South Africa, test field for a “just energy transition”

The Khutala Colliery coal mine in Mpumalanga (South Africa), on September 29, 2022. An hour's drive from Johannesburg, the site is one of around a hundred coal mines and a dozen coal-fired power plants that dot the Mpumalanga province in the northeast of the country, an area known as the South Africa's coal belt is well known. The Khutala Colliery coal mine in Mpumalanga (South Africa), on September 29, 2022. An hour’s drive from Johannesburg, the site is one of around a hundred coal mines and a dozen coal-fired power plants that dot the Mpumalanga province in the northeast of the country, an area known as the South Africa’s coal belt is well known. LUCA SOLA / AFP

It was one of the most important announcements of COP26. In November 2021 in Glasgow, Scotland, France, the United Kingdom, Germany, the United States and the European Union put $8.5 billion on the table to fund South Africa’s energy transition. Little got through the negotiations for a long time. Until the South African government secretly approved an investment plan on October 20th. Details are to be announced at COP27, which opened on November 6 in Sharm El-Sheikh, Egypt. But the main lines are already emerging.

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This “Just Energy Transition Partnership” (JETP), the first of its kind between a developing country and a coalition of rich countries, should serve as a model if successful. Similar agreements, recognizing the special responsibilities of developed countries on global warming, have been launched by the G7 with Senegal, Vietnam, Indonesia and India. South Africa, the 13th largest CO2 emitter in the world, seems to be the ideal testing ground. Because it depends on coal, which accounts for 80% of its electricity generation and employs 100,000 people. But also because she needs help to get out an ever worsening energy crisis.

As aging coal-fired power plants chained outages, load shedding multiplied to avoid grid collapse for Africa’s first industrial powerhouse. Neither the state-owned power company Eskom, which owes R400 million (EUR 22 million) in debt, nor the South African state have the funds to urgently finance the necessary increase in production capacity. In some respects, the energy transition plan acts like a rescue plan.

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Unsurprisingly, it focuses on South Africa’s electricity transition, given the country’s pledge to end coal by 2050. Barbara Creecy, South Africa’s Minister for the Environment, announced that ten coal-fired power plants are to be closed in the coming years. The JETP in particular should make this possible finance the construction of infrastructure (transmission capacities, transformers, batteries, etc.) as a pioneer for the expansion of renewable energies. The other two components of the South African investment plan concern the development of green hydrogen, in which South Africa aims to be a leader, and the development of electric vehicles.

A seed fund

It is already clear that the total of $8.5 billion covers only a fraction of the funds needed for South Africa’s transition. According to an estimate by the Presidential Commission on the South African Climate, it would take up to 250 billion dollars in thirty years for the country to complete its transformation. On October 22, Daniel Mminele, Chair of the Presidential Climate Finance Task The South African team that negotiated the partnership announced the investment plan would require “at least” $50 billion over five years.

The JETP is only supposed to work that way a seed fund to attract and facilitate participation from the private sector and other international institutions. “The contribution of our foreign partners has the potential to attract far greater resources from both the public and private sectors. We are already focusing on mobilizing additional funds from other interested countries, multilateral development banks, philanthropic sources and the private sector. “, specified Daniel Mminele.

Less than 3% of the promised $8.5 billion is expected to come in the form of grants. The rest on loan

In late July, President Cyril Ramaphosa reiterated his intention to turn to the private sector to come to the rescue of the power grid by revoking the licenses needed to develop power generation capacity. A turning point that makes some fear “privatization”. of these capacities, explains David Hallows, a researcher at the South African environmental organization Groundwork. “We cannot afford to have a situation where parts of our society – likely the private sector – are reaping the benefits of the transition while the risks are borne by workers in vulnerable industries and their communities,” South Africa’s environment minister also warned during a conference on October 24.

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Green hydrogen projects, a technology that is still in its infancy with high cost and energy-intensive production, also raise many questions. “Linking a green electricity grid with green hydrogen and the development of electric vehicles seems like a perfect way to integrate transport, liquid energy and the power sector in a single partnership model,” said Saliem Fakier, director of the African Climate Foundation, a pan-African think tank Based in South Africa.

The Eskom power plant in Kendal in the Mpumalanga province of north-eastern South Africa on September 29, 2022. The Eskom power plant in Kendal in north-eastern South Africa’s Mpumalanga province, on September 29, 2022. LUCA SOLA / AFP

But the big question about the JETP is financial. In what form will the promised $8.5 billion come about? According to revelations by UK information site Climate Home News, which published a summary of the funding plan, less than 3% of the funding is set to come in the form of grants. The remainder would be split between loans at lower market rates, commercial loans and guarantees to reduce project risk and attract private investors. Annoyed by these leaks, Daniel Mminele assured that the final version differed from this working version.

debt reimbursement

Nevertheless, the majority of credits are confirmed by various interlocutors familiar with the project. While some point out that it is mechanically impossible under OECD rules to offer more subsidies to an upper-middle-income country like South Africa, others wonder: “Borrowing money is going into debt. Under what conditions exactly? asks David Hallows of Groundwork. Barbara Creecy also emphasized that the funds provided as part of the energy transition do not “increase the debt” of the countries concerned.

The low level of subsidies raises questions about the ‘fair’ aspect of the transition to support local communities. A non-monetizable dimension that is at the heart of concerns in South Africa, where the unemployment rate is peaking at almost 45%, including those no longer looking for work. “Retraining, upskilling, or building skills for vulnerable workers and communities are not really income-generating processes to pay off debt,” warned Barbara Creecy.

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Gwede Mantashe, the Minister for Natural Resources and Energy, is a staunch defender of the mining sector and believes the sector could still “reinvent” itself as South Africa’s coal exports to Europe increased by 720% in the first half of 2022 compared to in Last year against the background of the war in Ukraine.

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