Section 12L
of
the Income Tax Act
Kimberley
25 June 2015
Barry Bredenkamp
SANEDI
mandate
The South African National Energy Development Institute
The National Energy Act, 2008 (Act No.
34 of 2008), Section 7 (2) provides for
SANEDI to direct, monitor and conduct
energy research and development, as
well as undertake measures to promote
energy efficiency throughout the
economy.
www.sanedi.org.za
2
Introduction
Minister Pravin Gordhan, Minister of Finance, gave
notice that section 12L of the Income Tax Act,
1962 (Act No. 58 of 1962), which allows for a
deduction in respect of energy efficiency
savings, came into operation on 1 November
2013. This allows for tax deductions calculated at
45 cents per kilowatt hour or kilowatt hour
equivalent of energy efficiency savings. During
Minister Nene’s recent Budget Vote speech, he
announced an increase in the allowance amount
to 95c/kWh and the inclusion of cogeneration
projects in 12L.
Key Dates
2009 – then Minister of Finance announced incentives for
those that can demonstrate energy efficiency savings.
9 December 2013 – 12L promulgated with an effective
date of 1 November 2013.
1 January 2020 – 12L available for any year of
assessment for trade ending before1 January 2020.
1 March 2015 – Revised 12L Regulations promulgated,
and ……………….
“Breaking News”!
“The Section 12L incentive is increased from 45c
per kWh to 95c per kWh saved. This incentive
offers a tax deduction for taxpayers who
implement energy saving measures. The benefit
period remains one year, so energy savings from
a specific energy saving measure can only be
claimed for a period of one year. In addition,
clarification has been provided that cogeneration
projects are eligible under this incentive.”
South African Finance Minister, Nhlanhla Nene's
inaugural full budget speech, 25 February 2015.
Co-generation ‘Savings’?
The energy ‘savings’ would be the difference
between the efficiency at which the project
‘generates’ electricity and the efficiency at which
Eskom ‘generates’ electricity, ie. the conversion
efficiency of the fuel-source used!
MTN’s H.O. Tri-generation plant, Gauteng
but ……….
“ ………the 95c / kWh is not yet law. It is not
included in the Regulations, but will be part of the
2015 tax bills that are only likely to become law by
the end of the year or early next year.
However we (National Treasury) will try and back-date
the 95c to 1 April 2015, but still have to confirm with
our lawyers!”
Correspondence received from National Treasury on 12/06/2015
12-L in a Nutshell
Tax incentive of 45 (95c) c per verified kWh, (or
equivalent kWh).
Tax incentives are currently offered for one (1)
assessment year of kWh savings.
Only applicable to registered businesses.
No concurrent (consumption) benefits allowed.
A SANAS accredited body to sign-off on the M&V
reports.
Some Points to Note
This is the first-ever ‘Negawatt-based’ tax incentive
globally!
This is an ENERGY incentive and NOT only an
ELECTRICITY incentive.
SANEDI does NOT charge any fees for this activity!
The on-line database is securely protected &
confidentiality of all information submitted is
maintained!
SANEDI’s Role/ “Value Add”
• Must provide an ‘Assurance/ Verification Function’ on
behalf of SARS.
• Must consolidate, analyse and report to DoE, National
Treasury and SARS.
• Must assist wherever possible, to ‘make it happen’!
• Provide and maintain an on-line database, to streamline
the process & ultimately issue an ‘EE Tax Certificate’.
• Assemble a panel of relevant experts to assist in
reviewing Baseline-and-Performance Assessments!
How Does 12L Work ?
Boundary of Intervention
Entire Facility
How Does 12L Work? (cont’d)
kWh Saved for Assessment Year
How Does the Assessment Cycle Work?
Assume a Plant that operates 24/7/365 and has a
constant usage of 1 000 kWh per month.
The annual baseline usage will be 12 000 kWh.
