• Finance Articles

Increase in Eskom Tariffs and Load-Shedding

In light of skyrocketing Eskom tariffs and the escalating intensity of load-shedding, the necessity for franchise businesses to mitigate these challenges has become increasingly urgent. Since 2007, Eskom tariffs have surged by a staggering 653%, a rate five times higher than inflation for the same period. Furthermore, projections indicate that load-shedding will double within the next five years. The imperative to safeguard against these factors is paramount for the survival of franchise businesses.

This crucial message reverberated through the recent Franchise Executive Forum, organised by Nedbank in partnership with Franchise Coaches. Karl Götte, the Chief Operating Officer of Infinity Brands, encapsulated this urgency, asserting that the surge in load-shedding is unpredictable in terms of stages, compelling businesses to seek alternative solutions.

Need for Alternative Energy Solutions

‘From January to May 2023, South Africa experienced as many kilowatt-hours of load-shedding as the whole of 2022,’ says Götte. ‘The trouble is that it is unpredictable in terms of stages, so businesses are unable to plan and have no choice but to find an alternative solution.’

Götte pointed out that many enterprises are resorting to generators as a workaround. However, he emphasised that generators are not without drawbacks—noisy, environmentally detrimental, and exorbitant to operate. For instance, a 100 kVA generator consumes roughly R500 worth of fuel per hour. When confronted with six hours of daily load-shedding, the cost adds up to R3,000 per day, culminating in a staggering R1 million annually. This does not even factor in the generator’s procurement and maintenance expenses, rendering it unsustainable in the long run.

At Infinity Brands, Götte champions alternative energy, specifically solar power, as the definitive long-term solution. He emphasised that South Africa’s abundant sunlight and space make it ideally poised for solar energy adoption. Intriguingly, despite European countries possessing lower estimated solar photovoltaic (PV) power generation potential (PVOUT) than South Africa, they outpace South Africa’s solar production. This point underscores the viable alternative that solar energy presents, even in the absence of Eskom-related incentives.

While acknowledging the initial costliness of solar installation, Götte contended that its long-term advantages far outweigh the upfront expenditure. Solar power provides an uninterrupted energy supply, incurs minimal running and maintenance expenses, appreciates property value, exhibits scalability, and offers the potential for revenue generation. Moreover, solar installations boast a life cycle spanning about 25 years, surpassing the typical 10-year life span of a generator.

Tax Incentive for Solar Installation

Götte highlighted the additional allure of new tax incentives for businesses considering solar installation. Under these incentives, businesses can deduct 125% of the solar project’s value in the first year, incorporating the project’s cost along with an extra 25%. Consequently, a business investing R1 million in renewable energy can deduct R1.25 million from its taxable income. This deduction, in tandem with the prevailing corporate tax rate, could potentially decrease a company’s income tax liability by R337,500 in the initial year. This financial benefit transforms solar installation into a compelling R662,500 investment, yielding considerable savings. This incentive remains applicable to new projects initiated between 1 March 2023 and 28 February 2025.

Business Climate Resilience

Mark Boshoff, Head of Sustainability and Climate Resilience Strategy at Nedbank Commercial Banking, contributed his insights to the discussion. He referenced a report from BusinessTech, revealing that 800 South African businesses shut down this year due to load-shedding. Boshoff emphasized that investing in alternative energy surpasses the mere mitigation of unreliable power and escalating energy costs. It also plays a pivotal role in fortifying a business’s climate resilience. In a world increasingly focused on climate resilience, a business’s carbon footprint is intertwined with social governance obligations and integrated into accounting practices.

Boshoff further underscored the societal dimension by highlighting that businesses cannot thrive in a struggling society. Environmental issues often underlie social unrest, with communities voicing concerns related to water shortages and imminent droughts. Additionally, the looming specter of food security concerns adds another layer to the equation.

In Conclusion

The verdict is clear: franchise businesses are compelled to invest in independent power generation. This step is crucial not only for financial stability but also for environmental responsibility, societal well-being, and long-term viability. As businesses explore renewable energy financing, Götte advises comprehensive research, thorough needs analysis, and strategic finance options. By taking these steps, businesses can navigate the evolving energy landscape while fostering their own resilience and success.