Unlocked: Investors in Grovest’s Twelve B Green Energy Fund are well on track to claim their 125% tax deduction in the current tax year. – Finance Ghost

 

It’s been just three months since Twelve B Green Energy Fund launched.

Significant investment has already been secured from individual and corporate investors looking to claim their SARS-approved 125% Section 12BA tax deduction in this tax year.

Twelve B is the first private equity fund that entitles taxpayers, including individuals, trusts, companies and pension funds, to invest in a portfolio of renewable energy-producing assets and benefit from the Section 12BA tax incentive.

Twelve B Green Energy Fund marks another milestone for Grovest, the pioneers of Section 12J, and the largest small cap fund administrator in South Africa, with over R3.5 billion in assets under administration.

During the extensive pre-launch period, the Twelve B team focused on sourcing viable projects as well as establishing strategic partnerships with EPC (Engineering, Procurement, and Construction) and O+M (Operations and Maintenance) entities. This meticulous preparation ensured that when Fund I opened for investment, they were well-prepared to deploy capital as and when it was raised.

Current status of the Fund

Twelve B Green Energy Fund currently has a pipeline of over R300 million of solar projects at various stages. Jeff Miller, Twelve B’s CEO and Co-Founder anticipates the average investment across the various projects to be between R8 million and R12 million, resulting in a diversified portfolio of around 25 projects in Fund I’s R200 million portfolio.

In April 2023, the Fund’s first two projects were approved by the Investment Committee and construction has since commenced. They are on track to become energy-generating in July of this year. The profits of the partnership which have been generated from the sale of electricity, net of costs, will be distributed to investors bi-annually, and current investors can expect their first income distribution in September this year.

  • The first project approved is a sectional title complex situated in Dunkeld, Johannesburg. The solar system will have a peak power capacity of 175 kilowatts and the energy storage system will have a capacity of 300 kilowatt-hours.
  • The second project is a commercial business in Sandton, and the solar system will have a peak power capacity of 201.7 kilowatts and the energy storage system will have a capacity of 500 kilowatt-hours.

Although the ability of a fund to reach final close may be a key consideration for an investor, fund success is ultimately determined by its ability to deliver consistent and attractive returns (i.e. deploying capital into projects that have the potential to generate cash flows). Therefore, investors should carefully evaluate the capability and project pipeline of the Fund Manager before committing their capital.

Miller emphasises the crucial nature of conducting comprehensive due diligence on all projects to manage risk, evaluate project viability, remain compliant, promote transparency and accountability, as to ensure that the projects are aligned with the Fund’s Investment Mandate.

Furthermore, each project is bound by 20-year Power Purchase Agreements (“PPA’s”) which sets out the amount of electricity to be supplied, the initial pricing and the annual escalations.

Twelve B Green Energy Fund’s strategic alliance

The Fund has a strategic alliance with Hooray Power – the pioneers of large battery storage systems in sectional title complexes. The Fund has the right of first refusal on all projects introduced by Hooray Power.

  • Hooray Power’s sophisticated load management software manages power via solar, battery and the grid which provides an always-on power solution for their clients.
  • They have a 4-year proven track record and are the longest operator of these actively-managed battery systems in South Africa.

According to Miller, the Fund’s secret sauce and differentiating factor within the market is their relationship with Hooray Power, who sources all projects and handles all EPC and O+M of each approved project. This relationship is unique to the Twelve B Green Energy Fund and to the investment opportunity.

Miller is of the view that deployment and execution of the funds into energy producing assets is key, and has unwavering confidence that Twelve B Green Energy Fund will raise and deploy R200 million before the end of the February 2024 tax year.

The risk profile of the Fund is low to moderate, and there is currently no gearing within the portfolio. That said, the Fund Mandate does allow gearing which may be considered in the future.

Fund I is still open for investment and the positive market response confirms that investors within the current market climate have an appetite for a moderate risk, tax incentivised investment.

Twelve B Green Energy Fund invites savvy investors wanting to decrease their tax obligation and achieve superior returns, to invest today and add to a greener, more sustainable future for South Africa.

