Power shortages and load shedding in the last years have galvanised South Africans to take measures to secure energy efficiency in industrial, commercial and residential facilities.
At a governmental level the National Climate Change Response White Paper, published in Government Gazette 34695 of 19 October 2011, also commits South Africa to make a fair contribution to the global effort to stabilise greenhouse gas concentrations in the atmosphere within a time frame that is compatible with sustainable development. Click here to access the White Paper.
There are various policy interventions that have been taken by government to support the move towards energy efficiency, the Minister of Energy’s Budget Speech in late May 2017 continued to emphasize the importance of these measures, some of which are summarised here. Click here to access the Minister’s 2017 Budget Speech.
Green Buildings
As of May 2012 all new buildings and extensions must to comply with the energy usage in buildings provisions in the amended the National Building Regulations (the Regulations).1 These set minimum standards for energy efficiency with which all new buildings and extensions in South Africa are required to comply.
Click here to access the Regulations.
The Regulations require that in order to reduce greenhouse gas buildings, new buildings and extensions be designed and constructed such that they are capable of using energy efficiently without compromising user needs. They also require that at least 50% of the annual domestic hot water requirement of a building must be provided by sustainable energy efficient means instead of traditional electrical resistance (element) heating.
There are three ways in which new buildings can satisfy and ensure compliance with requirement to use energy efficiently.
Firstly, the requirements of Regulation XA1 are deemed to be satisfied if new buildings and extensions of buildings are designed and constructed in accordance with SANS 10400 Part XA – Energy Usage in Buildings (SANS 10400 – XA), in terms of Regulation XA3.2 This provision incorporates SANS 10400- XA into South African building law and establishes it as the benchmark for the environmental sustainability of buildings.
SANS 10400 – XA encompasses, among other issues, energy usage and building envelope, R-values, design assumptions, requirements for floors, walls, fenestration and advanced window systems, roofing and mandatory ceiling insulation.
The standard addresses the design elements of a building by looking at the orientation of the building and the use of natural light and insulation. These measures allow for buildings to be kept cool in summer and warm in winter naturally which will reduce the amount of energy that will be consumed for heating and cooling of buildings.
There are a number of references to an earlier standard – SANS 204 – Energy Efficiency in Buildings (SANS 204) – contained in SANS 10400 in establishing many of its requirements. This therefore makes SANS 204 indispensable for proper compliance with the regulations and also now part of South African building legislation.
Secondly, a building can be designed and constructed in accordance with a rational design by a competent person, usually an engineer, which demonstrates that the energy usage of the building is equal to or better than that which would have been achieved by compliance with SANS 10400 – XA.
Thirdly, a building can meet the regulation requirements by being designed and constructed to have a theoretical energy usage performance less than or equal to that of a reference building in accordance with SANS 10400 – XA. This performance must be determined by using certified thermal calculation software.
Energy efficiency income tax incentive
Section 12L of the Income Tax Act allows deductions in respect of energy efficiency savings. This provision came into effect on the 1 November 2013 and was amended in 2015.
It allows taxpayers to claim deductions of 95 cents per kilowatt hour, or kilowatt hour equivalent, of energy efficiency savings made against a baseline measured at the start of each year of assessment. This opportunity to claim tax deductions applies to all measured and verified savings achieved before 2020. The “energy efficiency savings” are the difference between the efficiency at which the project ‘generates’ electricity and the efficiency at which Eskom ‘generates’ electricity, i.e. the conversion efficiency of the fuel-source used. Renewable generation is excluded from calculation of energy efficiency.
When it was launched it this scheme was touted as the first “negawatt” based tax incentive globally!
The scheme requires registration with the South Africa National Energy Development Institute (SANEDI).
Details of the scheme are explained in a SANEDI presentation which can be accessed here.
Embedded generation regulations
Numerous municipalities are already approving the installation of rooftop photovoltaic systems that generate power into their local distribution systems.
The policy governing small embedded generation projects is however not yet final. This makes it difficult to obtain financing for embedded generation projects or to see their roll out on a large scale. The National Energy Regulator (NERSA) released a consultation paper in 2015 which was to be finalised March 2016 but this has been delayed by the delay in finalising the Licencing Regulations. The Consultation Paper can be accessed here.
