Section 12BA vs Section 12B: How South Africa’s Renewable Energy Tax incentives have evolved
“This article is a bit different and focuses on educating potential investors on not only the benefits of structured tax investments, specifically making use of section 12B for solar products, but also very importantly to evaluate the dangers of applying too much debt in a structure. We believe the better investors understand how it all works and connects, the more informed investment decisions they can make”, says Deon Lewis, CEO of Futureneers Group.
Two Eras, Two Approaches
Over the past few years, South Africa’s renewable energy landscape has been shaped by two powerful tax incentives: Section 12BA and Section 12B. Both were designed to encourage investment in clean energy, but each works differently - and understanding the differences is essential for any investor looking to optimise returns and manage risk.
Let’s unpack what changed, and why these details matter for your portfolio.
Section 12BA: The Gold Rush Years
Section 12BA, now closed, was the ultimate fast-track for renewables.
Investors could claim a 125% tax deduction on any qualifying renewable asset, regardless of its size.
This structure was simple: invest R1 million, and claim R1.25 million as a deduction—instantly amplifying the impact of every rand committed.
How did this translate into real savings?
At a 45% tax rate, an ungeared 12BA investor would get back 56.25% of their initial investment immediately in tax relief (125% x 45%).
Gearing: The “Leverage Multiplier”
The system became even more powerful when debt was used.
With just 43.75% loan-to-value gearing, you could achieve a 100% effective tax saving.
The debt load was reasonable relative to project cash flows, so risk was often manageable - even with moderate leverage.
Section 12B: Smarter, Stricter, Still Valuable
Section 12B is now the primary incentive for new investments.
For Solar PV assets below 1MW, you get a 100% deduction in year one.
Tax Saving, Revisited:
With no gearing, a 12B investor at a 45% tax rate gets 45% of their investment back in tax relief (100% x 45%).
But what about leverage?
To achieve a 100% tax saving, a Section 12B structure now requires 55% loan-to-value gearing—much higher than under 12BA.
This means the same project, with the same returns, must now carry a bigger debt load to reach the same tax benefit.
The Effects of Gearing: A Real-World Example
Suppose a typical solar project returns an 8% net EBITDA yield in year one, on a R1 million asset—that’s R80,000 per year.
Under Section 12BA:
With a 43.75% loan (R437,500 at 11% interest = R48,125 interest/year)
10-year loan repayment = R74,288 per year
Debt service is comfortably covered by project cash flow.
Under Section 12B:
To match the tax benefit, you’d need a 55% loan (R550,000 at 11% interest = R60,500 interest/year)
10-year loan repayment = R93,391 per year
The same project struggles to cover higher debt costs. The margin for error is thinner. Risks are elevated.
The Bottom Line:
Section 12BA allowed sustainable debt levels with meaningful tax savings.
Under Section 12B, reaching the same tax outcome requires higher leverage - potentially beyond what the underlying asset can comfortably support.
The Real Question: How Much Risk Can You Handle?
Leverage amplifies outcomes. Used wisely, it boosts returns. Used excessively, it exposes you to losses when things go wrong.
Investors must now be more selective. Only the best projects with strong yields can carry higher debt safely.
The Income Tax Act requires investors to be directly liable for debt if they claim the deduction.
When the unexpected happens, lower gearing means fewer sleepless nights and less capital at risk.
Why the Futureneers Energy 12B Fund Gets the Balance Right
While Section 12B remains a compelling tax incentive, success now depends on structuring investments to capture its benefits without taking on unsustainable levels of debt. The Futureneers Energy 12B Fund is built precisely with this balance in mind — using a disciplined, three-phase model designed to maximise returns while minimising capital at risk.
Phase 1 – Enhanced Tax Efficiency Through Prudent Gearing
For every R1 million invested, our structure unlocks a R1.67 million deduction under Section 12B, translating into R751 500 in immediate tax savings at a 45% rate. On top of the tax saving, early investors will also receive an additional R50,000 in income by February 2026. This is achieved through moderate, well-structured gearing, reducing secured bank debt to under 35%, ensuring the deduction is maximised without over-leveraging the asset. With 75% of the investment cost effectively covered upfront, only a quarter of your own capital remains truly at risk.
Phase 2 – Accelerated Capital Recovery
The next five years focus on cash generation. The Fund targets an effective 20% annual return on the at-risk capital while servicing debt, creating a pathway to full liquidity by year five. Investors at this stage still own 100% of the generating asset, now with reduced debt and a further 15 years of income potential ahead.
Phase 3 – Long-Term Passive Income
From year six onward, investors benefit from a steady 15-year income stream from blue-chip offtakers. With risk capital fully recovered, returns become asymmetrical — on average, R100 000 per year (after tax and fees). This structure offers an attractive, inflation-resistant income source for retirement or portfolio diversification.
A Model Built for the New 12B Era
In the post-12BA environment, higher gearing requirements mean that investors cannot simply chase the highest deductions — they must secure structures that preserve capital and withstand market shocks. The Futureneers approach has been engineered for precisely these conditions: blending tax efficiency, conservative leverage, and long-term asset ownership into a single investment platform.
The Futureneers Energy 12B Fund represents a more sustainable model — one that recognises that real wealth is created when upfront tax advantages are coupled with sound project economics, disciplined risk management, and enduring cash flow.
For investors who want to participate in South Africa’s renewable energy transition without taking on excessive leverage, this is not just a tax play — it is a blueprint for resilient, long-term value creation.
Invest now and receive an additional annualised return of 10% in year 1.