WRENELLE STANDER: All hands on deck, and purses, to beat load-shedding

SA’s persistent blackouts demand that we mobilise available financial resources and incentives to make renewables cheaper and more accessible. To win, we have no option but to throw the kitchen sink at the energy crisis, which has now burdened Africa’s most industrialised economy for more than a decade.

Businesses and homes are desperate for quick solutions. To win, our response must be urgent and creative — doing so could stem any further losses and revive growth. It was therefore somewhat reassuring that finance minister Enoch Godongwana in his budget speech announced measures to encourage businesses and individuals to invest in renewable energy and boost electricity supply.

The interventions include a tax incentive for individuals who install rooftop solar photovoltaic (PV) for 25% of the cost of the panels, up to a maximum of R15,000. With the cost of a rooftop solar system ranging between R80,000 and R200,000, the tax rebate could provide some relief, albeit small. While there is a case to be made that the relief package should be boosted down the line to make it more generous and effective, it is a small step in the right direction as we push for an energy-secure and low-carbon future.

To stimulate businesses’ investment in renewables, Godongwana said from March companies will be able to reduce their taxable income by 125% of the cost of an investment in renewables. There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years.

The National Treasury will also introduce changes to the Covid-19 bounceback loan scheme in April, to help small businesses invest in solar equipment. This is expected to allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to their customers. The government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.

Loans backed by the government mean the state shoulders (a portion of) the borrowers’ default risk, which could make funding easily accessible and fuel the widespread adoption of renewables. Shouldering such risk is arguably a small price to pay compared to the damage caused by load-shedding. In recent years banks have also been looking to cut back on lending to new coal-fired power plants amid growing pressure from international investors in the push to cut emissions. All this potentially paves the way for expanded access to funding for renewables, which will help open up the market to more private players — crucial for an energy-secure future. 

There is no doubt that the quickest way to end the rolling blackouts is to roll out the red carpet for private players, households and businesses alike, and make it easier for them to enter the market and access the grid. The recent emphasis by deputy finance minister David Masondo on the need to liberalise the energy sector to bolster energy generation is reassuring.  As part of the conditions for Eskom’s debt relief package the Budget Review highlighted that the power utility, the Treasury and the department of public enterprises had agreed to design a mechanism for building new transmission infrastructure that would “allow for extensive private-sector participation in the development of the transmission network”. This could pave the way for multiple players to enter the sector, establishing a competitive electricity market.

Renewables are also increasingly becoming cheaper amid technological advances. This bodes well for accelerating investment in new energy. In a recent research report GreenCape, a Cape Town-based nonprofit organisation that aims to drive the adoption of economically viable green economy solutions, highlighted that investing in solar PV makes sense right now largely because of declining costs. Mass production of PV panels has driven manufacturing costs down at least 80% since 2010, and progress in inverter and ancillary component technology has had a further cost reduction effect. Reduced perceived risk on PV development allows for cheaper project finance. This trend is expected to continue in the coming years.

Even so, while costs have largely declined in recent years, many hard-pressed consumers and businesses still find that the initial or upfront costs of going off-grid remain unaffordable. Government support and interventions are thus crucial. The Western Cape government and many municipalities in the province have shown the way on that front in recent times. Cape Town, for example, recently introduced solutions to make it more attractive for businesses and residents to go off grid, offering to pay cash for power fed into the local electricity grid. This should help stabilise local power supply, which will boost business confidence and attract more investment into the region.

The private sector, and banks in particular, should also be playing a far bigger leadership role in rolling out innovative and generous financing options to encourage the uptake of renewables and boost power supplies. In an opinion piece published in Business Day earlier in March, Seriti Resources CEO Mike Teke and Seriti Green CEO Peter Venn correctly argued that commercial banks can assist by allowing bondholders to draw an additional amount on their home loans to finance the installation of rooftop solar and battery storage in their homes (“Godongwana’s R9bn green energy tax boost could unlock billions more”, March 2). 

At present, some of the financing options widely available, especially to businesses, include debt finance in which banks offer loans for solar PV installations for five to 10 years and monthly payments are a fixed fee. The collateral requirement for the debt funding is often taken against the underlying property or the system (the asset).

Another option, as highlighted by GreenCape, is the lease agreement or “rent-to-own”. Here, the installation, maintenance and management of the solar panel and its components are paid for by the solar PV provider, while the business pays a fixed monthly lease payment for the duration of the lease term. The fixed monthly payment is determined based on the estimated annual production of the solar system and not on the solar energy produced or consumed.

Alternative energy

This scheme is one of the options favoured by the agriculture sector in particular, one of the sectors hardest hit by the energy crisis, which is threatening SA’s food security. Agri Western Cape CEO Jannie Strydom says rental schemes could be the quickest way to boost power supply. Such schemes could potentially alleviate the cost burden on farmers as they would pay roughly the same amount they are currently paying Eskom, but with a far more stable supply. However, he says the sector would appreciate some form of subsidy/incentive from the government for farmers to install their own alternative energy supply. “Currently the commercial banks do have ‘green’ departments focusing on alternative energy, but the total cost is for the farmer,” Strydom said.

In the coming weeks the Western Cape department of agriculture plans to bring together stakeholders across the agriculture value chain — organised agriculture, banking and academia — to thrash out solutions for the sector to beat load-shedding. Naturally, innovation will be crucial as we look for solutions to end the blackouts. It is thus encouraging that some Cape Town-based companies, such as Enpower Trading, Open Access Energy and Momint, have introduced interesting and creative solutions that broadly aim to accelerate private investment in new electricity generation capacity.

The need for SA to mobilise all available resources and instruments to end the blackouts is now more urgent than ever. To beat the energy crisis, boost business confidence and grow the economy the country requires all hands on deck, with the public and private sectors working in close collaboration. The building blocks are already there, and with the right approach and mindset we can make this work.

• Stander is CEO of tourism, trade and investment promotion agency Wesgro.