New funding option for firms looking to go solar

A tax incentive could make it easier for business owners looking to go solar.

In February this year, the finance minister announced an enhancement to the section 12B tax incentive, in terms of which taxpayers (businesses, individuals or trusts) will be able to claim a 125% deduction in the first year for all renewable energy projects, without a threshold on generation capacity.

However, the adjusted incentive will be available only for investments brought into use for the first time between 1 March 2023 and 28 February 2025.

Rooftop solar has become a popular choice as it requires minimal maintenance, most components are highly durable with a long lifespan and energy costs reduce over time. As South Africa struggles with load shedding and rising energy prices, many business owners have to source alternative energy to remain operational. Rooftop solar has become a popular choice as it requires minimal maintenance, and most components are highly durable with a long lifespan and energy costs reduce over time.

But the challenge most business owners face is how to fund the large capital outlay required to instal a solar solution. The recently enhanced section 12B tax incentive has encouraged fund managers, such as alternative investments specialist Jaltech, to raise retail capital from South African taxpayers specifically to fund solar projects in South Africa.

Jaltech partner Jonty Sacks said: “From the perspective of companies who are looking to raise capital for solar, Section 12B has now become very appealing, as fund managers have raised capital and can offer rates way better than traditional financial institutions because we are not subject to the same regulations as they are.

New pool

“There is a whole new pool of capital available for solar installations, but it has to be used before February next year or the taxpayers will miss out on the tax deduction within this financial year.”

Fund managers can offer funding to property or business owners at more competitive rates than traditional funding options.

Given the large tax incentive for such investors, fund managers can offer funding to property or business owners at more competitive rates than traditional funding options.

“Traditional institutions are only able to fund a portion of a project, but since section 12B fund managers are not subject to banking legislation, we can fund an entire project. The terms we offer are also more attractive,” said Sacks.

Property or business owners benefit as no security is required, there are minimal upfront costs and costs are stable and predictable. The funding term can be as long as 15 years, lowering the annual payment and structuring the funding in a way that is off-balance sheet for business owners.

The property owner will be able to appoint the solar installer responsible for maintenance and monitoring.

“Solar installers also benefit as they now also have access to section 12B funding for their clients or new and existing projects they operate. This has unlocked a number of projects which simply took too long through traditional funding channels,” said Sacks.

“The likelihood of Eskom supplying the South African market with reliable electricity in the next two years is remote. If it eventually achieves this, the cost of electricity will likely be significantly higher than the cost of producing energy through solar.”

One of the main benefits of accessing this type of funding is that costs are expected to be lower than purchasing electricity from Eskom, and it’s anticipated that each year the business or property owner’s savings will increase as Eskom increases its tariffs.  — (c) 2023 NewsCentral Media

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