NATO OOSTHUIZEN: Solar tax breaks offer a little, but not enough light

SA is experiencing a residential solar installation boom. In the first half of 2022 alone, more than R2.2bn worth of solar photovoltaic (PV) panels were imported for household use, and forecasts are that this will soon more than surpass what the government itself has been able to procure in solar energy over the past decade. 

Take that in: in the past six months ordinary South Africans have procured, and are installing, more PV capacity than the government has in 10 years of managing an energy emergency. 

These numbers are staggering and bode well for a future in which residential solar can lighten the load on the national grid. But a crucial caveat blocking the solar light at the end of the tunnel is the limited tax incentives for private solar solutions.

Enter the 2023 budget. In his speech, finance minister Enoch Godongwana announced a rebate for private households comprising 25% of the cost of rooftop solar panels up to a maximum of R15,000, from March 1 2023. However, this incentive, which will help reduce individuals’ tax liabilities, is available for only a year.

So for the next 12 months we can expect a rush for solar installation. But will supply match demand? And among those suppliers, how many are black empowerment entrepreneurs? The answer to both of these questions is, “not enough”.

On the other hand, if the tax allowance were to be extended we would have more time to expand the industry and grow the market so that supply could meet demand. And the knock-on effects would be beneficial for the government in the long run. Let me explain why.

There is, understandably, hesitation on the part of the authorities because tax incentives can be a slippery slope. But should we extend them by several years, and if they are regulated correctly, the economic ripple effects have the potential to transform the country’s future financial outlook. 

Take the case for investment. At present, demand outstrips supply, meaning there is an 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. This is economics 101, and on a larger scale attracting international investors would become possible with the allure of a far wider pool. 

This would all be possible if the market had more time to mature, which would allow for more suppliers to start installing solar. This is an area that could also do with further thought with respect to tax incentives, perhaps through the introduction of a different structure that allows for this form of industry development.

Residential solar development could become an important catalyst for the growth of entrepreneurs and small businesses. This would drive meaningful empowerment and skills development as more qualified electricians received the necessary training to become compliant, while also improving our capacity for solar rooftop development across the country.

It would also help motivate the production and manufacturing of renewable-energy-associated equipment locally. A circular economy of supply and demand will increase only as more end users make the move towards renewable options, which would put local manufacturers in a far more favourable financial position. 

Affordability

A year is also not long enough for many households to afford solar installation. Consider that for the average household, the installation of a basic solar inverter and battery system would cost about R60,000 to R100,000. This is not the sort of disposable cash a lot of people have lying around, which is why a longer tax incentive window would assist more households to invest in solar.

Extending the residential tax incentive certainly seems a win-win situation across the board. Yet it will require a mind shift from vital stakeholders such as the SA Revenue Service and local municipalities. The initial losses may seem extreme, but we must realise that to navigate the energy crisis we can no longer afford to sacrifice long-term gains for short-term wins. 

Ultimately, the energy crisis should be seen as a challenge that presents an opportunity for the government and the country. By creating the right policy landscape, the authorities can help turn a bad situation into a success story, as they have done by laying the groundwork for the Renewable Energy Independent Power Producer Procurement Programme.

In the same way, setting the right incentives in place today can help guarantee the effective and secured development of SA’s residential solar industry tomorrow.

• Oosthuizen is partner & renewable energy expert at BDO.