Last chance to “Let SARS fund your investment”

Mitchell Fieldgate from Pangea Wealth joins Bronwyn Nielsen on BizNews to discuss the 12B tax incentive, which offers a 125% tax deduction on solar energy investments. The incentive expires at the end of February, so it’s the last chance for South African investors to capitalise on this opportunity.

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Highlights from the interview

In this interview, Mitchell Fieldgate from Pangea Wealth discusses the 12B tax incentive, which offers South African investors a 125% tax deduction on investments in renewable energy, specifically solar energy systems. The incentive was introduced in 2023 and is set to expire at the end of the month, prompting a surge of interest from individuals and companies eager to take advantage of the tax break. Fieldgate explains that this incentive encourages solar energy adoption, helping businesses and individuals reduce reliance on Eskom’s unreliable power grid, especially with recurring load shedding.

He emphasises that while the tax savings are attractive, investors should assess the underlying solar projects carefully. Fieldgate also highlights the current imbalance in the market—while there’s significant capital available for investment, there aren’t enough bankable solar projects to meet demand. He advises investors to work with experienced wealth managers and solar operators to ensure they are making sound investments.

Fieldgate notes that the 12B incentive is unlikely to be extended beyond 2025, making this the final opportunity to capitalise on the tax benefit. He also underscores the long-term viability of solar energy investments, even if load shedding were to end, due to the stability and cost-effectiveness of solar power solutions. The interview wraps up with a call to action for interested investors to contact Pangea Wealth before the incentive window closes.

Edited transcript of the interview

Bronwyn Nielsen (00:01.029):
Mitchell Fieldgate from Pangea, thank you so much for joining us here on BizNews. We’re diving into 12B and what it means for individuals in South Africa. I think the best place to start for laypeople like myself is to unpack 12B and understand what it is.

Mitchell Fieldgate (00:22.518):
Yes, good morning, Bronwyn. Thanks for having me on; it’s great to be here. There’s a lot of 12B mania right now. This is the final month the incentive is available, and with many of these funds closing down, people are getting a bit frantic to take advantage of the big tax savings while they still can. There’s also much to discuss, especially with the solar industry and Eskom, particularly with load shedding returning last week. I’m excited to discuss all of this with you.

Bronwyn Nielsen (01:02.417):
Absolutely. Let’s start with load shedding. We’ve been told this is a one-off situation that will be rectified, but there’s no guarantee. And, of course, the upgrades to Eskom’s infrastructure haven’t happened over the last 12 months. Many parts of that infrastructure are still prone to breakdown due to age. So, it seems that load shedding could return to the forefront in South Africa, and we need to protect ourselves from it. Solar panels, at the heart of 12B, are exactly where we’re headed today.

Mitchell Fieldgate (01:47.734):
Yes, exactly. To give you some context, the 12B incentive was designed to encourage individuals and companies to invest in solar energy. It has been quite successful, with over six gigawatts of solar capacity deployed in the past few years. For those unfamiliar with it, one gigawatt is roughly equivalent to one load shedding stage. South Africa has huge potential in the solar sector. We have one of the best environments for renewable energy, with some of the best sunshine in the world—second only to Texas and Australia’s Outback.

Countries like Germany and China have deployed 80 gigawatts and over 600 gigawatts of solar, respectively, and they don’t even have the best sun. So, there’s massive potential here. To go back to 12B, in 2022, load shedding reached disastrous levels, with stage six load shedding estimated to cost the country around R900 billion a day. It was a huge political and economic blow for the ANC. In February 2023, Enoch Godongwana introduced the 12B incentive, offering a 125% tax deduction for investments in renewable energy assets from 2023 to 2025.

Mitchell Fieldgate (03:52.704):
Since the announcement, there has been a lot of excitement, and many savvy individuals started to look for ways to take advantage of this incentive. A 12B partnership structure allows individuals to access the tax benefits, even though the incentive is technically for businesses. If done correctly, it can lead to substantial tax savings.

Bronwyn Nielsen (04:45.915):
Got it. So, as you say, this is the last month to take advantage of 12B. You’re speaking at a presentation on Wednesday, and I’m sure you’re expecting a surge in activity. Can you give us a sense of what you anticipate regarding demand from South African investors trying to make the most of this final opportunity?

Mitchell Fieldgate (05:17.944):
There’s been a lot of demand. We’re in a situation with too much capital and insufficient projects. We could have someone with a billion rand looking to invest in a 12B fund, but we can only accept capital for our available projects. A typical project involves a power purchase agreement, where a manufacturer needs electricity. A 12B fund will invest R20 million into solar panels on their roof. The manufacturer or off-taker then purchases the electricity from those panels, usually locked in for 20 years.

