Constrained electricity supplies in South Africa have become a major headache for the country’s economy.
However, this challenging situation is driving a new wave of solutions which could result in SA becoming a leader in clean energy. Interestingly, Section 12J is a major catalyst in this revolution.
Both of these Section 12J funds provide capital for hi-tech clean energy installations across the country, helping to power up businesses, retailers and residential developments.
Decentral Energy is a fund that is mandated to invest in clean energy and water assets that are underpinned by long-term Power Purchase Agreements (PPAs) and managed by a highly experienced team.
One type of these assets includes small-scale projects such as solar PV power installations as seen, for example, at Gauteng’s Northmead and Southdale Malls. These projects are off-balance sheet solutions where tenants purchase the energy produced.
The tenants, in turn, receive monthly energy savings of up to 30-40% while they’re also shielded from double-digit energy price increases.
Decentral Energy’s R6 million solar installation at Northmead Mall, for example, provides a capacity of 507kw as well as an IRR for investors of 17%, notwithstanding a material improvement in the landlord’s yield.
In addition, Decentral has developed over 100 MW of utility-scale hydropower assets across South Africa.
These assets have included the construction of the 5MW Kruisvallei Hydropower facility in Ash River, Eastern Free State; as well as the 24MW-40MW Meerkat Hydropower plant near Hope Town in the Northern Cape, among many others.
Decentral Energy has a pipeline of R100 million to be deployed by August 2020 into the commercial and industrial clean energy sector. Investors have the opportunity to get involved in this impact fund. Applications are open for investment.
It has a targeted exit IRR of 20.4%. In addition, 100% of an investment into this 12J fund is deductible from the investor’s taxable income in the year in which the investment is made, any unused portion of the Section 12J deduction may be carried over to the new year.
Rencell Limited has partnered with Residential Solar Solutions to provide a first-of-its-kind 5-15 year PPAs for residential consumers in sectional-title developments or private residences.
Rencell Limited’s ‘micro-grids’ are solar PV combined with lithium battery storage installations that enable residents to experience uninterrupted power supplies, even during load-shedding.
The potential growth for Rencell Limited’s offerings is significant, especially when considering that there are currently 6500 gated residential communities in South Africa with a potential demand for power of around 3 000 MW.
Meanwhile, investors in these installations also receive financial returns by means of an asset-backed annuity income.
What makes Rencell Limited even more unique is that it not only provides investors with tax benefits via its Section 12J model, but also via Section 12B. Section 12B of the Income Tax Act allows companies to depreciate investments into renewable technology entirely in the first year.
From a minimum investment of R10 000 in Rencell Limited, investors can expect an IRR of 22% as well as a 5% dividend yield.
Considering the work that both Decentral Energy and Rencell Limited are doing and their strong asset underpins, there’s no doubt that there are promising times ahead for the renewable energy sector in South Africa.