2020 SONA lights the way for energy independence

As South Africa continues to battle with power cuts, grid constraints and load shedding, the government is making it easier for businesses – including residential estates – to generate their own solar PV (photovoltaic) electricity.

SONA’s power play

In his February 2020 State of the Nation Address, President Cyril Ramaphosa confirmed that the South African government would ‘negotiate supplementary power purchase agreements to acquire additional capacity from existing wind and solar plants.

“We will also put in place measures to enable municipalities in good financial standing to procure their own power from independent power producers,’ he added.”

Those 40 words were quickly picked up on by mining companies and other big businesses that have built the capacity to produce their own off-grid energy supplies. That SONA paragraph also sent a pulse of excitement through the property sector, as estate developers and managers start to realise the benefits of placing power-generating solar panels on the roofs of their properties.

Rooftop solar panels collect solar energy, convert it into DC electricity, and send it to an inverter, which charges the batteries. Those batteries are then connected to the mains, which feed electricity into homes and buildings. It’s a fairly simple system, but for years the solar power industry was stuck in the shadow of prohibitive costs. The return on investment simply wasn’t there. The systems were expensive to install, the cost savings tended to come over many years, and you couldn’t do anything with the excess power you generated.

Then, on 1 January 2016, a small amendment to a subsection of the Income Tax Act changed everything.

Tax incentives

Section 12B of Act 58 of 1996 now allows for depreciation in the year of commissioning of the full cost of a grid-tied solar PV system of less than 1 MW used for electricity generation by a business in the course of its operations. Added to those significant tax incentives, a growing number of South African banks are now also offering incentives for businesses to install solar PV panels.

Depending on where you shop, a solar panel installation to power a small home (about 4 to 7 kWp) costs between R80,000 and R100,000 (sometimes more, sometimes less), excluding battery costs.

In December 2019, Jack Radmore, of green energy NPO GreenCape, told Business Insider that this would translate into roughly R1.30 per kWh for the next 15 years. Commercial tariffs, meanwhile, can sit between 85c and R1.70 per kWh, while residential tariffs can go as high as R2.20 per kWh.

‘It is very important to highlight that these upfront costs are no longer a barrier in the South African decentralised energy market,’ Radmore said, adding that solar panels are also VAT-deductible. Add on the Section 12B tax benefit, and the cost savings increase by about 28%. Residential estates would benefit from economies of scale – and with all those open rooftops, there’s plenty of room for PV panels.

Feed-in benefits

The 2020 SONA remarks also opened up the possibilities of feed-in benefits. Here, businesses that generate excess electricity can, in effect, ‘sell’ that power to Eskom, which would then feed it into the notoriously strained municipal grid.

As the City of Cape Town explained in a recent statement: ‘A grid-tied solar PV system is one that generates the electricity needed for the property, and then feeds extra electricity the property does not use back into the electrical grid. This allows you to stay connected to the grid and contribute your system’s excess to others.

This is such an obvious win-win solution that it is almost incomprehensible that it has not been implemented in the past, and many people, businesses and communities are expectantly waiting to see when the promised changes will be implemented.