..Letter from the Industry
2016 will prove a challenging year to solar PV off-grid businesses in the East Africa region. This is as a result of a change in the East Africa Customs Management Act which previously provided for import duty exemptions for specialized equipment that uses and/or stores solar energy, and their spare parts and accessories. The import duty, as well as VAT exemptions have had a key role in supporting the uptake of solar PV solutions as they have effectively reduced consumers prices by up to 41% (25% import duty and 16% VAT).
The amendment in the EAC Customs Management Act seeks to exclude appliances purchased with or for use in solar PV systems from exemption. In a similar move, the VAT Act in Kenya was previously amended to include the word ‘exclusively’ thereby requiring importers of these products to demonstrate that there was no way the appliances designed for use in solar PV powered systems could technically be powered by any other means. These amendments essentially seek to address leakage i.e. unscrupulous businesses taking advantage of the exemption provision to avoid paying duty and VAT on appliances that are not meant for use in solar PV systems. Unfortunately the exemption restrictions result in significant collateral damage for importers with valid claims.
It is also important to look at the bigger picture and the key role that private sector and solar PV systems plays in complementing government funded rural electrification programs i.e
- the significantly high cost of conventional grid based rural electrification (2,000 – 3,000$ per connection)
- that most rural electrification strategies neglect households and small/micro businesses in sparsely populated areas, where grid extension or isolated mini-grids are not technically or economically viable
- that high population growth is a significant challenge for electrification, requiring a very high number of new connections per year just to retain the current national connectivity percentage (a challenge further exacerbated by a shrinking average household size).
Appliances designed for use in solar PV systems are significantly more efficient than those designed for use by conventional grid consumers. This is because, the amount of daily energy available on a solar PV system is limited and dependent of the installed capacity of the system. Any efficiency gains therefore help maximize the use of the limited energy available while also reducing the installed capacity requirements (which subsequently reduces the upfront solar PV system cost for the consumer).
Unfortunately, there is a limited market for efficient appliances designed for off-grid applications and, as a result, these appliances are often more expensive than conventional electrical appliances. Levying import duty and VAT on solar PV appliances therefore imposes an unnecessary additional burden on those who are already disadvantaged because they cannot access a conventional electricity grid connection.
The issue of leakage does need to be addressed. Considering that, by design, solar PV appliances will have a significantly lower power rating than conventional grid appliances, the solution could be as straight forward as categorizing appliances (by application e.g. TVs, stereo, computer, fan, fridge) and providing exemptions to those in a given category with a power rating below a defined threshold.
We hope you enjoy reading this edition and that you find it relevant, informative and useful.