Inside Investing: How to generate double-digit returns in SA in sustainable, renewable energy – 12J investment opportunity

As load shedding continues to affect many South Africans, more individuals are seeking clean energy alternatives. Bright Light Solar is a venture capital company that is tapping into this demand and, at the same time, providing an investment opportunity through the 12J project. In this interview with BizNews founder Alec Hogg, BizNews business partner Bright Light Solar's CEO Kevin Shames shares the details of an offering that will close as soon as the R50m capital raise is reached.  – Jackie Cameron

This episode of Inside Investing is proudly brought to you by Bright Light Solar, investing your S12J tax allowance to deliver renewable energy to South Africa.

Kevin Shames on R50m capital raise: 

In the past, we had an unlimited capital raise. We had a target but we didn't have a cap. So we were raising about R90 million a year. This year we are only raising R50 million and the response from the BizNews community has been overwhelming.

On the capital raise reduction:

In terms of Section 12J, you have 48 months from the very first capital raise to deploy at least 80%. It gets a bit technical, but you have to deploy 80% of all of the capital that you've raised, by month 48. So, our 48th month is February 2022. Therefore, we don't want to raise too much and put ourselves under pressure to meet that capital deployment requirement, in terms of Section 12J.

On where the money goes:

It gets deployed into renewable energy assets, just like our previous capital raise does. So for our 2021 capital raise, it's going to go into Solar PV, into hot water solutions, batteries – I think battery is going to be a very big part of the 2021 deployment process. It then gets deployed into these assets for the long-term. Then, we receive the revenue from the customers that are using the electricity and renewable energy that we are supplying to them.

On the special 12J government benefit:

A marginal tax payer, who is currently paying 45%, anything that they invest into a Section 12J company, they get to claim that full amount of the investment, as a deduction against their taxable income, in the year in which they invest. So if you are earning R1,5 million and you invest R1 million into a Section 12J company, you're only going to pay tax on that R500,000 that remains. So you therefore get that full benefit on that R1 million investment, as a tax deduction. It's affectively like Sars are contributing towards your investment capital.

On how this affects your return:

In year one, you're looking at a 45% tax benefit in that situation, plus whatever dividend you get. So call it a 3-4% dividend, you're looking at a 48-49% return in your first year – and that is an after tax return, which is just phenomenal.

On the 12J benefit:

We are certainly hoping that they extend the Section 12J benefit, but we will only hear in February next year – in the budget – if they're going to extend it, what the requirements of that extension will be. I'm pretty sure that they will make changes to Section 12J – if they choose to extend it. We certainly are hoping that they will extend it, specifically because of the benefits from a job creation point of view. That really is what South Africa is totally desperate for right now.

On what happens if 12J scheme isn't renewed:

We are in a very fortunate position, that we are in the ESG space. ESG refers to environmental, social and governance. So, that is investment that addresses the environmental, social and governance aspects of living in the world that we do today. And because we are a green energy investor and we're able to provide these exceptional returns, we then fit squarely into that ESG space. So in the event of Section 12J not being extended, we would then pivot – I'm not mad about the word – but we would then pivot and use our capital raising efforts, to take the Bright Light solutions into the institutional asset management space, and provide that to institutional investors.

We've just got such a fantastic pathway ahead of us, and the kind of returns that we're seeing as a result of both the fallen price of the assets of renewable energy, the continued increases in utility prices in South Africa and coupled with that, the need for moving into a green energy future, is that we really see a very bright light for us ahead.

This episode of Inside Investing is proudly brought to you by Bright Light Solar, investing your S12J tax allowance to deliver renewable energy to South Africa.

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