Although Eskom and government provide support for large renewable energy projects designed to bridge the power gap on a number of levels, there is still an important piece missing from these initiatives.
Owen Murphy, Tax Specialist at BDO, shares some insights around the role government plays in supporting small businesses in the energy crisis.
A recent announcement by Eskom to lease land in Mpumalanga to renewable energy producers to feed production into the grid could see around 36,000 hectares of unutilised land owned by the parastatal made vailable to investors interested in renewable energy projects.
Although the plan, originally proposed in December 2021, has already reached the Request For Proposals (RFP) stage, Eskom Group Chief Executive André de Ruyter has explained that the leasing of the land would have to be made subject to production being achieved by a contracted date.
Eskom COO, Jan Oberholzer, also cautioned that the initiative must be viewed in context of South Africa’s power gap which was recently been estimated at between 4,000 MW and 6,000 MW. According to Oberholzer, the government’s energy policy is insufficient to solve the country’s worsening energy crisis, which requires substantial new generation capacity.
However, this view was challenged in a report from the International Institute for Sustainable Development (IISD) which found that with the right business strategy and political support it is possible for Eskom to pivot away from fossil fuels and embrace more sustainable and cost-effective renewable energy solutions.
The Renewable Energy Independent Power Producers Procurement Program (REIPPPP), initiated and driven by the private sector, has demonstrated that competitive funding from both local and international markets is available and could prove to be a substantially more cost effective solution in terms of Rand per MW installed. For example, Eskom’s land-leasing plan relies on existing infrastructure in Mpumalanga as opposed to the continued use of expensive state subsidised funds required by Eskom to fund the operation and maintenance of coal-fired power stations.
There are numerous other initiatives in progress for the funding of renewable energy projects in South Africa, but it is a crowded landscape of different government departments and semi government institutions, along with high profile industry players, attempting to streamline projects that are often stalled by policy-makers before any substantial traction can be gained.
So where does this leave small business, who more often than not bear the economic brunt of the energy crisis?
In order for small business to play a significant role in the renewable energy game, government must devise plans to incentivise consumers to “go off the grid” and install solar panels for their electricity requirements. The call for government to provide such incentives is not a new one. For example, The Democratic Alliance lobbied strongly for a tax rebate of R75,000 for this in March 2020 as part of their budget proposals for the 2020/2021 fiscal year.
The advantage of a rebate such as this would be that no government department would hold or administer the funds or manage the associated risk. With service providers estimating that a comprehensive off-grid solution would cost approximately R 100,000 to R 120,000, this proposed scheme would cover around 75% of the cost of the installation.
Although proposals such as this do need to address potential tax implications, the impact of taking pressure off the grid would have exponential economic benefits, specifically within the small business sector.
In addition, there would be substantial investment opportunities in local manufacturing for the required equipment and the potential to create an export market for similar small scale “off grid” projects to be rolled out in Africa. Job creation would be given a much-needed boost as the demand for artisans to install the equipment would rise and once trained in this field, a future workforce could be upskilled and employed within the sector.
A further advantage of incentivising consumers to adopt “off-grid” power solutions is that it will reduce the pressure on Eskom’s ability to maintain a constant base load during the hours of 6pm to 10pm when there is no sunlight available to the grid that can be supplied by renewable energy providers.
South Africa also has immense potential to expand into renewable energy production when compared with other regions, as the country boasts some of the most sustained sunlight in the world and an abundance of water along its 2 800-kilometre coastline. Now is the time for government to harness the natural resources we have available to attract large scale investors and reduce the power gap so that small entrepreneurs are no longer left in the dark.