Mixed responses to solar incentives

Finance minister Enoch Godongwana’s announcement of tax incentives and rebates for the installation of solar power received mixed reactions, with some welcoming the move while others called it pro-rich.

Godongwana announced two tax measures to encourage businesses and individuals to invest in renewable energy, increase electricity generation, and reduce stress on Eskom’s grid.

From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables. There are no thresholds on the size of the projects, and the scheme will be available for two years.

For individual households, those who install rooftop solar panels from 1 March 2023 can claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000. It is available for one year.

The panels must be new or unused but may be in addition to an existing system.

Individuals who pay personal income tax can use this to decrease their tax liability in the 2023/24 tax year.

This rebate does not include the installation of generators, inverters, batteries, or installation costs and can only be claimed against the panels.

For and against

Iraj Abedian, CEO of Pan-African Investment and Research Services, said the incentives are a “good policy, badly implemented.”

For Abedian, the incentives are limited to South Africa’s small tax base and are only temporarily available. They are, therefore, unlikely to have a major impact.

Intellidex, in their budget commentary, also lamented the pro-rich nature of the incentives, as there was no mention of subsiding or supporting a rollout of solar panels for the poor.

Stanlib’s chief economist Kevin Lings also pointed out that South Africa’s small tax base limits the incentive.

Lings cautioned against focussing “exclusively on Eskom and load shedding, and allow other issues to go”.

Dawie Roodt, the chief economist at the Efficient Group, took these concerns further.

Roodt is “not in favour of a subsidy on solar panels” in any form. Subsidies distort underlying economic forces and provide more opportunities for misuse, according to Roodt.

In its current guise, these subsidies are unlikely to have a major impact as the government is talking about “small sums of money”, said Roodt.

Despite the criticism, everyone agreed that Godongwana’s announcement will increase solar generation capacity.

According to Intellidex, 2,000MW of solar generation will come online this year, with 3,000MW forecast to be added next year.

PwC says that this will bring the total installed solar capacity from the private sector to 6,850MW at the end of 2023 – the same as the government’s REIPPP.

However, PwC does point out that rooftop solar is not as efficient as grid-scale solar and, therefore, would not have as big of an impact as expected.

Rooftop solar does have the benefit of a limited need for investment in transmission and distribution infrastructure.

More importantly, these incentives indicate an “institutional shift” within government, according to Hank Langehoven, chief economist at the Minerals Council of South Africa.

“The incentives are fantastic news”, according to Langehoven, but they will take time to work and progress in ending load shedding to be seen.

Lings agrees with Langehoven that the 2023 Budget signals a shift away from consumption spending to fixed investment spending, particularly infrastructure spending.