 

Unlocked – (Webinar) How Wealth Managers Can Help Their Clients Benefit from the 125% tax deduction.

Unlocked – (Podcast) Investing in 12B solar with Grovest (with Jeff Miller, CEO Grovest). – Finance Ghost

 

Load shedding isn’t fun. We know this. In a great example of never wasting a good crisis, there are investment opportunities in solar as South Africans effectively build a decentralised grid on private balance sheets.

Offering investors an indicative 18% IRR over 10 years through their new Twelve B Energy Fund, Jeff Miller of Grovest joined me to take a look at:

  • An overview of alternative investments and how s12J set the scene for this asset class to be offered to retail investors in South Africa
  • The danger of assuming that an entire asset class carries a specific risk profile, as the risk ultimately comes from the underlying exposure rather than the type of asset class (e.g. equities / bonds / alternatives)
  • The way in which the tax allowances give a kicker to returns without increasing the risk of the underlying exposure
  • The background to Grovest and how the business is positioned to take advantage of this environment
  • The quality of the investments available to investors if we ignore the tax kicker i.e. the attractiveness of the underlying assets
  • The way that Grovest thinks about gearing (the use of debt to boost equity returns) in a structure like this and how investors can think about their own gearing
  • The cash-on-cash return vs. the return achieved through an eventual sale of the solar cash flows at the end of 10 years, with examples of existing market transactions for such cash flows
  • The project pipeline and the strategy to deploy the full R200 million being raised, with a discussion on the impact of not matching the tax deduction to the cash flows
  • The relationship with Hooray Power as the EPC for these solar projects and the way that this addresses a key risk in solar: project execution risk
  • The sensitivity of the returns to the terminal value
  • Minimum investment size and the important point that there is no cap on the investment
  • A discussion on the capital gains tax and recoupment considerations
  • The difference between invested capital and risk capital and how this relates to the Grovest fees in this investment
  • An overview of the investment committee

NOTE: This podcast is for information purposes only and is not a recommendation, nor should it be interpreted as financial advice or an endorsement of the Twelve B product by The Finance Ghost. Do your own research and consult with your independent financial advisor before making any investment decisions.

 

Unlocked – (Webinar) Twelve B Green Energy Fund

23 March 2023 

 

 

(Webinar) How Wealth Managers Can Help Their Clients Benefit from the 125% tax deduction.

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(Webinar) Twelve B Green Energy Fund

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Investors in Grovest’s Twelve B Green Energy Fund are well on track to claim their 125% tax deduction in the current tax year. – Finance Ghost

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(Podcast) Investing in 12B solar with Grovest (with Jeff Miller, CEO Grovest). – Finance Ghost

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Enoch achieves a business-friendly Budget but government must act now to protect consumers’ pockets and jobs

Minister of Finance Enoch Godongwana has managed to tread the fine line with his 2023 Budget Speech, delivering on a business-friendly Budget that provides relief and paves the way for economic recovery, amid an even more challenging economic and socio-economic environment than previous iterations.

His macro-economic aggregates are very much in line with what other economists expected – weak economic growth, high levels of unemployment and poverty and escalating consumer inflation – which is behind his extension of the Social Relief of Distress (SDR) grant.

Consumers are the forgotten quotient

Neil Roets, CEO of Debt Rescue agrees.

“In his 2023 Budget Speech the Minister offers hope to the business sector, proposing a budget that prioritizes economic growth – and rightly so. It’s disappointing that there is no emphasis in the Budget on assisting the SME sector, as they are the drivers of economic growth at a time when the country is at a tipping point, spurred on by the energy crisis and continual fiscal challenges.”

“The elephant in the room is the 30.3 million South Africans currently living below the poverty line and battling to put enough food on the table, in the face of a cost-of-living catastrophe the likes of which we have never seen before,” he says.

According to President Cyril Ramaphosa, millions of South Africans cannot provide for themselves and their families. Ramaphosa substantiated this in his State of the Nation Address delivered on Thursday 9 February.  “The rising cost of living is deepening poverty and inequality,” he said.

