12L Income Tax Allowance on Energy Efficiency Savings Extended till 2030
Introduction – What is Section 12L?
Section 12L (S12L) of the Income Tax Act is a tax incentive scheme aimed at promoting energy efficiency in South Africa. Recently extended by the National Treasury until 31 December 2030, the incentive enables companies across all sectors to reduce their taxable income through verified energy savings.
Energy efficiency savings, as defined under the scheme, refer to the difference between actual energy used during an activity and the energy that would have been used if the energy-saving measure had not been implemented (GreenBDG, 2025).
How the 12L Tax Incentive Works
The 12L Tax Incentive is embedded within South Africa’s broader national strategy to build a sustainable, low-carbon economy, as envisioned by the National Development Plan (NDP). A dedicated chapter in the NDP emphasizes environmental sustainability, focusing on investment in natural resources, institutional capacity, technology, and skills.
Under Section 12L, businesses can claim a tax deduction of 95 cents per verified kilowatt-hour (kWh) or kWh equivalent of energy saved. These savings must be verified through a Measurement and Verification (M&V) process, conducted by a SANAS-accredited M&V body, and certified by the South African National Energy Development Institute (SANEDI) via an official tax certificate.
The incentive applies to 12 months of verified energy savings, and while there's some ambiguity around whether this is bound strictly to a calendar year or assessment year, the sunset clause ends the incentive for all assessment years after 31 December 2030.
Eligibility and Claim Process
To claim the 12L tax incentive, companies must follow a structured process:
Establish a baseline for energy consumption.
Register the project with SANEDI for viability screening.
Undergo M&V assessment through a SANAS-accredited body (we are accredited through our in-house M&V body - Accreditation Number: EEMV0019)
Submit findings to SANEDI for approval and issuance of the Energy Efficiency Tax Certificate.
Submit the certificate to SARS for the tax deduction.
The entire process may take up to 18 months before tax benefits are realised.
Types of Eligible Projects
Projects that qualify for the 12L incentive include:
Greenfield projects, where baselines are established using industry comparatives.
Energy conversion efficiency improvements.
Green Building Projects that aim for net zero certification levels
Energy conservation projects that maintain the same output levels.
Route Optimisation Projects for the Logistics and Transport Industry, including aviation
Waste heat recovery and underutilised energy use from industrial processes.
Co-generation projects with high energy conversion efficiency.
Note: Renewable energy projects are generally excluded unless they meet specific conditions. For example, Captive Power Plants (CPPs) can qualify only if they demonstrate an energy conversion efficiency above 35% for the assessment year.
Non-Qualifying Projects
The following are not typically eligible:
Projects relying primarily on renewable sources, unless they meet the CPP efficiency threshold.
Projects with insufficient or unverifiable baseline data.
Interventions that reduce output or compromise efficiency.
Illustrative Example
Assume a large industrial operation—such as a mining complex, steel plant, or multiple integrated facilities—achieves a verified annual energy saving of 100 GWh (100,000,000 kWh) through energy efficiency interventions such as:
Process optimisation
Advanced energy management systems
Waste heat recovery
High-efficiency motors or compressors
Co-generation technologies
Under Section 12L, the potential tax deduction is calculated as:
100,000,000 kWh × R0.95 = R95,000,000
This equates to a tax relief of R95M for the assessment year in which the savings are verified and approved by SANEDI.
This is effectively translates into a corporate tax saving of ± R25,650,000, assuming the measured large corporate entity had made a net profit of R500M in the year of assessment.
Considerations for Businesses
While the Section 12L incentive offers a substantial financial benefit, companies must carefully evaluate the costs of participation. One of the key challenges is the Measurement and Verification (M&V) process, which can cost up to 10% of the total project savings. These costs are not regulated and are typically determined independently by each M&V body.
To address this barrier, GreenBDG Africa has established its own in-house M&V body, specifically designed to streamline the verification process and ensure that M&V costs remain within a 10% threshold of savings, making energy efficiency projects more financially viable for businesses.
When considering 12L registration, businesses should assess:
Return on investment (ROI) after accounting for M&V and implementation costs.
The timeline required to complete verification, certification, and secure the tax benefit.
Their technical capacity to maintain consistent and verifiable energy savings over time.
Current Status and Outlook
As of June 2025, 376 projects had been submitted under 12L. Over the past 10 years, South African businesses have earned R29 billion in tax incentives while avoiding 34 megatons of greenhouse-gas (GHG) emissions and reducing their energy costs. Business owners have five more years to get a tax break for doing their bit to keep climate change in check. With the extension to 2030, the incentive remains a strategic opportunity for high-energy-use sectors—especially manufacturing, mining, and commercial real estate—to align with national decarboniSation goals while improving their bottom line.
Other Sources: https://sanedi12ltax.org.za/#!/content/home
