Section 12B vs PPA: The Capital Decision Every Property Director Must Make Before Year-End

The 125% accelerated tax incentive that turbocharged commercial solar investment in South Africa is gone. Section 12BA expired on 28 February 2025 and was not renewed in the March 2025 Budget Speech. At the same time, NERSA has approved an 8.76% Eskom tariff increase effective 1 April 2026 — on top of the 12.74% hike implemented just twelve months prior. For property directors navigating capital allocation before year-end, these two shifts collide into a single, unavoidable question: do you own your solar assets under Section 12B and claim whatever tax relief remains, or do you finance generation through a Power Purchase Agreement (PPA) and preserve balance sheet capacity? The answer depends on your tax position, your treasury strategy, and — critically — on how you read the tariff trajectory ahead.

What Section 12B Actually Offers in 2026 — After the Sugar Rush Ended

It is worth being precise about where the legislation stands today, because confusion between Section 12B and the now-lapsed Section 12BA is causing real mispricing of capex proposals in the market.

Section 12BA — the temporary enhanced allowance — is closed. It provided a once-off 125% deduction for qualifying renewable assets brought into use between 1 March 2023 and 28 February 2025. National Treasury confirmed in the March 2025 Budget that it would not be renewed, and also confirmed that the 1MW generation threshold under the original Section 12B would not be revised upward despite industry lobbying.

Section 12B — the permanent baseline provision — remains in force, but with a significantly narrower scope. It provides a 100% first-year deduction for PV solar assets used in generating electricity not exceeding 1MW, and a 50%/30%/20% three-year write-off for larger renewable assets, including wind, concentrated solar, hydropower and biomass. For commercial and industrial property owners, this means:

• A rooftop system up to 1MWp qualifies for a full 100% deduction in year one — a meaningful benefit, but not the 125% headline that dominated conversations through 2024.
• Systems above 1MWp revert to the three-year write-off schedule, materially deferring the tax timing advantage.
• Battery energy storage (BESS) deployed purely for grid import and storage — without a co-located solar generation component — does not qualify under Section 12B. Only assets forming part of a system that generates electricity are eligible.
• The corporate tax rate in South Africa remains 27%, meaning the effective after-tax cost reduction on a qualifying R10 million solar investment is approximately R2.7 million at a 100% deduction — real money, but less dramatic than the R3.375 million that the 125% allowance produced.

The practical upshot: Section 12B still materially improves the economics of owned solar for tax-paying entities. But the urgency of the incentive has shifted — this is now a considered financial tool, not an expiry-driven trigger.

The Tariff Trajectory That Changes Every Calculation

Any capital decision in commercial energy must be anchored in tariff reality. Here is the current picture as of April 2026.

NERSA approved an 8.76% average tariff increase for Eskom direct customers effective 1 April 2026, with municipal bulk purchasers set to implement a 9.01% increase from 1 July 2026. This follows the 12.74% increase applied from 1 April 2025. A further 8.83% increase has already been approved for April 2027. These figures emerged from a High Court-ordered redetermination of Eskom's Generation Regulatory Asset Base, which identified a R54.7 billion revenue shortfall — being recovered in phases across the current MYPD6 period.

To put this in context: South African electricity tariffs have increased by approximately 180% between 2014 and 2024. The structural pressures driving increases — Medupi and Kusile capital costs now embedded in the RAB, environmental compliance obligations, and infrastructure maintenance — have not resolved. Both approved increases for 2026 and 2027 sit well above the prevailing inflation rate of approximately 3.5%.

What this means for property directors is straightforward: grid electricity will cost more in real terms every year for the foreseeable future. Any solar investment — whether owned or contracted — locks in a portion of your energy cost at today's generation price, insulating that portion from annual NERSA determinations. The question is which structure locks in that protection most efficiently for your specific entity.

The PPA Case: Zero Capex, Predictable Cost, Off-Balance Sheet

A well-structured commercial PPA transfers asset ownership, installation risk, and maintenance responsibility to the developer. The property owner pays a tariff per kilowatt-hour — typically fixed with a negotiated annual escalation rate — for a contracted term, commonly 10 to 20 years. In the South African C&I market, PPA escalation rates are routinely structured at 4% to 7% annually, well below the Eskom tariff trajectory.

The financial case for a PPA rests on four pillars:

1. No capital outlay. The full cost of design, procurement, installation, commissioning, and long-term O&M sits with the developer. For property funds, REITs, and asset-heavy businesses with competing capital demands, this is decisive.
2. Off-balance-sheet treatment. Under IFRS 16, certain PPA structures may be classified as service agreements rather than finance leases — though this requires careful structuring and auditor engagement. Treasury teams should not assume this outcome without explicit legal and accounting review.
3. No tax position required. Section 12B only creates value for entities with taxable income to offset. Loss-making entities, those carrying forward assessed losses, or businesses in extended Section 12J or 12BA recoupment positions get no uplift from owning the asset. A PPA delivers the tariff saving regardless of tax profile.
4. Risk transfer. Technology obsolescence, panel degradation, inverter replacement, and SSEG regulatory compliance rest with the developer — not the property owner — for the life of the agreement.

The PPA market in South Africa has matured considerably. The removal of the licensing requirement for renewable generation projects up to 100MW has lowered barriers for developers and expanded the pool of credible C&I PPA partners. Corporate PPAs spanning 10 to 20 years are now a standard mechanism for locking in below-Eskom energy costs, and the market is seeing growing appetite from property funds, retail portfolios, and industrial users alike.

