Updates to renewable energy tax allowances

Section 12ba – the 125% allowance that once was 

Section 12BA of the Income Tax Act (“the Act”) was introduced for qualifying renewable assets brought into use on or after 1 March 2023, and before 1 March 2025, and entitled the owner thereof to a once-off 125% tax deduction of the direct costs of acquisition, installation and erection of those assets. This allowance applied to assets used in the generation of electricity from wind and hydropower, photovoltaic (“PV”) and concentrated solar energy, or biomass, as well as to any foundation or supporting structure in relation to those assets.  

 In his Budget Speech on Wednesday, 12 March 2025, the Finance Minister did not renew this favourable allowance. Accordingly, qualifying renewable assets brought into use after 28 February 2025 are not eligible for this accelerated allowance. 

What then is left for renewable energy assets in terms of tax allowances?  

Section 12b – the 50/30/20 accelerated write-off 

This allowance has been in place for a number of years, and the renewable energy element thereof is split into two broad categories:  

1. All wind power, PV solar exceeding 1MW, concentrated solar, hydropower not exceeding 30MW, and biomass – a three-year allowance (50% in year 1, 30% in year 2, 20% in year 3) is permitted. This allowance is not pro-rated, i.e. if the asset is brought into use on the last day of the tax year of assessment, the full 50% can be claimed in year 1. This allowance can be claimed on the direct cost of acquisition of that asset to the taxpayer, including the costs of erection, installation and construction, as well as the costs of any concrete, foundation or supporting structure to which that asset is mounted or affixed. Importantly, the taxpayer must be the owner of the asset in order to claim this allowance thereon, and the asset must be used by that taxpayer for the purpose of trade in the generation of electricity.  
2. PV solar less than 1MW – 100% of the cost of that asset is permitted as a tax deduction in the year in which it is brought into use. This allowance is also not pro-rated, i.e. if the asset is brought into use on the last day of the tax year of assessment, the full 100% can be claimed in that year. This allowance can be claimed on the direct cost of acquisition of that asset to the taxpayer, including the costs of erection, installation and construction, as well as the costs of any concrete, foundation or supporting structure to which that asset is mounted or affixed. The taxpayer must also be the owner of the asset in order to claim this allowance thereon, and the asset must be used by that taxpayer for the purpose of trade in the generation of electricity. 

It was mentioned in the 2024 Budget Speech that this 1MW generation threshold would be reconsidered, with taxpayers hoping that larger PV solar projects would also qualify for a 100% deduction in year one. In the 2025 Budget Speech, National Treasury has unfortunately confirmed that “after careful assessment”, this threshold will not be revised.  

What about assets that don’t qualify for section 12b? 

The scope of section 12B is fairly narrow, in that only the direct costs of acquisition and installation of the qualifying renewable assets (and their foundations and supporting structures) can be included in the accelerated allowance. Helpfully though, there are other asset allowances which may apply to assets that do not qualify for section 12B, which include:  

1. Section 12D – this section includes an annual tax allowance of 5% (i.e. a 20-year write-off) on the cost of any “line or cable used in the transmission of electricity”, as well as any “pipeline for the transportation of water used by power stations in the process of generating electricity”. This allowance includes any earthworks or supporting structures and equipment forming part of or ancillary to such line, cable or pipeline, and any improvement thereto. 
2. Section 12U – this section allows for a 100% (i.e. one year) tax write-off of any expenditure incurred in respect of the construction of any road or fence or foundation or supporting structure designed for such fence, for the purpose of trade of that person in the generation of electricity which exceeds 5MW from solar and wind energy, hydropower not exceeding 30MW, and biomass. Any improvements to such road, fence, foundation or supporting structure will also qualify for this allowance. 
3. Section 11(e) – this section is the general tax wear and tear allowance provision, permitting a write-off over the tax useful life of the respective asset. The South African Revenue Service (“SARS”) has published Interpretation Note 47 in this regard, which provides useful guidance on this allowance, as well as prescribed useful lives of various assets.  
4. Section 12N – while not technically an allowance per se, this section provides taxpayers access to certain other capital allowances, by deeming them to be the owners of improvements effected on leased land or buildings. This only applies in very specific circumstances, generally in terms of a public private partnership, under the Independent Power Producer Procurement Programme, or where the land or buildings are owned by a national, provisional or local sphere of government.  

It is important to note that these allowances are mutually exclusive. In other words, one cannot claim multiple allowances on the same asset.  

The takeaway 

While the sun has set on the temporary 125% allowance under section 12BA, there remain a number of alternate asset allowances available to owners of renewable energy-related assets. Given these provisions each have their own specific requirements, taxpayers should carefully consider whether they may qualify for these allowances.   

Contact our Direct and International Tax team if you need assistance with any of tax affairs in this regard.  

Authors:

Greg Boy, Senior Manager &  Graham Molyneux, Partner