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South Africa’s solar rebate is missing the mark

By Matthew Blackmore, Financial Director of Alumo Energy

The government’s new solar tax rebate took effect on 01 March 2023, with the intention of putting new power into households, as they shift away from reliance on the national grid, and encourage      them to participate in the just energy transition. While the rebate represents a step in the right direction, its limitations mean that it largely misses the mark as an effective motivator for South Africans to make the switch.

Presently, the government offers a rebate of 25% on the cost of new and unused solar photovoltaic (PV) panels, up to a maximum of R15,000 per individual. Individuals can then claim this rebate against their tax liability.

But there are some important caveats. The rebate only applies to solar PV panels with a minimum capacity of 275W per panel – a reasonable limit given that anything smaller would likely be the result of older, inefficient technology that does not contribute meaningfully to the renewable energy transition. In addition, smaller panels are often portable panels used for activities such as camping rather than on a more permanent basis, again impacting their effectiveness as part of sustainable energy efforts.

More importantly, the rebate excludes key assets and components needed to implement comprehensive solar solutions, such as investors and batteries. The rationale for this is likely that the government does not want to risk households investing in expanding their storage capacity without also expanding their generation capacity – or investing in a large number of batteries without a solar panel (for example).

But these additional components are critical components in solar systems, enabling households to store and use the energy generated by panels efficiently. Batteries and inverters also constitute a significant portion of the cost of solar systems. As a result, the tax incentive offers limited cost savings, which alone are not enough to encourage households to embrace renewable energy solutions.

In response, a recent PwC Tax Today Report proposed revising the maximum of R15,000 and expanding the rebate to apply to all solar system components as long as they feature the necessary solar panels. Additionally, it suggested expanding the incentive to include homeowners who simply lease solar systems from providers.

However, the expansion of the rebate to those who rent their solar systems would mean that the owner of the system (the lessor) and the person who rents the system would both be able to claim tax breaks for the same system.

Instead, the possible solution of expanding the rebate would be far more effective. As things stand, loadshedding is by far the greatest driver for meteoric solar demand. With over 138 days of national loadshedding so far, and threats of more than 16 hours of power cuts per day, the country’s power crisis is not only making international headlines but causing significant disruptions in homes and businesses.

As well-known solar providers, loadshedding is responsible for as much as 80% of Alumo Energy’s new business, driving customers to make the investment with alternative financing arrangements such as adding the cost of their solar system to their mortgage. Cost-savings are perhaps responsible for the remaining 20% of new business, but this is largely the result of lower electricity or diesel bills, rather than the tax incentive.

To be successful, the tax incentive needs to be far greater and have more of a meaningful and immediate impact on pockets. This means revising some of the current limitations and extending its timeline past March next year. By addressing these concerns, the government can better safeguard the integrity of the grid by supporting households’ transition to clean energy.

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