As South Africa navigates the challenges of rising electricity costs and energy instability, commercial farmers are facing increased financial and operational pressure. South African Farmers, while known for their resilience and innovation, are now presented with a unique opportunity and assistance to invest in renewable energy solutions. 

While escalating electricity costs is a reality that most South Africans are quite aware of, Ordiphase has put together a guide to assist farmers to mitigate the impact on their business. GreenTower ESS solar PV Energy Security Solutions viably provide renewable energy with improved payback on investment using government tax incentives and financing through the “Bounce Back Loan Guarantee Scheme”.

1. Rising Electricity Costs

The National Energy Regulator of South Africa (NERSA) has approved substantial electricity tariff increases, with Eskom implementing an average price hike of 13.29% from April 2024(Eskom)(The South African). This increase, part of the Multi-Year Price Determination (MYPD5) framework, came into effect for many farmers connected directly to Eskom. Additionally, municipal electricity rates increased on July 1, 2024, further affecting farmers who receive power through local municipalities.

These consecutive hikes highlight the significant financial pressure on energy-intensive sectors like agriculture. Farmers, who already contend with frequent load-shedding, now face higher operational costs due to increased electricity tariffs.

Investing in GreenTower ESS solar PV systems presents a viable strategy for mitigating these rising electricity expenses. By transitioning to renewable energy, farmers can ensure a more stable and predictable energy source, essential for modern agricultural operations. When designed for sustainability, solar energy offers long-term savings and reduces reliance on the grid, providing a buffer against future tariff increases.

2. Government Tax Incentives

To further encourage the adoption of solar energy, the South African government has introduced generous tax incentives for solar PV installations. These incentives allow businesses to offset the initial costs of solar installations, making renewable energy not only an environmentally responsible choice but also a financially strategic one.

Here’s what you need to know to take advantage of these benefits effectively.

Overview of the Tax Incentives

South Africa’s government has introduced enhanced tax incentives for businesses investing in renewable energy, particularly solar PV systems. These incentives are designed to encourage the adoption of renewable energy sources, thereby reducing the strain on the national power grid and promoting environmental sustainability.

The Enhanced Section 12B Allowance

Under the amended Section 12B of the Income Tax Act, businesses can now benefit from an accelerated depreciation allowance for renewable energy investments. This provision allows for a 125% deduction of the cost of the solar PV system in the first year of installation. Here’s how it works:

• Accelerated Depreciation: Businesses can deduct 125% of the capital expenditure of their solar PV system in the year it is brought into use. This means if your company invests R1 million in a solar installation, you can claim a tax deduction of R1.25 million, effectively reducing your taxable income and thus your tax liability significantly (Sage Business) (Treasury).
• No Capacity Limit: There is no upper limit on the capacity of the solar PV system that can qualify for this deduction, making it an attractive option for businesses of all sizes (SME Tax).

Financial Implications

The financial benefits of this incentive are substantial. For instance, if your business invests R1 million in a solar PV system, the tax deduction would be R1.25 million. At the current corporate tax rate, this could reduce your tax liability by approximately R337,500 in the first year. Additionally, you can reclaim the 15% VAT on the installation cost, further improving your cash flow (Treasury)(Daily Maverick).

Steps to Claim the Incentive

1. Installation and Compliance: Ensure that the solar PV system is installed and comes with a valid Certificate of Compliance (COC) to meet safety standards.
2. Documentation: Maintain all relevant invoices and documentation to support your claim.
3. Tax Return: Include the capital allowance claim in your income tax return for the year the system was installed and became operational.

GreenTower ESS solar PV Energy Security Solutions

Award winning GreenTower ESS solar PV Energy Security Solutions include commercial scale solar PV modules, Hybrid grid-tie inverters, Lithium batteries. Innovative GreenTower online controllers optimise solar PV energy generation through continuous performance monitoring, load management and system parameter adjustment.

Additional Benefits

Investing in GreenTower ESS solar PV not only provides tax savings but also reduces your electricity costs and enhances your company’s green credentials. Over time, the savings on energy bills and potential revenue from selling excess power back to the grid can further improve your return on investment.

These tax incentives are designed to promote the adoption of renewable energy across various sectors, including agriculture, and provide a substantial financial boost to those who take advantage of them before they expire in February 2025 (Eskom) (The South African).

3. Bounce Back Loan Guarantee Scheme

In addition to tax incentives, the South African government has implemented the Energy Bounce Back Loan Guarantee Scheme (EBB) to assist businesses, particularly small and medium enterprises (SMEs), in recovering from financial constraints imposed by recent economic challenges. This initiative is also designed to promote investment in renewable energy, specifically solar power, as a means of mitigating the impacts of unreliable electricity supply and load shedding. 

Key features of the Bounce Back Loan Scheme include:

• Loan Guarantees for Solar Investments: The scheme facilitates loans for SMEs and households to invest in rooftop solar systems, including solar panels, batteries, inverters, and installation costs. The government guarantees these loans on a 20% first-loss basis, reducing the risk for financial institutions and making it easier for businesses to secure funding.
• Support for Energy Service Companies (ESCOs): Loans are also available to ESCOs, which provide leasing and power purchase agreements to SMEs and households. This allows businesses to switch to more reliable energy sources without needing to finance the entire upfront cost of solar installations themselves.
• Working Capital Loans: Businesses involved in the supply chain of rooftop solar solutions can access working capital loans to meet increased demand, ensuring a steady supply of solar equipment and reducing wait times for installations (Gov.za) (Sage Business).
• Loan application closing: Bounce back loan applications need to be submitted and approved before 30 August 2024. 

Utilising Bounce Back Loans for Solar PV Projects:

Commercial farmers can benefit significantly from this scheme by securing financing for GreenTower ESS solar PV projects that reduce dependency on the national grid and mitigate the impact of electricity cost escalations. By investing in solar power, farmers can ensure a more stable and reliable energy source, essential for modern agricultural operations.

Eligibility Criteria:

• Businesses must have a maximum turnover of R300 million to qualify.
• The maximum loan amount for SMEs is R10 million, while resilience measures can provide up to R30,000 for essential equipment like portable batteries.
• For households, the loan cap is R300,000 for rooftop solar investments.

Participating financial institutions, including First National Bank (FNB), ABSA, Nedbank, and Standard Bank, offer these loans with favorable terms, making it easier for farmers to finance solar projects. The integration of these loans with existing tax incentives for renewable energy investments further enhances their appeal, providing a comprehensive financial package to support the transition to sustainable energy sources.

Conclusion

For South African farmers, the convergence of rising electricity costs, government tax incentives, and the Bounce Back Loan Guarantee Scheme presents a compelling case for investing in solar energy. By taking advantage of these opportunities, farmers can not only mitigate the financial pressures of increasing energy tariffs but also secure long-term operational savings and contribute to a more sustainable future.

One thing to remember when considering solar: grid-tie solar solutions do not offer energy security – with Eskom power failures grid-tie inverters shut down and do not generate solar energy. GreenTower ESS offer Energy Security Solutions that generate solar energy on the farm during Eskom power outages and can integrate with existing grid-tie inverters so-that they keep on producing solar energy.