ENERGY EFFICIENCY Energy Efficiency tax incentive in South Africa South Africa has introduced a tax incentive for energy efficiency in the industrial and commercial sectors, amounting to 45c per kWh saved. T he regulation announcing this incentive, was published on the 9 December 2013 and subsequent to that and during the first quarter of 2014 workshops were undertaken to explain how companies can participate in the scheme. Workshops with industry groups on an invitation basis were followed by a national roadshow across all nine provinces in South Africa. This particular tax incentive represents a significant change in energy efficiency incentives in South Africa, that has traditionally been dominated by national utility Eskom, which has seen its funding for its Integrated Demand Management (IDM) programmes suspended, due to funding constraints. It is a significant development, since it can be argued that Eskom has in part been able to keep the lights on due to the effectiveness of its IDM programme over the last couple of years. While Eskom’s IDM scheme was working effectively the argument, a valid one, is that the national utility’s agenda (managing peak demand and keeping the lights on) and the country’s agenda (a national drive towards energy efficiency and associated environmental improvements) will not always be aligned. As the tax incentive is aimed at the industrial and commercial sectors, Eskom’s IDM programme is likely to focus increasingly on residential demand side management. Barry Bredenkamp, senior manager at the South African National Energy Development Institute (SANEDI), which is overseeing implementation of the energy efficiency tax incentive programme on behalf of the national treasury and department of energy, says the philosophy was to stop talking about such a scheme and get something out there, even if it is not perfect and has to be tinkered with to refine it. The alternative would be years spent in planning with no forward progress. “The national energy efficiency tax incentive, generally referred to as the 12-L tax incentive, provides an ideal opportunity to have one incentive that is consistent over time, easy to control and levels the playing field,” Bredenkamp says. One of the problems with previous energy efficiency programmes undertaken by Eskom Barry Bredenkamp, senior manager at the South African National Energy Development Institute (SANEDI), which is overseeing the energy efficiency tax incentive programme on behalf of government. ESI AFRICA ISSUE 1 2014 is that they have been erratic in nature and have not necessarily provided the certainty for the creation of long- term careers and businesses in the sector. For many years Eskom’s IDM programme focused on residential measures, dominated by the replacement of incandescent lamps with compact fluorescent lamps. As the gains from that programme tapered, in the past two years the utility put into place incentive schemes such as its Standard Offer and Standard Product schemes for industrial and commercial customers. These were working well, with incentives offered, largely in advance, of up to R1.2/kWh dependent on the technology in question. This ground to a halt in about October 2013, in terms of awarding the incentive to new projects, which illustrates the boom-bust nature of such programmes. From a policy perspective the 12-L energy efficiency tax incentive in South Africa is not intended to replace the Eskom IDM programme – its mechanisms and fundamental nature are quite different. Its exclusion of the peakier residential sector, and Eskom’s natural focus area, is just part of it. So too is the lower value of the tax allocation of 45c/kWh translating into tax incentives for an effective 12 month period. The 45c/kWh rate is subject to a marginal tax rate of 28% which means the end user retains an effective 12.6c/kWh saved and verified. There are other exclusions too. Almost all the parties that have looked at the energy efficiency tax incentive legislation (12-L) agree that the exclusion of cogeneration and renewable energy options from the incentive scheme is a shortfall. Ideally, the participants feel they should be able to decide if they wish to invest in renewables as displacement alternatives or in energy efficiency measures, and in what balance to do this. The argument for the omission has been that there is a national incentive scheme for small 31