Responsible users of energy can save significantly through further tax incentives on certified energy efficiency projects.
This measure was introduced by Trevor Manual in his 2009 Budget which makes provision for tax breaks on certified emission reduction credits as well as for incentives for investments in energy efficient technologies.
It is likely that these incentives will take the form of an additional allowance of up to 15%, on condition that documented and certified proof of the resulting energy efficiencies exist. Current legislation allows for an accelerated depreciation allowance of 50:30:20 per cent for investments in renewable energy and bio fuels production.
Energy Cybernetics has commended the move, saying the incentives are an explicit acknowledgment by government of the urgent need for the economy to become more energy efficient in the interest of South Africa and the sustainability of its energy resources.
"+The 2009 budget demonstrates government's willingness to provide real incentives for organisations that are considering investment in projects that will reduce their energy footprint," says Gustav Radloff, MD of Energy Cybernetics.
"These incentives could also serve as some counterbalance to the much-criticised Energy Conservation Plan, which essentially introduced a penalty regime that will be levied on energy consumers who do not demonstrate a willingness to contribute towards the national energy saving target of 10%. While the incentives are a positive move by government towards a greener economy, organisations will have to make sure that they understand what they need to do to be able to claim the full tax benefits that the budget allows for," adds Radloff.
"However, companies wishing to benefit from the proposed tax breaks will need to make sure that they understand and comply with the regulatory requirements that they will have to adhere to in order to have acceptable documented proof of the energy savings that they achieve.
"Only certified energy savings will be applicable for any rebates," he explains.
Despite the relatively small economy of South Africa in global terms, the country ranks as one of the top 20 countries as far as greenhouse gas emissions are concerned.
"We need to rethink our behaviour with respect to our use of energy, on both a corporate and consumer level," comments Prof LJ Grobler, director of Energy Cybernetics and engineering professor at the University of Northwest.
"While the incentives are a positive move by government towards a greener economy, organisations will have to make sure that they understand what they need to do to be able to claim the full tax benefits that the budget allows for."
Energy used to be a relatively cheap and abundant part of the production process, but this has changed significantly since January 2008. Electricity prices are increasing, legislation now allows for penalties that may be levied on consumers that do not achieve savings targets imposed by Government.
Despite the decrease in the incidence of load shedding, South African electricity supply is still severely constrained and will remain so for at least the next three to five years. Consequently, industry has started to realise that the importance of energy and energy efficiency is rapidly becoming a business objective for many companies – strengthening the business case for energy efficiency investments since 2007.
"Energy efficiency makes a lot of good business sense and holds real commercial value for companies as long as they can clearly measure and certify the savings," says Radloff. "Most capital investments made by industrial companies are aimed at improving efficiency or increasing throughput.
"Efficiency improvements often result in a reduction in energy consumption (for the same throughput), but this reduction in energy consumption is often not measured explicitly and therefore business might miss out on reaping the full benefit from their saving initiatives.
"The announcement of further tax incentives by the Minister of Finance will increase the number of projects that meet companies' financial performance criteria for an investment decision. We should therefore see an increase in the number of capital projects that have improved energy efficiency as one of the project objectives," he adds.
The required "documented proof" or certification of energy savings is the result of a process called Measurement and Verification (M&V), a well-established process that defines the energy profile of a consumer before the implementation of an energy efficiency project, and again after the implementation of such a project. These two profiles, the actual and the baseline, are then compared to determine the savings achieved as a result of the efficiency project.
While this process appears simple, it is often complex and many variables, such as production levels, feed material, other changes to the process and so forth have to be taken into account when defining the baseline.
"There are only a few accredited M&V specialist companies in South Africa and organisations that wish to benefit from the tax incentives are advised to procure the services of one of these service providers," Radloff says.