investing in solar systems far exceed the 10% and 12% return expectation that investors typically expect from long term property ownership.

The widespread adoption of green energy will be bolstered by regulatory certainty around the use of embedded energy generation. As things stand, proposed new restrictions could stifle the uptake of renewable energy systems. Draft rules published this year state that a generation facility with more than 1MW of installed capacity would have to apply for a generation licence in addition to registering with the National Energy Regulator of SA (Nersa).

Although some issues must be resolved, there are numerous ways to deliver solutions that are good for the environment — and good for business.

• Chennells is the CFO of SOLA Future Energy