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Renewables Tax Relief

Challenges to Investment

Madagascar faced several challenges in the development of clean energy infrastructure, particularly solar, as it traditionally relied on hydro and thermal generation. In 2015, only 23.8% of the population had access to electricity, complicated by low population density, and unfavourable demand patterns. The country lacked sufficient infrastructure for widespread distribution and storage of renewable energy, and new installations were at risk of climate events such as cyclones and flooding. Beyond technological constraints, political instability, limited institutional capacity and resources, and the lack of legal frameworks and standards for clean energy hindered investment. The government faced mounting pressure to meet its electrification goals under the Madagascar New Energy Policy 2015-2030, while also maintaining subsidies for the state utility company Jiro sy rano Malagasy (JIRAMA), which relied on expensive petroleum imports for generation.  


Approach

The government of Madagascar offered a series of fiscal incentives to promote clean energy in its 2015 budget. These incentives included a reduction in corporate income tax equivalent to 20% of the investment in renewable energy (up to 50% of total tax liable), reduction on VAT or import duties for renewable energy equipment, and accelerated depreciation rates of 30% for investment in renewable energy equipment. From 2004, the government had permitted a build-operate-transfer (BOT) model for mini-grid concessions, which it expanded to include solar mini-grids in 2015. This clean energy model was first applied in mid-2015, with further auctions planned for 2016 and 2017 to achieve rural electrification objectives. 


Key Enabling Conditions

The success of these policies in promoting clean energy in Madagascar can be attributed to several key enabling conditions. The government's political strategy to increase access to electricity from 15% to 70% by 2030 provided clear direction, while fiscal incentives and the BOT model created a more favourable environment for investment. Additionally, the World Bank's assistance in restructuring Madagascar's national utility company, JIRAMA, improved electricity sector planning and financial sustainability.  


Impact / Outcomes

The introduction of tax incentives and reductions, along with the BOT model for solar mini-grids, led to positive outcomes in terms of pre-electrification/electrification, renewable energy generation, and emissions. Private companies have confirmed that increasing solar PV for commercial, industrial, and residential purposes is a cost-effective way to reduce energy costs and ensure electricity supply stability. Additionally, these incentives helped create a market for pre-electrification solutions such as solar lamps, especially in rural areas. Access to electricity has increased from 23.5% in 2015 to 35.1% in 2021. Renewables’ share of Total Energy Supply increased by 4% from 2015 to 2020, while Madagascar’s use of imported energy fell 4% over the same period. Solar now represents 56 GWh or 3% of total generation capacity, with mini-grids spearheaded by civil society organisations and microfinance institutions (e.g., Access Bank Madagascar). These interventions also activated support from the World Bank (USD 65 and USD 40 million in 2016 and 2018, respectively) to improve electricity sector operations and governance and from the IFC’s Scaling Solar program in 2016, catalysing investment in a 25 MW solar plant.


Additional Sources

Locations
Africa, Madagascar
Year published
01 January 2015
Policy type
Energy policy
Risk category
Currency/macroeconomic risk, Power market risk, Financial sector risk, Grid/transmission risk
Policy lever
Incentives for clean energy

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