When it comes to energy projects, green is very much a go. Recognising the role that Treasury has to play in encouraging adaptation and mitigation, the Minister of Finance recently announced tax measures to encourage business to invest in renewable energy and increase electricity generation. That incentive – coupled with the prospect of socially responsible onshore investment opportunities – is driving demand for high-quality renewable-energy projects. A new R200 million investment fund, created by Grovest and offered through JSE Private Placements, is one such project.

Twelve B Green Energy Fund is the first private-equity fund that entitles taxpayers – in this case, high net-worth individuals, trusts, companies and pension funds – to invest in a portfolio of renewable energy-producing assets, and benefit from that SARS-approved enhanced 125% tax allowance, under Section 12BA of the Income Tax Act.

‘Grovest is pioneering this,’ says Preshan Govinder, Manager of Sales and Business Development at JSE Private Placements. ‘They invest in solar assets that are energy-producing. For investors, up to 125% of the amount contributed to a 12B fund is tax deductible, so you can write it off as part of your tax incentive. To illustrate how this works: if you invested R100 000 in July 2023, you can deduct 125% of that – R125 000 – as a tax-deductible expense. It’s important to note that investments can only be deducted from your taxable income in the tax year in which the solar equipment starts to produce electricity.’

There are similarities here to the Section 12J funds, which also offered incentives under the Income Tax Act. However, there are some key differences, as Govinder points out. ‘Under Section 12B there’s a limited time in which you can get the benefit. The tax incentive will only be available for installations that generate electricity for the first time between 1 March 2023 and 28 February 2025, so you have a limited window during which to invest.

‘From Grovest’s point of view, a good pipeline of projects is key – which they do have – and they need to match that to the amount of capital they want to raise. The risk profile is low to moderate, because you’re investing in a solar asset with a power purchase agreement, with monthly contractual cash flows.’

Twelve B is the only fund investing into sectional title, commercial and industrial projects. However, the preference is sectional title. Owing to the 10-year nature of the investment, it’s important to consider the ability of the energy consumer to fulfil their monthly electricity payments to the fund. Twelve B considers sectional title projects to be low risk from an investor’s perspective. The fund’s first projects include a sectional title complex in Dunkeld, Johannesburg, that will generate 175 kWp of solar and have 300 kWh of storage; as well as a commercial business in Eastgate, Sandton, with 201.7 kWp of solar and 500 kWh of storage.

Both projects are on track to become energy-generating in July 2023, entitling investors to claim the 125% tax deduction in the current tax year. The fund recently announced the approval of two additional projects by the investment committee, bringing it to a total of four projects.

Twelve B is also the only Section 12B fund with a strategic EPC partner – Hooray Power, which is the longest operator of large battery storage systems in sectional title complexes.

Govinder expects similar funds to emerge as government continues to lean on the private sector to help solve SA’s energy crisis. ‘JSE Private Placements is the JSE’s capital-raising arm for non-listed entities,’ he says. ‘We streamline the capital-raising process by providing digital access to investment opportunities, like this new fund from Grovest, to a universe of qualified investors. We currently have 34 deals on our platform, collectively raising R5.58 billion in capital.’ The minimum contribution per investor into Grovest’s Twelve B fund through JSE Private Placements is R1 million.

‘Renewable energy is a key focus area for us,’ says Govinder. ‘And as the renewables space continues to grow and government continues to offer attractive tax incentives, it’s set to become a much bigger piece of the JSE Private Placements offering.’

By Mark van Dijk
Image: Gallo/Getty Images