Although the continuation of the R350 per month social relief of distress (SRD) grant will pay nearly half the population – the shocking ratio who live below the poverty line – a stipend to feed their families, it is not a realistic long-term solution. 

Youth employment is critical

“Given our current unemployment rate of 32.9 percent  – one of the highest in the world – with youth unemployment highest at 63.9%, job creation is crucial,” says Roets. “While it’s encouraging that 1 million job opportunities have been created to date under the presidential youth employment initiative, the fact that job creation was not tabled in this year’s budget as a top priority, is a serious oversight,” says Roets.

We have a critical shortage of qualified artisans in the country. Minister of higher education, science, and innovation, Blade Nzimande, said in November (2022) that South Africa needs at least 60% of school leavers to pursue artisan-type training to meet the country’s demand for scarce skills. 

“How is government planning on turning this around?” he asks.

Energy crisis threatens food security

Today Godongwana proposed a total debt-relief arrangement for Eskom of R 254 billion. He said that explicitly taking on this debt, will reduce fiscal risk and enhance long term fiscal sustainability. However, it is consumers who bear the brunt of Eskom’s infrastructure woes, and the relentless increases in electricity tariffs, and government assistance to date has done nothing to ease this pain.

South Africans are still grappling with the National Energy Regulator of South Africa’s announcement of the massive 18.65% increase due to kick in in April this year. This, at a time when Stage Six load-shedding is being implemented across the country – plunging households and businesses into darkness and despair – with Eskom now in talks regarding possible Stage 8 blackouts.  

The repercussions of rolling blackouts pose a serious threat to the lives and livelihoods of people – not least of which pertain to food security – at a time when over 80% of families are battling to put enough food on the table, as a result of spiralling living costs. 

Roets says he is encouraged by government’s plan of action to reform the electricity sector, and by the President’s assurance during SONA 2023 that ‘National Treasury is considering the feasibility of urgent measures to mitigate the impact of load-shedding on food prices.’

Although the minister’s announcement of the refund on the Road Accident Fund levy for diesel used in the manufacturing process, will be extended to manufacturers of foodstuffs to ease the impact of the electricity crisis on food prices – it is not nearly enough. 

Roets concurs, saying that much more is needed to protect the country’s food security and to manage food prices. “It’s deeply concerning that government has not elevated this to the top of the country’s agenda,” he says.  Roets warns that the result of unmitigated power outages will be more food shortages and even higher prices. He says load-shedding undoubtedly contributes to rising inflation, by disrupting supply chains, increasing the cost of production and impacting manufacturing costs across industries and that this will be exacerbated by this latest hike in electricity costs. 

Roets questions why food prices have not come down in light of the substantial drop in the price of both petrol and diesel in January 2023.  In fact, food prices have not been adjusted downwards at all over the past year, despite petrol price cuts in September and October 2022. “I understand that farmers have to hike their prices in the current economic conditions, but the question remains why our big grocery retailers have relentlessly increased their prices, even though global food prices have dropped,” he asks. 

“It is unacceptable that the price of staple foods and drinks like potatoes, cooking oil, bread and eggs just keep on climbing, despite the relief at the pumps,” he points out.  This is substantiated by the latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group (PMBEJD) that shows that South Africans are paying more for these basic food items in 2023. 

Tax breaks and incentives 

Government incentives like the Twelve B Green Energy Fund, a soon-to-be-launched solar and renewable energy fund, offering investors a 100% tax break using Section 12B of the Income Tax Act, creates investment opportunities that can bolster the economy. President Ramaphosa pointed to tax incentives for the government’s plans to push rooftop solar across the country in his recent SONA.

Roets says he is encouraged by the minister’s proposed plans, which will attract more investment opportunities to the country. 

“The announcement of a tax rebate of 25 per cent of the cost of rooftop solar panels for individuals, to encourage people to install renewables, shows that Government is taking action, but I would like to see much more focus on other incentives for consumers,” he says.  “We need more initiatives that will offer relief to over-burdened citizens – like the City of Cape Town’s initiative that offers residents and businesses cash to sell their excess power into Cape Town’s grid.”  – Roets

Sin taxes add to consumer pain

The announcement that the health promotion levy will remain stable is good news for the struggling sugar industry,  which has lost approximately R1,2 billion per season since 2018 and resulted in close to 10,000 job losses, mostly in rural areas, where poverty levels are the highest. 

