Businesses and property owners can leverage an industrial development-focused tax rebate, Section 12J of the Income Tax Act No 58, of 1962, to reduce the costs of installing solar photovoltaic (PV) systems.
Venture capital company Nesa Investment Holdings (NIH) has developed a solar PV rental model that enables companies to rent solar rooftop PV systems, thereby significantly reducing and even eliminating upfront capital investment requirements, says technical partner CreoVision and NIH director Peter Frolich.
“The tax rebates afforded by Section 12J are aimed at stimulating supplier and enterprise development. NIH uses investors’ funds to engineer, procure, build and manage solar PV projects that it then rents to users.”
He adds that investors get an attractive return of 20%, which includes the 45% tax rebate on the investment made, with the fund stimulating the development of local solar PV enterprises. Companies invested in the fund can also claim broad-based black economic-empowerment, supplier and enterprise development points.
While the successful development of solar PV industries in Australia and Germany were strongly supported by government policy, incentives and grid connections, South Africa can use the tax incentive to develop the local PV industry, says NIH business development head Mike Bleyenheuft.
“The limitations are that the energy must be for on-site consumption, and we do not expect any grid offtake or feed-in tariff incentives to be offered for the foreseeable future. This makes determining the correct scale of the solar PV system critical to secure a rapid return on investment and provide power security for the user over the 25-year lifetime of the system.”
However, the price of solar PV systems compares favourably with current electricity pricing models – without taking into account expected tariff increases as a result of the financial malaise of State-owned power utility Eskom – and the NIH rental model also provides users with certified green credits, a measure of the environment-friendliness of an installation.
“We have 40% more insolation (the measure of solar irradiation) in South Africa than users have in Germany. The energy output of solar systems is stable and the price of power produced by the systems is well below current tariffs. Further, the effectiveness and reliability of solar PV systems have been proven over many years.”
Engineering partner CreoVision verifies the technical and engineering aspects of projects to ensure that they meet all due diligence requirements, as the security of the investment depends on the reliable power production of the system.
Similarly, CreoVision ensures that the technical assessment of the site is conducted and the engineering modelling done to ensure the size of the solar PV project is fit for the user’s purposes. It also assesses the materials and equipment that will be installed to ensure that the inverters and solar PV panels conform with international Tier 1 standards.
Frolich adds that the systems can readily be integrated with energy storage systems