South Africa implements 10% import duty on solar panels to boost local manufacturing

In an effort to foster local solar panel manufacturing in South Africa, a 10% import duty has been imposed on solar photovoltaic (PV) panels, cells, and modules. This measure, signed by Finance Minister Enoch Godongwana on June 28, took immediate effect, News24 reports.

The solar PV import tax is a component of the broader South African Renewable Energy Masterplan (SAREM), which aims to create 25,000 jobs by 2030 and attract ZAR15bn ($811mn) in new investments through green energy initiatives.

SAREM

The plan, which was finalised in December 2023, was recently approved by the Department of Mineral Resources and Energy (DMRE). The approval was granted prior to the portfolio division under the new cabinet in South Africa's Government of National Unity (GNU). Energy responsibilities now fall under the newly established Ministry of Electricity and Energy headed by Kgosientsho Ramokgopa.

The SAREM seeks to leverage the increasing demand for renewable energy to boost industrial development and job creation. Although the government has been identifying the green economy as a high-growth sector for over a decade, previous industrial policies have been inconsistent and inadequate, according to News24.

There is a strong emphasis on promoting inclusivity, black economic empowerment, and a just transition to a low-carbon economy in the SAREM, as well as the need for a supportive trade policy. According to the plan, South African industry must act quickly to harness the massive growth in renewable energy demand.

However, attempts to leverage the green economy without a comprehensive plan have been unsuccessful. Earlier efforts to develop a manufacturing industry around wind and solar components were hampered by stop-start momentum in government procurement, says News24.

Addressing challenges

To address these challenges, the Department of Trade, Industry, and Competition attempted to legislate local procurement quotas but ended up granting exemptions owing to the poor availability of locally made components. The SAREM proposes policy measures to support local industry, such as incentives, localisation targets, and trade policy interventions. It also sets targets for industrial growth and job creation.

According to the International Energy Agency (IEA), China controls over 80% of the global manufacturing stages of solar panels. This dominance in the solar panel manufacturing industry has allowed China to significantly drive down the cost of solar energy globally.

As a result, countries like South Africa have been able to adopt solar energy on a larger scale, making it a more affordable and accessible renewable energy option. This has helped facilitate the rapid growth of residential and commercial solar installations in South Africa, alleviating grid demand and contributing to relief from rolling blackouts, locally called load shedding. However, the benefits of manufacturing jobs and investments from this solar boom have largely bypassed South Africa, writes News24.

Local manufacturing

ARTsolar, based in KwaZulu-Natal, is one of the very few local manufacturers of solar PV panels. The company represents a small fraction of the local capacity in a market that imported solar panels worth ZAR17.5bn ($947.6mn) in 2023, according to Gaylor Montmasson-Clair, a facilitator of the SAREM and a senior economist at the independent think tank Trade and Industrial Policy Strategies.

Montmasson-Clair stated that the introduction of the import tariff was long overdue. “There are two different ways of doing things. We can drive renewable energy and do so by driving imports, or we can drive renewable energy by trying to provide for local demand with manufacturing,” Montmasson-Clair told News24. He added that, while the tariff alone could not significantly boost local manufacturing, it was a step in the right direction.

“There are always going to be imports, but we could aim to maximise what we can manufacture locally, and the tariff, while not a silver bullet, is in that direction,” he said.

The SAREM outlines 49 potential market interventions to enhance local manufacturing for solar, wind, lithium-ion batteries, and vanadium battery storage technologies. Montmasson-Clair noted that importers could apply for a rebate on the import tax. The South African Revenue Service (SARS) may grant a rebate if the panels cannot be sourced from within the Southern African Customs Union.

Sceptical response

Some industry players, however, remain sceptical. Matthew Cruise, head of business development at Forest Energy, a solar energy installation and financing company, argued that the import tax was unlikely to drive local manufacturing capacity for solar PV. He suggested the duty could be a government strategy to capitalise on the rapid growth of solar energy rather than a genuine attempt to boost local manufacturing.

Cruise highlighted the significant energy required to produce silicon wafers for PV cells, noting that China’s dominance in this area is because of its relatively cheap electricity and substantial investment in manufacturing capacity. He explained that South Africa’s higher electricity costs and ongoing supply challenges made it difficult for locally manufactured panels to compete with Chinese imports on price. “It's disappointing to see because we don't see much benefit for the industry as a result of having more tax,” he said.

According to Julia Tatham, a junior research officer at the Energy Systems Research Group at the University of Cape Town, the increased cost from the import duty will only slightly impact the overall cost of solar installations.

“A 10% increase in the price of imported panels will not translate into a 10% increase in the total cost of installation as the panels only make up a portion of the total cost,” Tatham was quoted by News24 as saying. She supported the introduction of the tariff as a strategic move to boost local manufacturing but remained sceptical that it would result in competitive prices for locally produced solar PV panels.