Assume an intervention where there is a 50% reduction in
usage to 500 kWh per month.
kWh
Scenario 1: Savings for Single Tax Cycle
12 000
kWh
6 000 kWh
Verified kWh Savings = 12 000 – 6 000 = 6 000 kWh
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Scenario 2: Savings Over 2 Tax Cycles
1,000 1,000 1,000 1,000 1,000 1,000 1,000
Scenario 2
7 x 1000 +
5 x 500 =
9. 500
kWh
12 x 500 =
6 000 kWh
500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500
Year 1 = 12 000 – 9 500 = 2 500 kWh
Year 2 = 9 500 - 6000 = 3 500 kWh
2 500 kWh + 3 500 kWh = 6 000 kWh
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What is NOT Covered (Regulation 6)?
Renewable Sources are ‘generally’ excluded.
Captive Power Plants, where the ‘conversion
efficiency’ of the energy generated is less than 35%
of the requirements for the facility, subject to the
renewable energy sources specified above.
Concurrent consumption-related benefits.
Projects that have been completed or are in progress!
What IS Covered ?
Greenfield Projects, (required to construct
the baseline from
comparable data in the relevant sector).
Projects that improve the energy conversion efficiency.
Where the project is an energy conservation project
that does not reduce the energy conversion efficiency
of the activity, but maintains the same level of activity
output and boundary conditions, as determined by
SANS 50 010.
The project uses underutilised energy generated from
an industrial process, eg. waste heat recovery.
Interpretation Notes
(in support of the 12L Regulations)
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Progress to-Date
Key Performance Indicator
Value
No of Users Registered on the System
100 +
No of Projects Registered on the
74
System – Section 12 L
Potential
kWh
Savings
from
+- 3 1000 000 kWh
Registered Projects
No
of
Projects
Activated
and
7
Evaluated by SANEDI
No of SANAS Accredited M&V Bodies
5
Progress to-Date, (cont’d)
Sector
No of
Applications
Comments
Mining
28
Mainly large projects awaiting baseline submissions
Agriculture
3
Awaiting baseline submissions
Industrial
20
Large projects, awaiting baseline submissions
Commercial
21
Mainly lighting & air-conditioning retrofits in commercial buildings,
including hotels and two possible cogeneration projects
Transport
2
One logistics fleet and one mining/ haulage project
Total
74
Conclusion
and the
Way Forward
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Conclusion - Key Barriers
Measurement and Verification, (M & V)
– Limited number of SANAS-accredited bodies
– Perceived high costs of M & V
– Training opportunities in M & V & associated cost
General exclusion of renewables, especially rooftop PV!
REIT-structures
– Working on a proposal to overcome this barrier
Initial capital required to implement projects!
Pro’s of tax-based incentives
Energy vs Electricity Efficiency, (Greenfields & Brownfields).
Longer & consistent planning ‘windows’.
Energy conservation through improvements in
human behaviour is eligible, (SANS 50 010).
Revenue Neutrality/ ‘Win-Win’ incentive;
Tax Rebate = Reduced Energy/ Operational Expenses =
Higher Profits = More Taxes!
The ‘Win-Win’ Scenario
Business as Usual
Before 12-L
PaT
SARS gets to tax the higher
profit, but the taxpayer gets
to pay less tax!
After 12-L
Tax
PaT (Potential)
Tax
Conclusion
There may just be a ‘Pot of Gold’ at the end of the rainbow?
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System SECURITY
The 12-L Energy Efficiency TAX On-line
System has been developed, using the concept
of (WAMP) Windows-Appache-PHP-MySQL
DataBasE and is currently hosted by Hetzner.
In order to professionally secure this website, it
was decided to apply for a SSL certificate for the
current (to be revised), saneditax.org.za domain
and this certificate has already been issued
by Hetzner.
No. 37019 GOVERNMENT GAZETTE, 8 NOVEMBER 2013
GOVERNMENT NOTICE
NATIONAL TREASURY
No. 855 8 November 2013
CONTENTS • INHOUD
GOVERNMENT NOTICE
National Treasury
Government Notice
855. Income Tax Act, 1962: Notice of the date upon which section 12L (deduction in
respect of energy efficiency savings), as inserted by Act 17 of 2009, amended by Act 7
of 2010 and substituted by Act 22 of 2012 comes into operation on 1 November 2013.
Printed by and obtainable from the Government Printer, Bosman Street, Private Bag X85,
Pretoria, 0001
How do the Numbers Work Out?