Minister Nhlanhla Nene’s first budget was announced in the context of South Africa’s electricity supply demand mismatch, a mismatch that is severely curtailing
growth and damaging international investor confidence. As a consequence, behind
the focus on personal tax rates, sin taxes and a constrained fiscal environment, Minister Nene’s first budget speech contains measures that will
drive action on energy management for South African companies. To begin with, the budget indicates a number of significant price drivers for electricity over the
next few years. These drivers of higher electricity prices include:

â-  The increase in the electricity levy from 3.5c/kWh to 5.5c/kWh. Although this hike is described as temporary, it is arguable that South Africa will not enter a more stable reserve margin until at least 2020. So the increased levy could be with us for some time.

â-  The implementation of the carbon tax from 2016. This tax will not only affect the
cost of primary fossil fuel energy sources, but will also raise the price of electricity, as Eskom passes on its carbon tax bill to electricity consumers. The draft carbon tax bill will be released for public consultation later this year.

â-  Consistent messaging in the budget speech regarding the need for more cost-reflective electricity tariffs. In a nutshell, should the Electricity Regulator (NERSA)
review current determinations and consider tariffs to not be price reflective, there could be tariff increases approved for Eskom. Given Eskom’s constrained financial position at present, and with the R23 billion provided by the state over the next three years to be far from adequate for what is needed by Eskom, there is a real possibility of electricity price increases that would assist in stabilising Eskom’s finances. While these measures will impact financially on companies, government has also extended its commitment to support both energy efficiency and selfgeneration of power by companies. This process of incentivisation is to be implemented through the following:

â-  The proposed increase in the Section 12L energy efficiency incentive from 45c/kWh to 95c/kWh This is a welcome boost and responds to company concerns
regarding the low rate on the existing incentive. The Minister of Finance also alerted companies in his speech that the Section 12L incentive now applies not only to energy efficiency measures and power generation for own use, but also
to cogeneration. On the downside, uptake of the 12L incentive has been slow and
there is considerable room to eliminate blockages and streamline its implementation so that a much larger number of companies reduce their energy consumptions and benefit from the incentive.

â-  The proposed implementation of further accelerated depreciation for solar power
installations. This intervention would presumably build on the current three-year depreciation allowances for the production of renewables and biofuels,
as previously implemented by National Treasury. This proposed measure would
further increase the attractiveness of commercial rooftop solar projects. While much has been said about tightening the fiscal belt, it is clear that government is putting in
place a mixture of tariff increases, taxes and incentives in order to tighten the nation’s energy belt, with significant implications for companies.