Roxanna Naidoo | Head | Global Strategy | Latita Africa | mail me |
The 2025 Budget Speech outlines significant opportunities for South Africa’s private renewable energy sector.
These opportunities include streamlined public-private partnership (PPP) regulations, expanded infrastructure investment and greater clarity around grid upgrades. However, it also raises important concerns for private developers and investors.
2025 Budget Speech reaffirms government support
The 2025 Budget Speech reaffirms government support for renewables. However, there is a risk that the newly amended PPP regulations will take longer than anticipated to implement. There is also a risk that grid expansions and proposed credit guarantee mechanisms may experience delays in implementation.
Although the government officially gazetted simplified PPP rules in February 2025, they only take effect from June 2025. Historically, large infrastructure projects in South Africa have encountered bottlenecks. Delays in final approvals may hinder the timely completion of renewable energy projects.
Capacity constraints in key departments may also slow progress. Furthermore, protracted procurement processes may continue to hinder renewable project timelines.
VAT increase and project costs
Instead of the originally anticipated two-percentage-point hike, the 2025 Budget Speech proposes a phased Value Added Tax (VAT) increase.
The government plans two increments of 0.5 percentage points, first in 2025/26 and again in 2026/27. This approach will bring VAT from 15% to 16% by 2027. Although smaller than many developers feared, this increase still raises overall project costs for renewable producers.
The sector remains concerned that higher VAT on equipment and services could tighten margins in competitive bid processes. Some cost relief may come from additional zero-rated essential food items. However, this relief does not materially offset capital expenditures in renewable energy projects.
2025 Budget Speech and uncertain municipal finances
The budget review again highlights long-standing municipal payment issues. It also notes rising debt at local government levels. Some of these municipal debts directly affect revenue flows to Eskom.
Despite national efforts, strained municipal budgets remain a risk. These efforts include potential municipal debt relief programmes aimed at improving local government finances.
Private projects that require wheeling agreements via municipal networks must carefully evaluate payment security arrangements. They must also assess revenue collection arrangements, especially in areas where municipalities have defaulted on electricity obligations.
Long timelines for transmission projects
Plans for an Independent Transmission Project are promising. Grid expansion bids are also promising, backed by the 2025 budget’s allocation of additional capital. This capital forms part of the R219.2 billion earmarked for energy infrastructure over the medium term.
Still, constructing large-scale transmission lines entails significant lead times. Coordination among multiple stakeholders is also required.
Until new capacity is fully operational, grid access queues could continue to slow near-term opportunities for independent power producers. Therefore, it is vital for developers to plan accordingly.
Lack of direct tax incentives
The 2025 Budget Speech promotes broad infrastructure investment. However, it includes no inflation adjustment to personal income tax brackets in 2025/26. It also does not introduce new or enhanced direct tax incentives for renewable energy producers.
Many in the industry had hoped for accelerated depreciation or other targeted allowances.
Such allowances could have mitigated high upfront costs on solar, wind, and battery storage projects.
The absence of such measures continues to disappoint developers. Developers are seeking lower capital barriers to entry for renewable energy projects.
2025 Budget Speech and regulatory uncertainty
Operation Vulindlela has boosted optimism about policy reform. The updated PPP framework and further regulatory refinements have also supported this optimism. Nevertheless, private developers still seek clarity on broader electricity market reforms.
Private developers want to understand how these reforms will intersect with Eskom’s restructuring and municipal distribution uncertainties. They also need clarity on future power procurements.
Overlaps among national, provincial, and municipal authorities can introduce complexity. Therefore, the private sector remains alert to possible changes in rules. They are also monitoring changes in procurement terms or contractual obligations.
In conclusion
Overall, the 2025 Budget Speech presents a supportive outlook for renewable energy development. It streamlines PPPs, boosts infrastructure investment, and clarifies some grid upgrade plans. However, developers must remain aware of ongoing administrative and financial challenges.
The phased VAT hike from 15% to 16% could hinder project economics. Protracted municipal finance problems may also affect project viability. Long lead times needed to expand transmission capacity could slow progress.
While the sector stands to benefit from the government’s focus on energy infrastructure, investors should monitor evolving risks carefully. They should do so as they plan new ventures in the renewable energy space.
