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Budget 2023 and green incentives: Investment in renewable energy is a fundamental business decision

28 February 2023 PwC

PwC South Africa is pleased to share its second South Africa Economic Outlook report for 2023.

In the wake of Budget 2023 and announced incentives for investment in solar power generation, this edition focuses on green incentives and their role in encouraging local businesses to invest in renewable electricity generation. Investment in renewable energy will be a fundamental business decision in 2023 and beyond: it is the most direct solution for South Africa’s private businesses to improve their energy security situation.

Aside from the newly announced solar incentives for businesses and households, South African legislation already provides several other green grants, incentives and reliefs that aim to encourage and reward companies for implementing measures to combat climate change. The specific incentives under the Income Tax Act include benefits linked to energy efficiency savings, the purchasing of renewable electricity generating equipment and acquiring a new and unused environmental treatment and recycling asset, amongst others.

Lullu Krugel, PwC South Africa Chief Economist and ESG Africa Lead, says:

As the world moves to combat climate change, decarbonisation has become a priority for governments and companies alike. One way that governments around the world are spurring decarbonisation progress is through green taxes and incentives. Green incentives are financial benefits that are used to encourage projects and investments that reduce environmental harm. They include tax incentives that reduce tax liabilities to stimulate investments focused on mitigating environmental impact.

Green incentives can help private businesses achieve Environmental, Social and Governance (ESG) goals which, in turn, is essential for addressing our country’s social challenges. The country’s power situation is severely affecting economic growth and jobs at a time when the country urgently needs to recover from the aftereffects of the COVID-19 crisis to retain its competitiveness and attractiveness. However, load-shedding is currently the number one brake on economic and employment growth.

Christie Viljoen, PwC South Africa Senior Economist, says:

PwC estimates that power cuts reduced potential real GDP growth by five percentage points in 2022. This cost the country around 600,000 potential jobs. The channels of negative impact from load-shedding on the economy are diverse, including: weaker consumer confidence weighing on retail spending; lower business confidence impacting investment decisions; and tainted international perceptions limiting foreign investment. Looking beyond GDP, society also faced increased crime risk due to off-line security systems, longer journeys linked to delayed transport, and unreliable communication from slower mobile telecommunication services, amongst other issues.

On a positive note, research by Moneyweb found that South African households and businesses installed 1,500 MW in solar generation capacity during 2022, with a total of 4,550 MW installed solar capacity at the end of last year falling outside of the Renewable Independent Power Producer Programme (REIPPP). The South African Photovoltaic Industry Association (SAPVIA) expects another 2,300 MW to be added in 2023, to bring the total capacity to 6,850 MW. This will almost equal the expected REIPPP-related capacity of 6,952 MW.

One of the benefits that can potentially unlock more solar installation in commercial and residential buildings is the concept of net billing. This would compensate prosumers (who both produce and consume energy) based on the actual market value of electricity. This is achieved by balancing what the prosumers consume to keep their lights on with the surplus that they inject into the grid. Alternative mechanisms like a feed-in-tariff (FiT) work on a similar business model but with the provision that excess energy injected into the grid is compensated at a predetermined tariff.

During his State of the Nation Address (SONA) 2023, President Cyril Ramaphosa declared a national state of disaster to respond to the electricity crisis. The state of disaster enables the government to accelerate the roll out of much needed energy projects by leveraging certain regulatory mechanisms. Given this declaration, greater clarity is needed on how municipalities can deviate from stringent procurement policies in order to expedite the uptake of small-scale renewables like solar energy whilst ensuring transparent and legal procurement takes place.

Key content in this report includes:
• Climate risk: Green taxes and incentives can help businesses achieve environmental goals.
• Budget 2023: R9 billion worth of incentives for businesses and households to invest in solar panels.
• ESG focus: Income Tax Act offers other incentives for investment in renewable electricity generation.
• Featured PwC research: Changes at SARS help to improve South Africa’s private business environment ranking.

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