The benefits of Grovest’s Twelve B Green Energy Fund

CEO Jeff Miller explains that the fund has no lock-in period or investment maximum, and is available to individuals, trust companies, pension- and provident funds.

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SIMON BROWN: I’m chatting with Jeff Miller, founder of the Twelve B Green Energy Fund. Jeff, I appreciate the time today. You and I have chatted in the past: we’ve talked 12J [of the Income Tax Act]. Of course that’s been sunsetted by National Treasury. [Section] 12B is the new one. My understanding is that there are a lot of similarities; [one] of the key points perhaps is that the money’s only actually tax deductible when it’s sort of put to good use. But [among] other issues there’s no lock-in period [and] also no limits on the 12B?

JEFF MILLER: …You’re a hundred percent correct. There are no limits. In 12J you had to hold for five years. There were caps at R2.5 million for individuals and trusts, and R5 million for companies. Here it’s unlimited. There’s no lock-in period. And I think, all things being equal, that 12B is superior to 12J.

SIMON BROWN: That’s my sense of it as well. There is a key point here, of course: this is going to be in energy. In your case you’re focusing on green energy. This is not going to be a hotel or anything like that. It’s going to be focused on the energy space.

JEFF MILLER: Yes. So 12B allows you to invest only into energy, and you have to actually produce energy in order to be able to claim that 12B deduction. So we are focusing on solar in the main and where we would take, whether commercial or industrial, big residential complexes off the grid, where we would provide them with the panels, inverters and batteries, and we would put the equipment on their site and we would sell them their electricity.

SIMON BROWN: I’ve got you. So in essence you’re going to use the money in the fund and you come in. So if I’m a corporate, whatever or whoever I might be, you essentially come to me and say, ‘We are going to give you green energy’. Would that be almost at no cost to me except for the monthly bill I pay for the power you produce?

JEFF MILLER: Not only would there be similar costs to [those] currently, but we peg the escalations at CPI plus 1% to 2%. So there are no surprises. Now we’ve got an 18.6% increase [in electricity tariffs coming from Eskom]. Next year we’ve got a 12% increase. So, all being equal, one can peg the escalations and budget accordingly.

SIMON BROWN: I’m imagining your biggest challenge is probably demand. Everybody I know is going off grid. But if you raise, I don’t know, billions and billions, are you going to be able to deploy it in a year or two or potentially longer?

JEFF MILLER: You’re absolutely one hundred percent correct – it’s all about the deployment. So we are doing the capital raises in tranches of R200 million on a first-come-first-served basis.

So the first R200 million we would deploy, and the intention is that we match the capital raise with the deployment in the same year. So in fact investors would be able to claim their 12B deduction for February 2024.

SIMON BROWN: That’s an important point because, if I deposit the money, it’s not when I put the money into the fund that I get the deduction, it’s when the deployment happens that I get that deduction.

JEFF MILLER: Absolutely correct. So you get the 12B deduction when we deploy it, but you do earn the revenue that regenerates on a monthly basis, and we distribute that biannually in August and February each year.

SIMON BROWN: Okay. Biannually, I get that. Obviously green is exciting, everyone’s interested in that in a sense. The key point here perhaps as well is that [there’s] no duration or anything like that. At some point, though, does the fund wrap itself up or does it sort of run in perpetuity, forever?

JEFF MILLER: It’s a 10-year fund, but there are some exit mechanisms should investors wish to exit prior to the 10 years. But we are assuming that at the end of the 10 years we would on-sell the cash flows to another fund, where a money fund would take it over.

SIMON BROWN: Okay. That makes sense. You said there are mechanisms for exit. I imagine it’s not almost like a unit trust where I can cash in at a day’s notice, but if I want to get out I can exit?

JEFF MILLER: There are exit mechanisms, obviously subject to the operational requirements of the fund. But the fund does generate a lot of cash and we’ll do everything in our power to assist early exits.

SIMON BROWN: As you say, it would be hugely cash-generative.

A last question. In terms of when I’m exiting, is that then just taxed as income, because of course I’ve got the deduction from my income tax up-front when I get the cash back, whether it be the dividend flows or the exit at the end. Is that now taxed as income?

JEFF MILLER: The distributions are actually taxed in your individual hands at the end of each year, because you are theoretically receiving a share of the profits of the partnership. And when we sell at the end of 10 years, or if you exit earlier, there is a recoupment of the assets, of the value of the assets at the time. So in terms of the 10 years, we’ve assumed that there would be a recoupment of between 30% and 40% of the asset value.

SIMON BROWN: Okay. I hadn’t thought of that. A last question. This is open to individuals. Are there minimums? You said no maximums; are there minimums for individuals?

JEFF MILLER: Yes, there’s a minimum of R100 000 for investment, but there are no maximums, and it’s available to individuals, trust companies, and even to pension and provident funds.

SIMON BROWN: Okay. Across the spectrum. Jeff Miller, founder of the Twelve B Green Energy fund. Jeff, I appreciate the time.

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