In response to the pressing energy crisis facing the country, the South African government is taking steps to bolster the renewable energy sector and alleviate strain on the national grid. As part of this effort, a proposed legislative amendment seeks to provide businesses with a tax incentive to invest in renewable energy – probably including storage, and particularly batteries.
Since batteries form a significant part of the expenditure associated with renewable energy solutions, the implications are potentially far-reaching for companies that invest vast amounts in renewable energy systems that require storage solutions.
The proposed amendment, under the applicable provisions of the Income Tax Act, No. 58 of 1962, aims to enhance the appeal of renewable energy using proposed section 12B of the Act. Businesses will be able to claim back up to 125% of the project – so those currently evaluating renewable energy solutions will need to consider the timing and planning of their projects to take advantage of the amendment when it is passed.
Businesses Eagerly Await Finality
While final guidance from the South African Revenue Service (SARS) is awaited, preliminary informal feedback suggests that batteries (and inverters) forming an integral part of a power generation system may well qualify for tax incentives, but not those bought in isolation. Specific conditions, including minimum and maximum project sizes, the timeline for system acquisition and adherence to other stipulations, will be outlined in the final legislation.
“The implications of this proposed legislation are significant,” says Magnus Coetzee, Executive: Infrastructure and Energy at NEC XON. “If enacted, businesses that previously thought solar energy wasn’t viable can now reconsider their options. Those for whom it made sense will now find it makes even more sense. This legislation has the potential to transform the economics of renewable energy projects within the proposed time window. It will impact payback periods and overall sustainability significantly and kickstart the renewables drive for the private sector in South Africa.”
Greening your business
The proposed legislation holds the promise of fostering a more resilient and eco-friendly energy landscape. NEC XON sees this as a positive step toward empowering businesses to take charge of their energy solutions while simultaneously contributing to the reduction of carbon emissions and lowering potential future carbon taxes.
“By allowing businesses to claim tax incentives for energy storage investments, the Government is paving the way for a more robust and diversified energy grid,” added Coetzee. “This legislation will undoubtedly encourage a shift towards cleaner energy alternatives, reinforcing South Africa’s commitment to sustainable development.”
NEC XON is committed to guiding businesses through this transformative journey, offering expert advice and financing solutions to facilitate the adoption of renewable energy projects, including solar power and energy storage.