• In a bid to drum up investment in renewable energy generation, The Twelve B Green Energy Fund was launched today.
• This fund will invest in renewable energy projects while offering investors the ability to deduct their investment from their taxable income.
• The fund is regulated by the Financial Sector Conduct Authority and is managed and administered by Grovest.

One of the highlights of the State of the Nation Address – if we can really call any part of it a highlight – was the announcement of forthcoming incentives for investing in renewable energy solutions.

“As indicated in July last year, and with a view to addressing the loadshedding crisis, we are going to proceed with the rollout of rooftop solar panels,” President Cyril Ramaphosa said on Thursday.

“In his Budget Speech, the Minister of Finance will outline how households will be assisted and how businesses will be able to benefit from a tax incentive. National Treasury is working on adjustments to the bounce-back loan scheme to help small businesses invest in solar equipment, and to allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to their customers,” the president added.

But as it turns out, a newly launched private equity fund – Twelve B Green Energy Fund – is taking advantage of existing legislation namely Section 12B of the South African Income Tax Act. This section allows for a tax deduction for assets owned and brought into use for the first time for electricity generation from renewable sources. The fund hopes to draw investment into solar projects for large residential complexes as well as commercial and industrial operations through the tax deduction.

The fund has a mandate to invest in solar panels, inverters and batteries for residential complexes, as well as commercial and industrial installations. According to a press release sent to Hypertext, the fund’s portfolio of assets is spread over several solar projects which are at different locations and have different end users. Each project is governed by a long-term power purchase agreement which governs the energy generated at an agreed price.

The fund is regulated by the Financial Sector Conduct Authority and is managed and administered by Grovest.

“Green energy has become a necessity due to SA’s unreliable electricity supply and the private sector needs to step in to urgently improve the situation. In addition to the longer-term benefits of sustainable energy generation, the Twelve B Green Energy Fund is an attractive initiative. South African individuals, trusts, companies and pension funds can write off 100% of their investment against their taxable income in the year the assets produce electricity. Effectively, this could provide green energy investors with up to 100% tax relief in that year,” explains founder of Twelve B Green Energy Fund and chief executive officer at Grovest, Jeff Miller.

“The Twelve B Green Energy Fund is targeting an IRR to investors of 14% – 15% net of fees and taxes and has a moderate risk profile. The ability to write off the cost of the investment against taxable income provides downside protection and enhances overall returns for investors,” adds Miller.

The fund outlines the following scenarios as a way to demonstrate the tax incentive it offers:

“Scenario A: Investor invests R100 000 in March 2023. The full amount is invested into the solar kit that starts generating energy in May 2023. The investor can deduct the full R100 000 from their taxable income for the year ended February 2024.”

“Scenario B:  Investor invests R100 000 in March 2023. Only R70 000 is invested into the solar kit that starts generating energy in the year ended February 2024. The investor can deduct R70,000 from their taxable income for the year ended February 2024. The balance of R30,000 can be deducted from taxable income in the following tax year when the balance of the solar kit comes into operation”.

A minimum investment of R100 000 is required. Twelve B Green Energy Fund is a Shariah compliant investment.

The fund has said that it will endeavour to “give investors the opportunity to deduct their Section 12B allowance in the year in which they make the investment.”

In order to do this it is raising capital in tranches of R200 million on a first-come, first-serve basis.

“This is a significant milestone. We are proud to launch an industry-first with so many positives – an attractive tax-structured fund, with solid returns and a strong ESG [Environmental, Social and Governance] focus, which also allows us to play our part in solving South Africa’s dire energy crisis,” Miller adds.

The Minister of Finance Enoch Godongwana will table the National Budget Speech on 22nd February. We are curious to hear what incentives businesses can expect as regards solar investment. More so, we’re curious to see how accessible this makes the installation of solar for ordinary South Africans.

[Image – Nuno Marques on Unsplash]