How SA can power green investments and end load-shedding

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How SA can power green investments and end load-shedding
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How SA can power green investments and end load-shedding
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With SA’s energy crisis showing no sign of slowing down, the need to accelerate green investments is now more urgent than ever.

Understandably, many bemoan load-shedding as it continues to be a massive drag on productivity and output in key sectors of the economy. But there is asilver lining; load-shedding presents the most opportune moment for SA to speed up the transition to renewables and decarbonise by creating an environment conducive for green investments.

With its abundant sun and wind, SA has the basic resources to attract investments in that space. But we should be doing more to lure green investors.

Ramping up targeted incentives to companies operating in the renewable energy space could be one of the most effective ways to spur green investments into the country, and thus keep the lights on–which is necessary to fire up the economy and to make a meaningful dent on unemployment, poverty and inequality.

While SA is considered the best area for investment in Africa by investors from various countries around the world —topping the list of foreign direct investment with 31 projects in 2020 according the Attractiveness Report Africa by global professional services firm Ernst &Young (EY) — the country hasn’t done enough to build on this advantage and scale up renewable energy investments.

So, what should SA be doing to establish itself as a green investment hub?

Huge tax benefits, which could effectively address green economy challenges and change of consumer behaviour, are one of the most important factors influencing green investment decisions today. This can be seen in countries that top EY’s investment attractiveness index including the US, the UK and Germany. Examples of sustainable activities that receive substantial tax credits in those countries are in energy-efficient renovations especially in residential buildings. There are also credits for companies that invest in solar panels, wind and solar energy equipment. Companies that send waste from landfills for recycling or reuse also qualify for tax benefits.

A recent study conducted by global research firm Kantar on behalf of Wesgro, the official tourism, trade and investment promotion agency for Cape Town and the Western Cape, shows that there is a growing appetite to invest in the green economy globally and many governments are putting in place clear and targeted measures to make it easier and more incentivised for players in that market.

The US, for example, recently promulgated the Inflation Reduction Act of 2022 which includes almost $400bn in clean energy and climate related spending. The law partly puts an emphasis on subsidies and tax credits to stimulate investment in clean energy technologies rather than on a carbon price or penalties. In broad terms, it aims to ramp up investments in domestic manufacturing capacity, encourage domestic procurement and diversification of supply chains, and incentivise research and development, and commercialisation of clean technologies like carbon capture, storage and clean hydrogen.

A major portion of the funding under the new law is directed towards clean energy through a mix of tax incentives, grants and loan guarantees, with the ultimate goal of drastically lowering US carbon emissions. The largest amount of funding will support clean energy and transmission, followed by clean transportation, including a switch to electric vehicles (EVs).

Similarly, the UK provides generous tax breaks for companies that operate in a sustainable manner. A Climate Change Levy (CCL) is paid by businesses in key sectors, including industrial, commercial, and agricultural or public services for electricity, gas and solid fuels.

But if the firm uses small amounts of energy (for example, when energy is not used as fuel), or uses domestic energy, it doesn’t need to pay the main rate of CCL on certain supplies. A company can also claim “enhanced capital allowances” when buying energy-efficient, low- or zero-emission technologies, such as electric vehicles or zero-emission trucks. This reduces the amount of taxes to pay. A company can also obtain tax breaks if they send waste from landfills to be recycled, incinerated or reused.

Meanwhile, in 2019 a law on climate protection was introduced in Germany. The law includes, among other measures, tax incentives for energy-efficient renovation measures in residential buildings or a mobility bonus for people who commute to work. The "European Green Deal" – with the aim of achieving climate-neutral business activity by 2050 – also gives the tax policy a decisive role in the transition to greener and more sustainable growth.

By 2030 Germany plans to produce at least 65% of all its electricity from renewable sources, and all electricity generated in the country should be greenhouse gas neutral before 2050.

To secure the green transition, the German government plans to invest €1.5bn in green hydrogen to help decarbonise the economy. Such measures send a clear message to investors that renewables will be supported and builds confidence.

Meticulously prepared top-down plans of a country on sustainable development give potential investors a defined road map and show investment opportunities in a clear way.

In SA, incentives to fast-track the transition to a green economy have hardly moved the needle, amid lack of clarity on key government policies. The political will is there, for the most part. What is needed is urgent and decisive action.

The energy crisis will not be fixed by any one stakeholder and the collaboration of public and private sector will be the catalyst for getting this right. The Western Cape is taking the lead on that front with Premier, Alan Winde, recently stating that the province is looking into ways in which private businesses can be provided with the necessary support to ramp up more investment into alternatives. The province has always emphasised the importance of intensifying and expanding the green energy drive by boosting relations with local and international partners.

SA has the potential to attract more green investments by implementing policies and initiatives that promote the use of clean energy and sustainable development. This could include setting clear renewable energy targets, providing lucrative financial incentives for clean energy development, and creating a predictable regulatory environment.

By implementing policies and initiatives that promote clean energy and sustainable development, SA can accelerate the massive rollout of renewable energy, crucial to end the crippling load-shedding crisis. But this will require a comprehensive and coordinated approach that involves the government, private sector, and civil society. Only then can SA build a much more attractive environment for green investors, accelerate the drive to a low-carbon economy, and end load-shedding which has become the biggest handbrake on the economy.

This article was first published by Business Day