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The 12L energy efficiency tax incentive is aimed at larger businesses that can show measurable energy savings. It started in 2013. A tax deduction is valid for all energy efficiency projects that reduce energy use. It is claimable until 2020 and is available for savings in all energy forms not only electricity. As such the potential range of the policy is great.
The tax relief is a 45 cents deduction on taxable income per kilowatt hour (kWh) of energy saved – subject to all the conditions in the 12L regulations being met. This equates to an effective kWh rate after tax deduction of 12.6c/kWh.
The Finance Minister announced in February 2015 that the 12L tax incentive will be extended and doubled from 45c/kWh to 95c/kWh for a limited period (undefined), to accelerate adoption of energy efficiency measures and contribute to the alleviation of the electricity supply constraints (Moneyweb 2015).
The 12L Programme was introduced in 2013 as an additional programme to the Integrated Demand Side Management programme, which is a financial incentive programme managed by South Africa’s main utility Eskom to facilitate energy efficiency in South Africa.
The 12L scheme is managed by the South Africa National Energy Development Institute (SANEDI) and provides incentives for businesses that can show measurable energy savings. The incentive, increased in 2015 from 45c/kWh to 95c/kWh, includes all energy efficiency projects (not only electricity) that reduce energy use and is claimable until 2020. The savings must be verified by accredited professionals. Then the kilowatt-hours savings are reimbursable for one calendar year of energy performance assessment.
An example may help understanding the relatively straightforward calculation. A company with a net profit of R2,000,000 (around EUR 150,000 as of June 2015) is normally taxed the regular rate of 28%, which would translate into R560,000 of tax payments. If the same company saves 1,000,000 kWh and successfully applied for the 12L tax incentive, tax savings amount to R126,000 (equal to 1,000,000 kWh * 0.45 * 28%). Hence, the regular tax payments are substantially reduced from R560,000 to R434,000 due to per-kWh-tax savings. Given the new and increased financial incentive of 0,95C/kWh, the company would save R266,000 (equal to 1,000,000 kWh * 0.95 * 28%) (SANEDI 2014).
In order to be eligible to the 12L tax rebate, energy savings reports must be compiled by a Monitoring and Verification (M&V) Professional accredited by South African National Standards (SANS). Furthermore, the energy savings must be certified by the South African National Energy Development Institute (SANEDI) through issuing of a certificate. To meet the requirements of 12L, government has provided a structure to implement 12L with technical support in the form of South African National Standards (SANS), assurance through the accreditation of energy efficiency M&V Bodies by the South African National Accreditation System (SANAS) and jurisdiction through SANEDI.
The 12L tax incentive aims to (i) safeguard the country’s energy security by reducing the demand for energy and (ii) to provide appropriate price signals to help guide the economy towards a more sustainable growth path. The programme offers both capital investment and training programmes. The trainings are offered to improve labour productivity and the skills profile.
From the beginning of the programme until 28 January 2015, 33 energy savings projects for 12L have been registered on the SANEDI website. The combined kWh savings from these projects is 35 GWh if the registered projects all managed to get tax certificates from SANEDI, based on successful M&V. R16,002,267 (equivalent to EUR 1.5mn as of June 2015) would be paid out by SARS in 12L tax rebates.
The scheme is funded by National Treasury from the fiscus and has been designed as a complementary mechanism to the proposed carbon tax. As soon as the carbon tax becomes effective, a portion of the carbon tax revenue will be recycled through the 12L incentive.
South Africa is the first country in the world to implement a per-kWh-saved based tax incentive. Other countries provide financial incentives through a range of subsidies and preferably priced loans. You find several successful policies of this type of policy in the.
South Africa is ranking high among the world’s most energy-intensive nations, and is one of the highest contributors in terms of national greenhouse gas emissions per capita (The World Bank NA). This can be attributed to the fact that the economy is predominantly coal based and a legacy of comparatively low electricity costs. The industrial and mining sectors combined are the largest users of energy in South Africa and account for 38% of total end-user energy demand (Department of Minerals and Energy 2005).
