South Africa has made significant strides with tax incentives encouraging businesses to invest in solar power. However, time is running out, as these incentives only apply to solar systems brought into use until 28 February 2025.

The Section 12B capital allowance presents a landmark opportunity for companies to cut operational costs while promoting sustainability, but they must act quickly to benefit, says Frank Rovelli of Probe Corporation. ​ “With the deadline fast approaching, depending on the scale of the project, we advise that businesses start the implementation process with a solar solutions provider as soon as possible to be operational before March 2025.”

In a market mushrooming with solar installers ready to take advantage of the opportunity, Rovelli recommends that businesses turn to reputable providers that offer holistic solutions. ​ “At this stage, it is even more critical for businesses to partner with an experienced solutions provider that can offer detailed energy audits and system design with a scaleable approach, advanced battery storage technologies and competitively priced Tier One products. Excellent ongoing maintenance, service and financing options should be part of the package.”

The power of Section 12B capital allowance

The Section 12B capital allowance enables companies to accelerate the depreciation of solar system costs, effectively allowing them to deduct 125% of the initial investment in the year the system is operational. ​ This means that businesses will qualify for a cost plus 25% allowance on the cost incurred on renewable projects, in the year it was incurred.

“While the previous incentive allowed businesses to deduct the costs of qualifying investments over a one- or three-year period with particular thresholds, the expanded incentive enables businesses to reduce their taxable income by 125% of the cost of an investment in renewables in the first year, with no thresholds on generation capacity or the size of the projects that qualify,” explains Rovelli.

Rovelli says that a R1 million investment in alternative energy would qualify for a tax deduction of R1.25 million, in turn reducing the corporate income tax liability of a company by up to R337 500 in the first year of operation. “You’re effectively reducing the costs of your system by a third.”

Qualification requirements

To be eligible for the solar rebate under the new tax incentive scheme, businesses must be registered in South Africa, install a qualifying solar system for energy generation, ensure the system is operational by 1 March 2025 and adhere to regulations set by the South African Revenue Service and other authorities.

Only new and unused assets are eligible for this incentive, ensuring additional capacity beyond the business’s existing production. ​ The assets must generate electricity from renewable energy sources such as photovoltaic solar energy, concentrated solar energy, wind power, hydropower, and biomass, including organic wastes, landfill gas, or plant material. Importantly, there are no limits on electricity generation for the duration of this temporary incentive, allowing businesses to scale their renewable energy initiatives without generation capacity constraints.

Because one of the eligibility criteria for this incentive is ownership of the qualifying assets, lessors that invest in qualifying assets that are leased to lessees under operating or finance lease arrangements will be able to benefit from the incentive, subject to other qualifying criteria. While the ownership may transfer from lessor to lessee in finance leases, this only happens at the end of the lease period, so the lessor would own the generation assets for the duration of this incentive.

Benefits of the solar tax incentive

Rovelli outlines several key benefits of the solar tax incentive. One of the primary advantages is cost recovery and enhanced return on investment (ROI). ​ “By leveraging the accelerated depreciation allowance, businesses can more rapidly recoup their solar investment costs. This financial relief helps mitigate the upfront expenditure associated with solar installations, enabling companies to manage initial costs more effectively.

Another significant benefit is improved cash flow. “Businesses have the opportunity to deduct the full cost of solar systems in the year they are installed, which substantially lowers their taxable income. Reduced tax liabilities frees up capital that can be reinvested into other areas for growth and development.”

Consider your ​ financing options

Although solar has become far more affordable, the initial capital outlay for a solar system can still be daunting for commercial users, Rovelli says. ​ Probe has partnered with banks and funders to offer Rent-to-Own/Lease solutions, helping clients invest in their power.

“There are a few flexible financing solutions available, including subscription agreements and funding solutions designed for commercial installations offered through Probe’s financial partners. These solutions provide a feasible route to solar energy without requiring a hefty upfront payment.”

Taking a phased approach

Rovelli further advises that a phased approach is also a consideration to allow for a more manageable transition to solar power. ​ “We work closely with clients to design a solar system that meets their current needs but can be easily upgraded in the future. ​ It’s important to ensure systems are scalable, flexible and adaptable to changing energy requirements. We select the appropriate components to avoid compatibility issues in the future, and work with reputable brands to mitigate the risk that certain products may be discontinued. “

The broader impact

Adopting solar energy has far-reaching benefits beyond individual businesses. It contributes to diversifying the energy mix, reducing strain on the national grid, and fostering job creation in the renewable energy sector. By investing in solar, businesses are not just securing their future but are also playing a pivotal role in the nation’s clean energy transition.

“The new solar tax incentives in South Africa offer a golden opportunity for businesses to enhance their sustainability profile while achieving substantial economic benefits,” says Rovelli. ​ “By taking advantage of these incentives and additional financial support, companies can transition to renewable energy in an affordable way.”

Call Probenergy on +27 86 111 3507 for an energy assessment and let us help you invest in your power.