If it works, it’s a win-win: the off-taker gets clean, reliable, and cheaper electricity than from Eskom, while the investor receives consistent profits and tax savings. For example, we’ve seen cases where someone invests R1 million and gets back up to R1 million in tax savings. There’s a lot of interest, but now, it’s just about making sure the right projects are available for investors.

Mitchell Fieldgate (06:40.496):
That being said, it’s crucial to understand the risks. Just because there’s a tax saving doesn’t automatically make it a good investment. The key is to assess the underlying investment, and the tax savings are a bonus.

Bronwyn Nielsen (07:27.801):
Mitchell, you mentioned that there isn’t enough project availability to meet the capital demand. Is that correct?

Mitchell Fieldgate (07:42.776):
Correct. At Pangea Wealth, we’re wealth managers, not tied to one service provider. We have access to various 12B funds; some are still receiving capital. Active funds are still taking in capital, but this is definitely the last chance for investors to benefit from the 12B tax incentives. We don’t expect the incentive to continue after this year.

Mitchell Fieldgate (08:24.142):
One of the issues with Eskom is that it remains a monopoly and still wants to be one despite their efforts to reduce load shedding. They’re now requiring solar users to register with them by March 2024, or else they risk being classified as using illegal electricity. We’ve seen cases where compliance could cost between R25,000 and R50,000, which seems quite steep. Many investors have asked if the 12B incentive will be extended, and our answer is that we’ll only know after the budget speech in two weeks, but I’d say it’s about a 99% chance it won’t continue.

Bronwyn Nielsen (09:23.921):
So for those interested in taking advantage of this final opportunity, what’s the process? Would someone contact Pangea Wealth, say they want to invest in 12B, and then you guide them through the paperwork and help them navigate the funds?

Mitchell Fieldgate (09:59.562):
Yes, exactly. As wealth managers, we ensure the investment suits the client’s liquidity needs, tax situation, and risk profile. We have a suite of 12B funds that we recommend, each with its pros and cons. We help investors understand the debt terms (often part of these funds) and the diversification of their investment projects. Some 12B funds invest in one project, while others invest in multiple, offering more diversification.

It’s also important to choose a 12B operator with experience. Solar is more complicated than it might seem, especially when load shedding isn’t a factor, and demand is lower. So, working with a proven operator is key. We’ve built a financial model to help investors understand their tax savings and potential returns based on their income and capital gains.

Mitchell Fieldgate (12:20.342):
We tailor the solution to each client’s specific needs. It’s important for investors to speak with their financial planners and understand the risks involved before committing.

Bronwyn Nielsen (12:29.297):
Got it. Mitchell, would you consider yourselves specialists in this area, given your extensive work in understanding the 12B landscape and the available funds? Or are there many wealth managers doing the same thing?

Mitchell Fieldgate (13:02.304):
Pangea Wealth has experts in various fields, such as interest rates, forex, and alternative investments. I wouldn’t say we’re specialists across the board, but I am the alternative investment specialist, so I keep showing up on your show. I’ve been involved with this since day one, shortly after the 12B incentive was announced.

We’ve backed a diversified fund called Decentral Energy, which has 65 projects spread across Southern Africa. They’ve been doing solar for 15 years, and we know them personally—they’re highly skilled and successful. Even without 12B, they’d still be in solar. We’ve also worked with legal and tax experts at Weber Wensel and KPMG to ensure everything is in order. However, we still have access to other 12B funds, and it’s important to emphasise that while 12B is a great tax-saving tool, solar energy is a solid investment in its own right.

Mitchell Fieldgate (15:25.454):
The solar sector has great potential, even if load shedding ends. It’s about offering long-term, cost-effective solutions. We’ve seen that investors who focus on the savings and efficiency of solar panels—rather than just as a load-shedding solution—tend to have the best outcomes. The technology is improving, and with costs coming down, it’s a great time to invest in solar.

Bronwyn Nielsen (16:08.337):
In Africa, we often talk about the lack of bankable projects. I imagine part of your assessment of 12B funds involves determining the bankability of the projects to which they have access.

Mitchell Fieldgate (16:26.688):
Yes, absolutely. Renewable energy is moving in the right direction despite political headwinds elsewhere, like the US pulling out of the Paris Agreement. The bankability of these projects is more solid than ever. They’re tied to long-term contracts, and the risk of non-payment is low. These contracts typically run for 20 years with reliable, reputable off-takers. It’s quite a stable sector right now, even if load shedding were to end tomorrow.

Bronwyn Nielsen (17:16.850):
Thank you so much, Mitchell. If you want to speak with Pangea Wealth about taking advantage of the 12B tax incentive, reach out soon. The window is closing; this is the last month to invest before the tax break ends. Mitchell, thank you again for your time today.

Mitchell Fieldgate (17:37.138):
Thanks, Bronwyn. It’s been a pleasure. Appreciate it.

Contact Mitchell at [email protected] 

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