In 2008 a combination of different factors resulted in a power crises in South Africa. As a consequence, the South African government has recognized the relevance of energy savings and energy efficiency. The need for a strategy to overcome the national problems led to the implementation of an energy efficiency strategy as well as demand side management policies.
The National Electricity Regulator established the energy efficiency demand side management programme (EEDSM) together with Eskom, the largest utility company of South Africa and defined the rules and procedures of the policy in the same year (2004) (International Bank for Reconstruction and Development & World Bank 2011).
The 12L was implemented in addition to the EEDSM programme and focuses on the large industry sector. Many South African businesses have been slow to roll out energy efficient processes, partly due to the high capital costs and what they consider to be lengthy pay back periods. As such, uptake of cleaner technologies and innovation have been slow.
The 12L tax incentive aims to encourage energy efficient processes and to change behaviour to accelerate uptake of cleaner technologies and innovation. Furthermore, by encouraging greater levels of energy efficiency, the P&M purposes to reduce the demand for energy and CO2 emissions. Finally, it is the intent of the tax incentive to provide appropriate price signals to help guide the economy towards a more sustainable growth path.
It is a national programme.
All categories are marked as 12L does not target specific concepts and options, rather it takes a more holistic approach and aims to encourage uptake of various types of cleaner technologies and energy efficiency innovations. Although there is no minimum threshold costs associated with the processing of a 12L application, such as M&V, mean that it is only viable for bigger projects and not suited to residential or smaller projects. For example, 12L may be used by a domestic hot water manufacturer to produce more EE units but not for a household to acquire a more EE unit
A broad range of energy efficiency actions are targeted. 12L does not target specific concepts and options, rather it aims to encourage uptake of cleaner technologies and energy efficiency innovations. These could include passive and active options, building energy management, design optimisation or the upgrading of facilities to reduce manufacturing costs.
12L is available for any year of assessment for trade ending before January, the 1st in 2020. The baseline at the beginning of the year of assessment must be calculated, as well as the reporting period energy use at the end of the year of assessment.
At the time section 12L was designed, the Eskom Integrated Demand Management (IDM) rebate programme was fully functional. Section 12L was implemented to cater for projects that fell outside the IDM realm and its intended purpose was not to replace or supplement IDM process (12L actually prohibits businesses from claiming both section 12L and an Eskom rebates for the same projects).
With respect to funding, 12L has been established as a complementary mechanism to the carbon tax. In fact, a portion of the carbon tax revenue will be recycled through the 12L incentive as soon as the carbon tax is fully effective.
Furthermore, 12L is aligned to the goals of the National Energy Efficiency Strategy, the Climate Change Response Policy and the Green Economy Accord. The goals of these policies are to create a more energy efficient South Africa, with reduced carbon emissions – the same goals as 12L.
Moreover, in 2011, the Government also introduced a minimum energy performance standard for buildings of different sectors (residential, commercial, industrial, etc.). For large-scale energy consumers of the services and industrial sector, the 12L scheme may support industry to fulfill the requirements.
South Africa is the first country in the world to implement a per-kWh-saved based tax incentive. Other countries provide financial incentives through a range of subsidies and preferably priced loans.
12L has been designed as a complementary mechanism to the carbon tax. It is intended that a portion of the carbon tax revenue will be recycled through the 12L incentive. In how far this will affect the current 12L scheme, remains to be seen.
The optimisation and success of 12L will depend on the willingness of government to adapt the system as needed in future.
Due to the high costs of M&V, companies with smaller energy saving projects may find that the M&V costs exceed the value of the incentive.
A “12L Lite”, with less onerous M&V requirements may assist in optimising the policy going forward. Plans that the 12L more adequately addresses such smaller energy saving projects are currently discussed.
Another problems represents the, currently, relatively small number of M&V bodies, which must be officially accredited by the South African National Accreditation System (only 4 were accredited towards the end of 2014). This means that the supply of this service is relatively limited, and the price of the service is high. As more service providers become accredited, the costs of M&V will come down, assisting in optimising this policy.
