The ERC is accredited to provide M&V reporting on energy savings for SARS 12L tax deductions

The SARS regulations in terms of Section 12L of the Income Tax Act, 1962 allow for companies to benefit from a tax deduction resulting from energy efficiency interventions. Under the regulation, a company tax deduction of 95c/kWh is allowed for verified energy savings due to energy efficiency.

The ERC at UCT is accredited by SANAS as an inspection body for the Measurement & Verification (M&V) of energy savings (Facility Accreditation Number EEMV0009). Accreditation as an inspection body is according to the ISO 17020:2012 standard and reporting of energy savings is in alignment with the SANS 50010:2018 standard.

Below are some key aspects of the legislation.

The benefit of 95c/kWh saved is a pre-tax deduction and thus the real benefit is found by applying the corporate tax rate to the 95c/kWh savings. The result is a real saving of 26.6c/kWh saved. A worked example is shown below for clarity.
Although the energy saving is measured kWh, the savings need not be only electricity. The benefit is 95c for every kWh “equivalent” saved. In other words, savings apply to other fuels as well, but simply need to be expressed as kWh.
The benefit is available for energy savings achieved over a period of 12 consecutive months only, although these 12 months may fall over more than one company financial year.
The energy efficiency interventions which qualify are very broad and include: technology retrofits, process optimisation, operational and/or behavioural programmes.
Projects which were implemented in the past may still qualify for a retrospective claim.
Captive power plants using waste heat recovery or combined heat & power (CHP/Co-gen) qualify for the benefit, provided that the energy conversion efficiency exceeds 35%.
Captive power plants which use renewable energy sources do not qualify for the benefit (A PV system, for example).
The cost of Measurement & Verification (M&V) must be borne by the company applying for the tax deduction (the claimant).

Worked example

Referring to the table below, suppose a company shows a profit of R1,000,000 for a given year. In the first case, there is no tax deduction for energy savings and the tax payable is R280 000.

In the second case, a tax deduction is applied based on a verified energy saving of 500 000 kWh over a 12 month period. The tax deduction of R475 000 results in a final net benefit of R133 000.

	Case 1	Case 2
Profit (R)	1 000 000	1 000 000
Energy Savings (verified kWh)		500 000
12L Rate (R/kWh saved)	0.95	0.95
Deduction (R)	-	475 000
Taxable Income (R)	1 000 000	525 000
Tax rate (%)	28%	28%
Tax payable (%)	280 000	147 000
Net benefit (R)	-	133 000