The proposed increase in the excise duties on alcohol and tobacco of 4.9 per cent, in line with expected inflation, was widely expected, though still a bitter pill to swallow.  

“While I understand that government needs to bolster the coffers, in light of the financial doom and gloom that the average South African has to contend with, placing the few affordable pleasures beyond the reach of consumers at this time simply adds to the pain,” – Roets 

Greylisting still a threat

The FATF Plenary will make its decision later this week on whether or not to put South Africa under increased monitoring, otherwise known as grey listing. If they do, South Africa could be shut out of certain financial markets, which would negatively affect the wider economy and particularly consumer prices.  According to the minister, two laws have been enacted to bolster the government’s broader fight against corruption, crime, state capture and the deliberate weakening of the institutions of law and order.  Whether this move will be effective in avoiding the greylisting remains to be seen. 

South Africans will no doubt breath a collective sigh of relief that there will be no tax increases for individuals this coming fiscal.  “This is really the only encouraging announcement for consumers in this year’s budget speech. Notwithstanding, government must act now to protect consumers’ pockets and jobs – before it is too late,” concludes Roets. 

The Minister closed off his speech by tipping his hat to the thousands of public servants who work behind the scenes to keep our country going.

View original article here.

Tax breaks for renewable energy investment, rooftop solar

South Africa’s finance minister, Enoch Godongwana, announced two tax measures aimed at boosting investment in renewable energy and increasing electricity generation amidst the ongoing power cuts in the country.

In his budget speech, Godongwana said businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables, with no thresholds on the size of the projects that qualify. The incentive will be available for two years to stimulate investment in the short term starting 1 March 2023.

Individuals who install rooftop solar panels will also be eligible for a tax rebate of 25% of the cost of the panels, up to a maximum of R15 000. This incentive will be available for one year starting 1 March 2023. Additionally, the government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis, as part of proposed changes to the Bounce Back Loan Guarantee Scheme.

Godongwana also emphasised the need for a just transition to a low carbon economy, as climate change poses considerable risks and constraints to sustainable economic growth in South Africa.

New skills and economic opportunities

The Just Energy Transition plan aims to lower emissions of greenhouse gases and harness investments in new energy technologies, electric vehicles, and energy-efficient appliances. It ensures that communities tied to high-emitting energy industries are not left behind and are provided with new skills and economic opportunities.

South Africa has also stressed the importance of developed nations supporting the energy transitions of developing nations, with a larger grant-funding component. Godongwana’s measures aim to incentivise renewable energy investment in the country and address the persistent electricity supply shortage, particularly through small and medium-sized enterprises.

Encouraging SA businesses

Meanwhile, South African entrepreneurs and businesses have welcomed the announcement by Godongwana to increase the tax incentives for renewable energy investment and rooftop solar.

Jeff Miller, founder of the Twelve B Green Energy Fund, expressed his appreciation for the government’s decision, stating that this will encourage businesses to invest in solar and help alleviate the country’s energy crisis.

Miller further explained that the increase in the Section 12B tax allowance from 100% to 125% will give investors an increased return of up to 18% for a moderate risk investment. He also praised the introduction of tax allowances for homeowners, stating that it allows them to invest up to R60,000 in a solar kit to get a maximum tax benefit of R15 000.

According to Miller, the government’s support for sustainable energy generation will not only address the electricity supply shortage but also bring long-term benefits. The Twelve B Green Energy Fund is the first private equity fund in South Africa to qualify for SARS-approved tax deductions, enabling individuals, trusts, companies, and pension funds to write off 125% of their investment against their taxable income.

“Green energy has become a necessity due to South Africa’s unreliable electricity supply, and the private sector needs to step in to urgently improve the situation with government’s support,” said Miller.

The incentives announced by Godongwana bode well for the country’s acquisition of renewable energy and the growth of the Twelve B Green Energy Fund.

View original article here.

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