The Minister of Energy in her 2017 Budget Speech promised that she would promulgate the embedded generation licensing framework in 2017.
It is anticipated that this will cover rooftop solar technology installations, as well as other distributed generation technologies with a proposed cap of 10 megawatts per site.
Embedded renewable generation income tax incentive
Section 12B of the Income Tax Act provides for a capital allowance for movable assets used in the production of renewable energy. In general this allows renewable assets to be written off over an accelerated 3 year period. A 100 per cent allowance in year one is however allowed for embedded solar PV renewable energy for self-consumption with a generation capacity of up to 1 000kW (or 1 MW). The amendment will apply to years of assessment commencing on or after 1 January 2016.
The 100 percent allowance was put forward by National treasury to increase the uptake of embedded solar PVs for self-consumption to ease the pressure on the national electricity grid as these solar PVs become energy self-sufficient.
The allowance is only available if the asset is brought into use for the first time by the taxpayer. In other words, the allowance is not limited to new or unused assets. The wording merely prevents the taxpayer from claiming the section 12B allowance twice on the same asset. The asset has to be brought into use for the purposes of the taxpayer’s trade in order to generate electricity from the following renewable energy sources:
- wind power;
- solar energy;
- hydropower (gravitational water forces) to produce electricity of not more than 30 megawatts; and
- biomass comprising organic wastes, landfill gas or plant material.
An example of assets for which the allowance can be claimed in respect of embedded roof top solar energy are likely to include photovoltaic (PV) panels, combiner boxes, inverters and batteries.
Section 12B effectively provides an accelerated capital allowance (as opposed to the five year write-off period in section 12C) on the cost of the asset and can be claimed in full, even if the asset is used for only part of the year of assessment.
Solar Water Heaters
The Department of Energy is running a Solar Water Heater procurement and installation Programme.
The programme received significant attention in the Minister of Energy’s 2017 Budget Speech where an additional R411 million was earmarked for the programme. The programme envisages the procurement, supply, installation and maintenance of up to 1.75 million solar water heater systems in residential dwellings throughout South Africa. A supply programme was initiated in December 2015 and an installation programme is expected to be initiated in pilot areas. The programme has the development of a local solar water heater manufacturing capability at its core and local economic development through the empowerment of local installers and maintainers of solar water heaters leading sustainable local economic development.
Details of this programme can be accessed here.
Independent Power Producer Programmes – Renewables and Cogeneration
South Africa has run various independent power producer programmes for renewable energy (REIPP) and for co-generation and also for small scale generators. The REIPP has won numerous infrastructure awards internationally.
In the past five years, the Department of Energy has procured 92 privately funded power projects totalling R193bn and is delivering 2,145MW into the grid. There was widespread competition there were almost 400 bids over multiple tender rounds. The Renewables Programme has achieved Financial Close for 3 bid windows and further bid submission phases are either in the preferred bidder phase or planning. The programme is a key to South Africa’s climate change adaption agenda and has also resulted in significant economic development benefits in domestic manufacture, job creation, ownership and community development. Limited rounds were held of the co-generation IPP Programme but more rounds of these IPP Programmes can be expected in future.
The Renewable Energy IPP Programme won two awards in 2013. They are: the Global Leadership Infrastructure Programme awarded in New York in March 2013 for the best renewable energy infrastructure in the world for 2012. In addition the Renewable Energy IPP Programme won two awards at the Africa Investor (Ai) CEO Infrastructure Investment Summit. The two are the “Infrastructure Regulator of the Year” and the “Power Deal of the year”.
The Minister of Energy in her recent 2017 budget speech signalled the transfer of the IPP Office which has run these programmes from within the Department of Energy, to the Central Energy Fund.
Details of the programmes can be accessed here.
[1] Made in terms of the National Building Regulations and Building Standards Act 103 of 1977, published in Government Gazette 34586 of 9 September 2011.
[2] A number of International (ISO) standards have also been published in respect of ‘green building’ regulation including ISO 16344:2012; 12655:2013; ISO 16343:2013; ISO 16346:2013 which relate to different aspects of building environment design and / or energy performance of buildings.
