How it all works – Bright Light Solar and the projected 19% after tax return

The SA Government offers attractive incentives to encourage the promotion of small businesses and increase clean energy production. Hedge fund pioneer Kevin Shames has applied his business skills and financial knowledge to combine these advantages to offer a projected 19% after tax return through his Section 12J company Bright Light Solar. BizNews founder Alec Hogg spoke with Kevin Shames who fielded questions including exactly what the company does, the mechanics of how it invests and makes money for investors, and ease with which the tax benefit can be claimed.

For the full details on this investment opportunity exclusive to the BizNews community, contact Bright Light Solar here.

Kevin Shames on solar power and load shedding:

Solar is not a load shedding solution. What happens in a load shedding situation is that the inverter has a safety mechanism built into it, that when there is no input reference from the grid – because this is what’s called a grid tied solution – when the grid goes down, what the inverter does is it shuts down the ability to utilise that energy from the solar PV. Therefore, solar on its own is not a load shedding solution.

The only way to utilise that energy from solar in the event of load shedding, is to either have a generator or a battery. What that battery then does is provide an input reference voltage into the inverter. The inverter then doesn’t know that the grid has gone down. But in a mall, for example, they don’t have a battery solution in the event of long periods of load shedding. This energy is then just dissipated and we can’t use it.

On the Bright Light Solar capital raise:

 We have just over R35m as of this morning (Friday, 12 February). So we’ve only got about R15m that is left available. I just want to give a quick explanation as to why we are capping this at R50m. One of the conditions of Section 12J – and there are lots of conditions – is that we have to deploy 80% of all of the capital that we raised by the 48th month of our operation. That 48th month is February 2022.

By the end of February next year, we have to have deployed, actually spent, 80% of all of the money that we raised. So if we were, for example, to go and try and raise R100m in this current capital raise, that would put us under, what we believe, is undue pressure to deploy. It is not an opportunity that we are even able to miss. It’s kind of one of those conditions that are cast in stone, and we absolutely have to meet it.

What we did is we said, let’s raise R50m. That allows existing investors – and a relationship that’s very important to us, this one with BizNews – to invest in this business capital tranche (the 2021 capital raise). But we are capping at R50m. It is written into our prospectus that we are only allowed to raise R50m. As soon as we hit that R50m, we are not allowed legally to accept any more money beyond that and therefore we will be closed.

On investment returns:

The returns come in three buckets to investors. The first one is the 12J bucket. If you are an individual earning just shy of R1,6 million rand at the moment, you will be in the 45% tax bracket. We’ve just made the assumption that the to calculate the returns, [it] would be for a marginal tax investor. So if you were to invest a R1m, you would be saving R450,000 in tax that otherwise you would have paid across to SARS.

What SARS is saying, is that you now have this opportunity of investing that R1 million, not paying the R450,000 to SARS, and utilising that as part of your investment capital. So you get a 45% return in year zero basically by the end of February.

On whether the 12J will be extended or enhanced:

That is the million dollar question that we are all holding our breath for. I listened to the SONA to see whether our state president was going to mention anything around Section 12J. Obviously, he didn’t. I think he’s leaving it for the finance minister in two weeks time. We are lucky to get an indication from the finance minister, as to whether Section 12J will be extended or not. The current version of Section 12J expires on the 30th of June 2021.

 Anyone that invests in any Section 12J in 2021 – that sunset clause has no impact on you whatsoever. The amount that you invest now, you will be able to claim that Section 12J deduction without any problem. That sunset clause relates to people that invest in a VCC after June 2021.

On investor returns (excluding the tax benefit):

Without the 12J benefit, you’re looking at between 12.5% and 14%, roughly, as a return. If you look, for example, at the return that a minority investor in our qualifying companies, it’s between 12.5% and 14%. That’s after tax, that’s dividend.

On whether people can be taken of the grid:

So we can. We, for example, as a company – in terms of our SRI initiative – are in the process of providing an off the grid solution to an orphaned rhino sanctuary. It’s a really special investment that we as a group are making. We are providing them with a battery that’s housed in a 40 foot container and a large solar installation.

 So the answer is we can take you off the grid, but it is very expensive. You need backup power as when there isn’t enough sunlight to charge your battery, you then need a generator. It’s not something we propose to customers. Rather, stick with a grid solution – but try and minimise the amount that you’re drawing from your local energy utility where possible.

For the full details on this investment opportunity exclusive to the BizNews community, contact Bright Light Solar here.

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