The document outlines ITAC’s initiative to review the customs tariff structure for input materials, components, and final goods in the renewable energy value chain, covering solar PV, wind energy, and battery storage. The objectives are to enhance South Africa’s position in regional and international supply chains, incentivize local manufacturing, and improve the competitiveness of domestically produced renewable energy products. Below are the main proposals and their implications:
- Increase in Customs Duties:
- ITAC is considering raising ordinary customs duties on certain tariff lines (listed in Table 1) to their World Trade Organization (WTO) bound rates, where there is existing or potential local manufacturing capacity. Examples include:
- Solar PV Value Chain: Items like silicon (HS 2804.61), copper wire (HS 7408.11), aluminum profiles (HS 7604.10), screws and bolts (HS 7318.15), and LEDs (HS 8541.41) could see duty increases from free or low rates (0–15%) to higher rates (10–30%).
- Wind Energy Value Chain: Components like iron ingots (HS 7206.10), aluminum structures (HS 7610.90), and wind-powered generating sets (HS 8502.31) may face duty hikes from free or 10% to 10–20%.
- Battery Storage Value Chain: Materials like artificial graphite (HS 3801.10), nickel (HS 7502.10), and lithium-ion accumulators (HS 8507.60) could see duties rise from free to 5–15%.
- Purpose: Higher duties aim to protect and encourage local production by making imported goods more expensive, thereby increasing demand for locally manufactured components.
- ITAC is considering raising ordinary customs duties on certain tariff lines (listed in Table 1) to their World Trade Organization (WTO) bound rates, where there is existing or potential local manufacturing capacity. Examples include:
- Rebate Provisions:
- ITAC proposes creating rebate provisions for input materials not manufactured locally but used in downstream manufacturing. This would allow duty-free or reduced-duty imports of critical components, reducing costs for local manufacturers who rely on imported inputs.
- Impact: This could benefit small businesses engaged in assembling renewable energy systems by lowering input costs, provided they qualify for rebates.
- Discontinuation of Solar PV Rebate:
- ITAC is considering discontinuing rebate item 460.16/8541.43/01.06, which allows duty-free importation of solar PV panels if installed domestic capacity reaches 50% of domestic demand. This aims to incentivize local assembly and manufacturing.
- Impact: If implemented, imported solar PV panels would face higher duties, increasing costs for installers and end users who rely on imported panels, unless local production scales up sufficiently to meet demand at competitive prices.
- Local Content Requirements:
- ITAC invites proposals to identify additional products for local content requirements under the Public Procurement Act 28 of 2024. This would mandate a certain percentage of locally produced components in renewable energy projects, particularly for public sector procurement.
- Impact: Small businesses may need to source more local components, which could raise costs if local suppliers are not price-competitive or if supply is limited.
- Import and Export Controls:
- Import Controls: Relaxation of import controls on critical minerals (e.g., for battery storage) is proposed to incentivize domestic manufacturing by ensuring access to essential inputs.
- Export Controls: Introduction of export controls on critical minerals to secure domestic supply for local manufacturing.
- Impact: Relaxed import controls could lower costs for battery storage manufacturers, while export controls may ensure supply stability but could limit export opportunities for small businesses dealing in raw materials.
- Submission and Timeline:
- Interested parties must submit comments within four weeks from April 17, 2025 (i.e., by May 15, 2025). This provides small businesses an opportunity to influence the final tariff structure by highlighting their concerns about cost increases or supply chain challenges.
Impact on Small Businesses and End Users/Installers
1. Increased Costs for Imported Components:
- Small businesses, particularly installers of solar PV systems, wind turbines, and battery storage solutions, will likely face higher costs for imported components due to increased customs duties. For example:
- Solar PV installers may pay more for imported panels, LEDs, and aluminum frames.
- Battery storage installers could see higher costs for lithium-ion batteries and nickel-based components.
- End User Impact: Higher component costs will likely be passed on to consumers, increasing the upfront cost of renewable energy installations. This could slow adoption rates among residential and small commercial customers unless offset by subsidies or financing options.