The Section 12B Ownership Case: Tax Alpha and Asset Value

For entities that are profitable, fully tax-paying, and have strong balance sheets, owned solar under Section 12B remains a compelling proposition — particularly for systems under 1MWp where the 100% first-year deduction applies.

Consider a commercial property company installing a 750kWp rooftop system at a total installed cost of R7.5 million. Under Section 12B, the full R7.5 million is deductible against taxable income in year one. At a 27% corporate tax rate, this creates a R2.025 million tax shield — effectively reducing the real cost of the system to R5.475 million before energy savings are modelled. With current commercial solar generation offsetting grid purchases at R1.80/kWh to R2.20/kWh (against Eskom commercial tariffs now comfortably above R2.50/kWh and rising), simple payback periods on owned systems are compressing toward five to seven years in many configurations.

Beyond the tax shield, owning the asset creates tangible property value. For listed property funds, an on-site solar installation with a documented energy cost saving profile can positively influence asset valuations. It also supports green building certifications, ESG reporting obligations, and tenant retention in a market where large corporate tenants increasingly embed energy resilience requirements in lease negotiations.

There is also a BESS consideration specific to ownership. While a grid-only battery (used purely to shift Eskom peak demand to off-peak tariffs) does not qualify under Section 12B, a BESS co-located with a solar PV system — where it forms an integrated generation-and-storage system — is more likely to qualify. SARS guidance indicates that assets forming part of a system that generates electricity together are eligible. This is not a blanket guarantee, and SARS continues to assess these on a facts-and-circumstances basis — but for property directors planning hybrid solar-plus-storage installations, the tax treatment of the BESS is a live factor in the financial model.

The Hybrid Reality: Why It's Rarely a Binary Choice

The most sophisticated property portfolios are not choosing between Section 12B and PPA — they are applying each structure to the appropriate asset class within their portfolio.

A practical framework:

• Tax-paying entities with capex budgets and systems below 1MWp: Owned solar under Section 12B, leveraging the 100% year-one deduction. Pair with BESS under a structured tax opinion for integrated systems.
• Properties where capex is constrained, tax position is uncertain, or lease terms are shorter than ten years: PPA with a credible, financially robust developer. Prioritise contracts with clear termination, step-in, and assignment provisions if the property is likely to transact.
• Large industrial and warehouse facilities with loads above 1MWp: Run a blended model — own the first 1MWp (100% deduction) and PPA the balance, or structure the larger system under the 50/30/20 write-off with a detailed NPV analysis against a fully PPAed alternative.
• Retail and mixed-use portfolios: PPA is typically preferred due to multi-tenancy complexity, SSEG application variability across municipalities, and the portfolio-level capital allocation discipline REITs typically apply.

What Must Be Decided Before Financial Year-End

For businesses with a February or March year-end — the majority of South African companies — the window to commission and bring into use a qualifying solar system before year-end is effectively closed for FY2026. The focus now is FY2027 planning, which means the decision timeline is this calendar year.

The South African solar market added 1.6GW of new capacity in 2025 alone, and installer capacity is tighter than it was twelve months ago as utility-scale REIPPPP Round 7 projects — now totalling 3.94GW across 18 IPPs — begin moving into construction simultaneously with the C&I pipeline. Lead times for equipment procurement, SSEG applications with municipalities, and Eskom interconnection approvals are all lengthening.

Property directors who want a commissioned system on-site before the end of their next financial year need to begin the feasibility and procurement process now — not in Q3. Whether the ultimate structure is Section 12B ownership or a PPA, the engineering, legal, and regulatory groundwork takes time that the calendar will not return.

The Decision Framework: Four Questions to Answer First

Before selecting a financing structure, every property director should have clear answers to the following:

1. What is our taxable income position for FY2027? If you cannot absorb a significant deduction, Section 12B ownership delivers no immediate value. A PPA is structurally neutral to your tax position.
2. What is our weighted average cost of capital? If debt is expensive, the implicit financing cost embedded in a PPA may be lower than your own cost of capital — making the PPA the better risk-adjusted choice even for tax-paying entities.
3. What is the expected tenure at this property? PPAs transfer with the lease or property in well-drafted contracts, but shorter-term occupiers face assignment risk. Owners of freehold commercial property carry less of this risk.
4. Is BESS a requirement? With load shedding materially reduced — Eskom's Energy Availability Factor has risen to 65.85% year-to-date through mid-March 2026 — the business case for BESS has shifted from emergency power toward peak demand management and tariff arbitrage. This changes the financial model significantly and should be modelled separately from the solar component.

The Perspective

The expiry of Section 12BA has reset the commercial solar conversation in South Africa. The tax incentive no longer creates artificial urgency — but the tariff trajectory and market dynamics create their own, more durable case for action. Section 12B remains a powerful tool for the right entity. A PPA remains the most accessible route for property owners where capital, tax position, or risk appetite make ownership impractical.

What has not changed is the fundamental arithmetic: every percentage point of your energy consumption offset by solar — at a contracted price below the Eskom tariff — improves your operating cost position and reduces your exposure to NERSA's annual determinations. The structure you use to get there is a financial engineering question. The decision to act is not.

If you have not run a current feasibility assessment that reflects the 2026 tariff base, the revised Section 12B position, and your actual load profile, you are making capital decisions on stale numbers. The market has moved — your model should too.