A call for government to incentivize solar projects

The energy sector is undergoing a rapid process of systemic change. Green technologies have proven to be cheaper, and the deployment of low carbon has been a strategic advantage. The SADC region has been experiencing unprecedented powers cuts, with South Africa for instance having to downgrade its provision to only 4 hours per day in some parts of the country. Regionally, rolling power cuts have been caused by years of underinvestment. As SADC looks for energy self-sufficiency, there have been huge initiatives for investing in alternative source of energy that offers a sustainable solution such as solar energy.

Although renewable energy products have been recognised in statutory instruments in Zimbabwe, high costs compounded by custom duties on technology imports have made them inaccessible to the majority of people in Zimbabwe. There is need for government intervention through its enforcing authorities such as Zimbabwe Energy Regulation Authority (ZERA) and Zimbabwe Revenue Authority (ZIMRA) with incentive programmes that seek to ease the cost of investment in the energy sector. The government has established a Renewable Energy Feed-in Tariff (REFIT) framework which is designed to encourage and support greater private sector participation in power generation from renewable energy technologies, through the establishment of an appropriate regulatory framework.  This should be seen as a positive move towards encouraging investment into the energy sector.

An example of a recent regulation which seeks to ameliorate the energy crisis is SI131 of 2022 which was approved by the RBZ to allow the country’s power utility to bill exporters of goods and services in foreign currency. This position is not new, it was first mooted in 2019 at the height of foreign exchange shortage and was short-lived as it was in effect for six months. The downside of the statutory instrument is that if exporting companies are mandated to pay their utility bills in hard USD, they will pass on the cost to the consumer. It will not be surprising to find these exporting companies asking for hard currency in exchange for their goods and service even from local clients who have rationed USD income. This trend has already begun and will grow.

The average solar installation in the country is still very low whilst there is enormous potential. To date, this potential has not been sufficiently exploited, with approximately 1% utilised. However, the demand for solar PV and solar water heaters is expected to increase in the near future. Zimbabwe has several investment incentives through tax and customs exemptions, which can be used to support renewable energy projects. Solar and electrical equipment receive exemption from import duty, but a 15% VAT charge applies. The import duty exemptions are given to solar panels, inverters, solar lights, energy saving light bulbs and electricity generator. This has assisted in minimizing construction costs. Considering the current growth expectation there is need for investment in power generating projects such as small hydro and solar plants. The Minister of Finance and Economic Development has also made provisions for the zero rating of receipts of power generating projects in the first 5 years of operation of such project, with effect from 1 January 2018. Thereafter, a corporate tax rate of 15% will apply.

Zimbabwe has proposed incentives to accelerate 1,000 megawatts of privately owned solar energy projects worth about $1 billion as the country scrambles to plug an electricity deficit that threatens to compound its economic woes. According to the Minister of Finance, the incentives include guaranteeing of payment of dividends and foreign loan repayments to external investors and lenders. This project is to cover 27 solar power projects with sizes ranging from 5MW to 100MW and having a cumulative capacity of 998MW.

Solar is a sound investment and delivers significant economic benefits such as lower energy costs, a greener business footprint, greater independence from volatile energy markets, and contributes to the overall decarbonisation of our energy system. It’s also a great way to put underutilised assets like commercial rooftops and car park awnings to work.

Recently, in South Africa, the Finance minister Enoch Godongwana announced that National Treasury will be providing tax incentives to South African businesses and households to encourage a rapid move to renewable energy by providing massive rebates for businesses launching renewable energy projects and a smaller incentive for private households. The Treasury also said it would be offering R4 billion relief to individuals who install solar panels and R5 billion to companies. An expanded tax incentive for businesses of 125% of the cost of renewable energy assets used for electricity generation, brought into use during a period of two years from 1 March 2023 was also proposed. For private households, individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000. In a practical example, an individual who purchases 10 solar panels at a cost of R40,000 could reduce their personal income tax liability for the 2023/24 tax year by R10,000.

A similar strategy if implemented in Zimbabwe will be welcome given the country is endowed with vast solar energy potential. Tapping into this resource would help the country meet the energy supply challenge. Although there is no national policy on renewable energy in Zimbabwe at present, there exists a great potential for the development of renewable energy in the country. Barriers to the diffusion of renewable energy technologies in the country can be addressed through a policy environment and supportive regulatory framework that is conducive. However, the development approach should be based on a model that is inclusive of both legal and financial institutions. Measures to overcome the barriers may be unique to a country. Thus, what works in South Africa may not necessarily work in Zimbabwe. The development of a competitive market for renewable energy technologies should be the main driver for the implementation of renewable energy in the country.