Is Kenya likely to follow South Africa's lead and offer tax breaks on solar rooftops too?

The Kenyan government established a goal to add 5,000 MW of renewable energy to its grid by 2030, with a sizable amount of this anticipated to come from solar power. As of 2021, 600 megawatts (MW) of energy capacity have been installed. The country has been actively promoting the development of its solar energy sector through various initiatives, such as the launch of the renewable energy feed-in tariff (REFIT) program to encourage private investment in the industry and large-scale solar projects.

In addition to REFIT, the government of Kenya could also consider implementing tax incentives for rooftop solar installations, such as tax credits, rebates, or deductions. These incentives would reduce the upfront cost of installing a rooftop solar system, making it more accessible and affordable for individuals and businesses, reducing the country's dependence on fossil fuels, helping create new jobs, and stimulating economic growth. In turn, it would help to increase the adoption of solar rooftops and contribute to the government's goal of expanding the use of renewable energy.

South Africa is soon to enjoy solar tax breaks, as announced recently by President Cyril Ramaphosa, and Kenya could adopt the same but more quickly. Implementing tax incentives for solar rooftops can significantly increase the adoption of renewable energy. However, Kenya must overcome several challenges to make these incentives effective and sustainable.

How does a tax incentive for solar rooftops work?

A tax incentive for solar rooftops is a tax benefit provided by the government to encourage individuals and businesses to install solar panels on their rooftops. The types of tax incentives for solar rooftops can vary, but common examples include tax credits, rebates, and deductions.

For example, the federal government in the United States offers a tax credit for residential and commercial solar installations known as the Investment Tax Credit (ITC). This tax credit allows individuals and businesses to claim a credit equal to 26% of the cost of the solar installation on their federal tax return.

What bodies would be involved in the setting up of the tax incentive?

Setting up a tax incentive for solar rooftops would involve the collaboration of several vital bodies. These may include:

The Ministry of Energy: The Ministry of Energy is responsible for developing and implementing policies and programs related to the energy sector in Kenya. They would play a key role in establishing the framework for a tax incentive for the solar rooftop.

The National Treasury: The National Treasury is responsible for managing the government's finances and would be involved in determining the budget for the tax incentive program and allocating resources to support it.

The Kenya Revenue Authority (KRA): The KRA is responsible for administering and enforcing tax laws in Kenya. They would be involved in implementing the tax incentive program, including calculating and paying tax credits, rebates, or deductions.

The Energy Regulatory Commission (ERC): The ERC is responsible for regulating the energy sector in Kenya and would be involved in monitoring and enforcing the terms of the tax incentive program.

The private sector: The private sector, including renewable energy developers, would be essential partners in implementing the tax incentive program. They would be responsible for installing solar rooftop systems and claiming the tax credits, rebates, or deductions provided under the program.

Are there any immediate obstacles to setting up these incentives?

Lack of political will: Implementing a tax incentive program for solar rooftops requires the support and commitment of the government. With the political will to invest resources and make changes to the tax system, it can be easier to establish a tax incentive program.

Limited budget: The government may need more financial resources to allocate towards a tax incentive program for solar rooftops, making it difficult to provide substantial incentives to encourage adoption.

The tax system's complexity: The tax system can be complex, and implementing a tax incentive program for solar rooftops may require changes to existing tax laws and regulations, which can be time-consuming and challenging, especially if there is limited expertise within the government the matter.

Resistance from other sectors: Other sectors, such as the fossil fuel industry, may resist implementing a tax incentive program for solar rooftops, as it could negatively impact their businesses. This resistance can make it challenging to establish and implement the program.

Technical challenges: There may be technical challenges associated with installing solar rooftop systems, such as the availability of equipment and the expertise of installers. These challenges could limit the uptake even with the presence of tax incentives.

It is crucial to address these hindrances comprehensively to establish a successful tax incentive program for solar rooftops in Kenya, which can include partnering with the private sector, engaging stakeholders, and allocating sufficient resources to overcome technical and administrative challenges. Do you think it can be done? Yes! The question remains to be, when?