With the chaos of continued blackouts, it’s becoming apparent that SA needs to look to the private sector to find a financial solution to the technical problem of sustainable clean energy
WORDS:Mark Pettipher :: PHOTOS: ENVATO ELEMENTS
Rolling blackouts and issues around sustainable energy are topics that are affecting every South African. Recently President Cyril Ramaphosa opened the way for independent energy producers to come to the fore, encouraging private entities to begin generating renewable energy that can be grid-tied to Eskom’s existing distribution network.
But how and who is going to fund these projects? Keep in mind that SA is one of 196 parties to have signed the 2015 Paris Agreement on carbon emissions, which requires economic and social transformation and a commitment to taking action through nationally determined contributions (NDCs). The NDCs are plans that will reduce greenhouse gas emissions and, in turn, support sustainable renewable energy.
Linked to a drive towards adoption of low-carbon solutions and policies mitigating climate change, many countries, regions, cities and companies are advocating carbon neutrality and zero-carbon targets. Through mutual trade legislation countries are also being rewarded with favourable tax levies based on carbon credits.
According to website earth.org, one of the most effective financial tools available to combat climate change is a carbon tax. This is tax imposed by government that places a direct price on greenhouse gas emissions (per tonne) produced by companies or industries, and it therefore economically incentivises polluters to lower carbon emissions and find more efficient processes while helping to develop sustainable cleaner energy solutions. It also opens channels for the buying and selling of carbon tax credits.
Our standing in the world of international trade and commerce can benefit from a positive carbon credit rating. So how does this all tie in to Section 12B of the Income Tax Act? We all know of our local electricity woes – the capacity to generate electricity is just not there and we’re suffering from the repercussions and maladies of an ageing energy production network.
The solution is clear. There is enough intellectual and technical capacity in SA to come up with answers, but the crisis is a financial one. Impact Investment Group executive chairman Chris Hart, in a recent energy financing briefing, offers a unique solution. “Let your taxes pay for the technology,” he said to potential investors.
He outlined the now closed 12J government incentive and pointed to Section 12B of the constitution. To develop the financial solution model, Impact Investment Group has partnered with Fed Group, technical suppliers Red Hawk and Accute accountants as well as Rosh Pinah Properties.
Rosh Pinah Properties director Rene Styber said: “With the rising costs and stability of SA’s energy supply, we welcome this initiative that all developers and landlords should consider when looking for a sustainable green energy solution.”
Hart pointed to previous tax benefits: “We need to look at electricity from a strategic point of view. 12J required investors to find the resources to fund property incentives, similarly section 12B can be made like 12J, the difference being the structure would be based on tax returns and carbon credit incentives. “Good partners will also spread the investment load and create a deeper capacity to role out this initiative.”
The energy solution requires regulated engineering with energy management systems and bespoke solutions which includes battery storage capabilities, while at the same time still being grid-tied. The solution consists of three propositions:
FOR COMPANIES:
Impact Investment Group will fund each renewable energy project, and capital funding is available upfront. A company’s deducted taxes will be used as part of the energy investment and the refunded taxes will be passed to the Impact Investment Group as the partner who is funding the energy solution.
Each project will be registered for carbon credits at the beginning of the project, developing a fungible energy currency – carbon credits – which
can be traded for the best price internationally. These credits help with the fundraising. The offset of the purchase of the technical and physical equipment is realised through savings on reduced electricity bills, meaning that the project becomes cost and balance sheet neutral from the start.
As the project is paid off the assets go onto the balance sheet and cost of electricity becomes a function of maintenance. At the beginning the company gets price security from reduced energy bills and long-term energy security through own energy generation, mitigating escalations by the power utility. The solar solution feeds the energy system’s batteries in peak times and tops up during off peak at reduced tariffs.
FOR INDIVIDUALS:
In order to get tax deductions, section 12B requires that the electricity-generating equipment must already be installed upfront and in use, and must be part of a business or trade. Individuals are placed into a legally recognised limited partnership, and as an individual you become an investor in the partnership and your taxes become part of the partnership investment.
Investing in the equipment enables the individual to claim the taxes from their tax submission and the partnership’s business is effectively to sell electricity. Trusts can also participate, and any entity that is paying a form of income tax can be evaluated. Property developers can also benefit from this energy solution. Banks, when approached for funding, often require an owner contribution. Aligning funding through the Impact Investment Group allows the tax deductions to form part of the contribution, making it possible for solar energy security to become part of a development.
FOR INVESTORS:
This type of investment is secure, as taxes will fund 60% of the equipment acquisition with a guaranteed return of investment through the resale of the energy which will bring a yield better than traditional investments. The group has established a fund called the Capital Builder Fund to secure the balance of 40%. As with all investment funds it is regulated and encourages investment in the upfront equipment spend.
Investment will also come from foreign direct investors, government institutions such as the IDC and development banks as well as the funds partnership through the FedGroup. It is expected that a yield of upwards of 12% will be achieved through this investment.
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