South Africa’s department of energy (DoE) with the support of the national Treasury has introduced a tax incentive to encourage energy efficiency by businesses. Director General of the DoE Nelisiwe Magubane says that energy efficiency is one of the areas in which South Africa is not performing as well as anticipated and acknowledges the need to prioritise action.

“Thus in an effort to address all the shortfalls and also intensify the collective role of all the stakeholders in the energy efficiency value chain, we are officially making a public announcement of the promulgation of the regulations on the Allowance for the Energy Efficiency Savings in terms of Section 12L of the Income Tax Act, 1962 (i.e. deduction in respect of energy efficiency savings) as inserted by section 27 of Taxation Amendment Laws (Act No. 17 of 2009), amended by Act 7 of 2010, (Act No. 7 of 2010) and substituted by section 29 of the Taxation Amendment Act, 2012 (Act No. 22, 2012) which came into operation on 1 November 2013.”

This legislation makes provision for the minister of finance in consultation with the ministers of energy and trade and industry to develop and publish energy efficiency regulations. The allowance for energy efficiency savings will provide a tax incentive for energy efficiency improvements as outlined in the Regulations for businesses based on measured and verified energy savings through registration with the South Africa National Energy Development Institute (Sanedi) and ultimately linking to the tax process by the South Africa Revenue Services (SARS).

“From January – March 2014, the department together with National Treasury, Sanedi and SARS will roll out national workshops to assist businesses to understand and acquaint themselves with the registration process and overall implementation.”

It is understood that the incentive which is already in place will not include displacement of grid usage by means of renewables generation, as that is covered by a small scale renewables programme being undertaken by the DoE. The energy savings tax incentive will be based on existing baseline energy efficiencies achieved by participating companies. The tax incentive is equivalent to 45c/kWh of savings, as verified according to the verification process.