South Africans dumped Eskom and it’s hurting SARS

One of the main reasons the government has missed its tax revenue targets for this year is that South Africans are switching to rooftop solar rather than using Eskom.

This is according to the South African Revenue Service (SARS) Commissioner Edward Kieswetter, who outlined the three main reasons for the tax revenue shortfall on SABC News.

Kieswetter’s comments come after Finance Minister Enoch Godongwana presented the Medium-Term Budget Speech on Wednesday, 30 October 2024.

In his statement, the minister revealed that tax collection for 2024/25 is expected to be R22.3 billion lower than the Treasury estimated in February this year.

In addition, he said that the main budget revenue estimate has also been lowered by R31.2 billion over the next two years.

“In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend,” he said.

“Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus.”

Kieswetter told SABC News that three key assumptions turned out very differently from what the revenue service assumed, which led to lower tax revenue this year.

The first assumption relates to personal income tax revenue, which SARS assumed would be higher based on estimations of public wage bill growth and job creation.

SARS assumed that the wage bill would grow by 8.4% and that South Africa would add another 32,000 net jobs into its labour market.

However, the wage bill only grew by 5.4%, and job growth was far lower than expected due to more-than-expected retrenchments and increased emigration.

The second assumption Kieswetter highlighted was that tax income from the fuel levy would be higher.

The commissioner said there are several reasons for this shortfall, but it comes down to three factors. The fuel levy can only increase if:

• The rate increases.
• Consumption increases.
• The price increases.

However, in the 2024/25 financial year, the National Treasury kept the rate the same, and consumption decreased significantly.

“Volumes have, in fact, decreased by 11 percentage points, which means that we use 1.33 million fewer litres of fuel,” Kieswetter said.

This is partly because Eskom used less diesel to keep its open-cycle gas turbines running, as its coal-fired power stations could keep up with demand.

However, another crucial reason for this reduction in consumption is that so many South Africans – including households and companies – have switched to using rooftop solar panels, rather than relying on Eskom or using diesel and petrol to fuel their generators.

“All of that is good for the economy, but in the short term, it means that our fuel levy, which comes from the consumption of fuel, is down and that has caused an R8.4 billion reduction in our revenue,” Kieswetter explained.

The third assumption that Kieswetter outlined was expectations for revenue from imports.

He explained that, at the time of the February Budget, the estimate was that South Africa’s imports would increase by 1.9% year-on-year.

However, imports ended up declining by 3.7%, resulting in an over 5 percentage point shortfall.

“This means that our import taxes – the customs duties and the import VAT – have reduced significantly,” he said.

South Africans dumping Eskom

Eskom recently presented a performance update to Parliament’s Standing Committee on Public Accounts, which showed that companies and households continue to abandon the utility in favour of alternative energy sources. 

While its revenue for the first quarter rose by 15% compared to the same period last year, its sales volumes were 1 TWh lower. 

This means its increased revenue came largely from higher electricity tariffs charged on consumers. 

It also shows that consumers are still turning away from the utility despite its improved performance.

South Africa experienced a solar boom in 2023, as Eskom had its worst performance yet, and households were left in the dark for most of the year.

Earlier this year, BloombergNEF’s global PV market outlook for the first quarter of 2024 predicted that South Africa will be the tenth-largest PV market in the world this year. 

According to the report, the global PV industry added about 444 GW of new capacity in 2023 internationally, a 76% increase from 2022. 

In addition, solar module prices are at record lows, and there is a plentiful supply of components. Therefore, installations this year are expected to top 520 GW globally.

In South Africa, Eskom estimates that rooftop solar additions totalled 2.6 GW in 2023.

However, the BloombergNEF database tracked an additional 676 MW, bringing the total for 2023 to about 3.3 GW.

The report expects rooftop solar to grow in 2024, particularly in the winter months of May, June, and July, when load-shedding is more frequent and severe. 

Residential solar demand is linked directly to load-shedding and slows down as soon as load-shedding stops. The report also expects business adoption of rooftop solar to accelerate.

Eskom’s improved performance this year led many to believe that the uptake of rooftop solar would decline, but energy analyst Chris Yelland said this is not necessarily the case.

Yelland told Daily Investor that although load-shedding has spectacularly driven solar demand, this recent respite from power cuts definitely does not mean the solar boom is over.

“There was a very sharp spike in demand caused by the very intense load-shedding last year and in the first months of this year,” he said.

“That spike is over, but the underlying demand is still there.”

Yelland said that even though South Africa will likely experience more load-shedding again in the future, other factors will become more important motivators for buying solar.

Even though load-shedding and security of supply are major drivers of solar demand, there are also two other major drivers – economics and the decarbonisation imperative.

“Even though they maybe have more stable electricity and it may take away this massive spike, the underlying demand driven by the other two drivers still remains, and I think it will continue to grow,” he said.

“Over time, the driver is going to start shifting from being largely driven by security and supply needs to become driven by economics and savings that can be achieved.”