2. Shift Toward Local Sourcing:
- The push for local content requirements and higher duties on imports will pressure small businesses to source components locally. While this supports South Africa’s manufacturing sector, it may pose challenges:
- Supply Constraints: If local production capacity is insufficient or not cost-competitive, installers may face delays or higher prices.
- Quality Concerns: Small businesses will need to verify the quality and reliability of local components to maintain customer satisfaction.
- End User Impact: If local components are more expensive or less reliable, end users may face higher costs or reduced system performance, affecting the perceived value of renewable energy solutions.
3. Potential Cost Savings from Rebates:
- Rebate provisions for non-locally produced inputs could reduce costs for small businesses engaged in assembly or manufacturing. For example, duty-free imports of critical minerals for battery production could lower costs for storage system installers.
- End User Impact: If installers benefit from rebates, they may pass some savings to end users, making renewable energy systems more affordable.
4. Discontinuation of Solar PV Rebate:
- The potential removal of the duty-free importation rebate for solar PV panels could significantly impact installers who rely on imported panels, which are often cheaper than locally assembled ones. This could increase project costs by 10–20% (depending on the final duty rate).
- End User Impact: Higher costs for solar PV installations may deter small businesses and households from adopting solar energy, particularly in price-sensitive markets, unless local production ramps up to offer competitive pricing.
5. Opportunities for Local Manufacturing:
- Small businesses with the capacity to manufacture or assemble renewable energy components (e.g., solar frames, battery casings, or wind turbine parts) could benefit from increased demand for local products due to higher import duties and local content requirements.
- End User Impact: If local manufacturing scales up efficiently, end users could benefit from more competitive pricing and shorter supply chains in the long term, though short-term cost increases are likely during the transition.
6. Administrative and Compliance Burden:
- Small businesses will need to navigate new rebate applications, local content requirements, and potential changes in import/export regulations. This could increase administrative costs and require investment in compliance expertise.
- End User Impact: Increased operational costs for installers may be passed on to end users, further raising installation prices.
Recommendations for Small Businesses
- Engage with ITAC:
- Submit comments by May 15, 2025, to ITAC (contacts: Pfarelo Phaswana, Nonqubeko Sikhakhana, Rethabile Molala) to advocate for balanced tariff increases and robust rebate provisions. Highlight the impact of higher duties on small businesses and end users to influence the final policy.
- Explore Local Suppliers:
- Begin identifying and building relationships with local manufacturers of renewable energy components to prepare for potential local content requirements and higher import duties. Assess their pricing, quality, and reliability.
- Leverage Rebates:
- Investigate eligibility for proposed rebate provisions for non-locally produced inputs. Work with industry associations to ensure clear guidelines and accessible application processes.
- Diversify Supply Chains:
- To mitigate risks from potential supply constraints or cost increases, diversify sourcing strategies by combining local and imported components, where feasible, and explore alternative suppliers in regions with favorable trade agreements.
- Educate End Users:
- Communicate potential cost increases to customers transparently, emphasizing the long-term benefits of renewable energy (e.g., energy savings, environmental impact). Offer financing or payment plans to ease the upfront cost burden.
- Monitor Local Manufacturing Developments:
- Stay informed about investments in local production capacity for solar PV panels, batteries, and wind components. This could lead to more competitive pricing and supply stability in the future.
Summary for End Users/Installers
The proposed tariff changes aim to bolster South Africa’s renewable energy manufacturing sector but will likely increase costs for small businesses and end users in the short term due to higher duties on imported components and the potential discontinuation of the solar PV rebate. Installers may face higher project costs, supply chain challenges, and administrative burdens, which could translate to higher prices for end users, potentially slowing adoption of renewable energy systems. However, rebate provisions and increased local manufacturing could mitigate some costs in the medium to long term, provided local production scales up efficiently. Small businesses should actively engage with ITAC, explore local sourcing, and prepare for a transition to a more localized supply chain to navigate these changes effectively.