The following pre-conditions are necessary to implement Energy efficiency tax rebate 12L:
Agencies or other actors responsible for implementation
Several actors cooperate in order to implement the 12L tax incentive. First, the South African National Accreditation System (SANAS) is in charge of accrediting so-called Monitoring and Verification (M&V) Bodies measuring energy savings. The South African National Energy Development Institute (SANEDI) is responsible for overall administration. For instance, companies that seek to make use of the 12L tax incentive must register with SANEDI and M&V-reports are also reviewed by the Institute. The South African Revenue Service (SARS) is, as a tax collecting authority, the financial incentive provider of the 12L tax scheme.
On the one hand, 12L is funded by National Treasury. On the other hand, it has been designed as a complementary mechanism to the carbon tax scheduled to be launched in 2016 (Vollgraaff & Mokhema 2015). A portion of the carbon tax revenue will be recycled through the 12L incentive. Hence, as soon as the carbon tax scheme will be fully effective, the 12L tax incentive will be benefiting from two sources to draw funding from. It remains to be seen whether and how additional funding will affect the 12L scheme.
A number of workshops were held by Governmental and SANEDI in order to incorporate stakeholder concerns into the 12L policy. These included workshops hosted by the National Business Initiative (NBI), Department of Energy (DoE), National Treasury / SARS, SANEDI and SANAS.
Six major steps are involved in order to successfully claim the 12L rebate:
Actors responsible for design
National Treasury (Ministry)
South African Revenue Service (tax collecting authority)
Department of Energy (Ministry)
Department of Trade and Industry (Ministry)
Actors responsible for implementation
South African National Accreditation System (national accreditation body for South Africa; public entity)
Monitoring and Verification (M&V) Bodies
South African National Energy Development Institute (SANEDI)
Department of Treasury (Legislator)
South African Revenue Service (tax collecting authority, financial incentive provider)
Yes, a monitoring system is implemented. In the different steps from project registration to implementation a Monitoring and Verification process is included. To compile a report containing a calculation of energy efficiency savings an appointment with an M&V professional from a SANAS accredited M&V inspection body is required. This report is then submitted to SANEDI. On the successful completion SANEDI will issue a formal energy savings certificate.
The M&V industry have set up a Council for Measurement and Verification Professionals of South Africa (CMVPSA) to ensure that the standard of work performed by M&V Professionals are upheld to provide credibility to the industry and security of workmanship to clients, engage and advise decision-makers on M&V related matters, as well as advise and protect the member M&V Professionals.
12L is a relatively new initiative and therefore a comprehensive evaluation is not available yet.
Design for sustainability aspects
12L is primary in existence to promote energy efficiency (and therefore electricity and fuel efficiency). Furthermore, the increased uptake of cleaner technologies and innovation will result in reduced greenhouse gas emissions which will have environmental and health benefits for the country.
The programme can result in the stimulation of the economy through increased energy efficiency projects and the increased competitiveness of industry in general (through energy efficient operations). This can lead to the creation of jobs
The following barriers have been experienced during the implementation of the policy
The following measures have been undertaken to overcome the barriers
12L is a relatively new initiative and therefore these figures are not available as yet.
12L is a relatively new initiative and therefore many of the concrete figures are not available as yet. Nevertheless, on 28 January 2015, SANEDI indicated that the potential kWh savings from 12L Registered Projects were 35 GWh. If the registered projects all managed to get tax certificates from SANEDI, based on successful M&V. R16,002,267 would be paid out by SARS in 12L tax rebates (Radlof 2014).
12L is a relatively new initiative and therefore many of the concrete figures are not available as yet. Nevertheless, on 28 January 2015, SANEDI indicated that the potential savings from 12L Registered Projects were 35 GWh. If the registered projects all managed to get tax certificates from SANEDI, based on successful M&V, R16,002,267 would be paid out by SARS in 12L tax rebates (Radlof 2014).