The Energy Council of SA was founded by business in 2021 in agreement with the government with the specific objective to play a leading role in the energy sector in support of a sustainable energy transition for the country.
The council appointed James Mackay in October as its first CEO. Mackay is an industry veteran and the former head of energy for PwC. He spoke to Denene Erasmus about what the council’s role will be in SA’s fast-unfolding energy transition.
Why was the Energy Council of SA established and what do you want to achieve?
Delivering a successful energy transition over the next 10 to 30 years is fundamental to meeting our global climate change contributions, as well as to the future of our economy, and must include energy affordability, security and sustainability.
With this in mind, there was a call from the government that recognised the need for unity within the sector and more cohesiveness around business action towards the energy transition.
The Energy Council was established to play a leadership role in unifying the voice of business and meaningfully supporting the national energy vision and pathway to net-zero.
The council is inclusive and aims to be broadly representative of the energy sector. The founding members, and this is quite unique about the Energy Council, includes private and public sector business, as the Central Energy Fund, the IDC (Industrial Development Corporation of SA) and Eskom are founding members and on the board. Private founding members were Sasol, Anglo American, Exxaro, TotalEnergies, Toyota and the automotive industry association Naamsa.
Part of our role will be to encourage investment across the energy sector, and we are now expanding the membership base to include the banking sector, other industrials, and we are also seeing a lot of interest from the renewables sector.
What are the broad implications of the energy transition for SA and its economy?
The energy transition is the most difficult and expensive transition that the world will ever have to go through. Historically, transitions were commercial, technology driven, which took many decades to achieve. But because of the existential threat of climate change we must achieve the transition away from fossil fuel-based energy sources to cleaner, renewable sources in record time.
We have made a commitment as a country to transition to net-zero by 2050 — this is in our legislation, we have to do it. It is convenient to frame this as a long-term, gradual transition of us moving towards a low-carbon economy by 2050, but the commercial and economic reality is that we must have our net-zero platforms in place by 2030 to stay relevant in global trade, especially in trade blocks such as the EU and UK who are rapidly transitioning and implementing emissions taxes on imports. Our committed global obligations, the Nationally Determined Contributions (NDCs) under the Paris Agreement, is a 30% reduction in emissions by 2030.
SA is one of the most emissions intensive economies and most coal-dependent countries in the world, which means that our energy transition journey is going to be very challenging as we have to invest in significant scale of new renewable energy, as well as bearing the cost of decommissioning significant fossil fuel energy at record pace.
This is ultimately a system and society transition that will require levels of investment that will likely be unaffordable, without innovative models and international support.
What is the risk of SA not meeting its 2030 and 2050 emissions reduction target?
If we do not stay within our NDC commitments, and if we don’t have those net-zero platforms in place by 2030, we will increasingly get shut out of global trade.
With over 40% of our exports directly exposed the EU’s new carbon pricing framework to prevent the risk of carbon leakage by importing from high-emitting countries, the Carbon Border Adjustment Mechanism (CBAM), industries such as our petrochemical, pulp and paper, automotives, metals, ferroalloys and other export trade will have to be able to very clearly demonstrate that they are able to operate within emissions reduction targets as they progress towards net-zero by 2050.
What is your main focus now? Is it planning for the energy transition or finding solutions to the immediate supply of energy crisis?
The short answer is both because it is the same pathway. Energy security and stability is an immediate need of our economy, as well as business, which needs the confidence to invest in growth and new technologies. Over the longer term, we need a clear transition strategy and implementation pathways, including the changing role of government and policy reform. This will create the certainty for investment, growth, sustainability and ultimately equality and prosperity for all citizens.
One of the key messages we are driving from the Energy Council is that the energy transition is not going to be gradual. There is a long-term vision of how we mature to net-zero by 2050, but the transition platforms for that journey must be in place by 2030 and that is going to be rapid, it is going to very disruptive and very expensive.
We really need to form an understanding very quickly around how we can effectively spend towards achieving the transition. We also need to make sure we have the right policy pathways in place to create business confidence because the private sector will need to make the majority of the investment needed to achieve the transition and we need to ensure that we are factoring in what is socially just as we move along that pathway.
SA launched its R1.4-trillion Just Energy Transition Investment Plan (JET-IP) at COP27 in Egypt in November. Does the plan focus on the right actions to take the country forward in the transition?
It is a great step in the right direction. If we look at the investment plan and at the Just Energy Transition Partnership (JETP) between SA and its partners, the US, UK, EU, France and Germany that was announced at COP26 in Scotland last year, and from which the JET-IP flowed, this really is an internationally leading and recognised initiative by SA.
Having said that, the JET-IP doesn’t adequately cover where we need to get to. The energy transition is not just an asset replacement programme and the JET-IP was built on three asset pillars: decarbonisation by shutting down coal-fired power stations; establishing a green hydrogen sector; and the transition in the automotive industry to manufacturing electric vehicles.
Over and above this asset replacement drive, the energy transition will fundamentally change the way economies and societies behave.
It is a systems transition, and we will have to go into a very liberalised market that will be decentralised and digitised, which means the role of the government must change and we will see an unbundling of state-owned entities.
What the JET-IP does not address is the huge amount of work that will have to go into creating the type of integration needed at a systems and governance level to make a sustainable transition at a country level.
We are working hard to be collaborative with all stakeholders and really listen to the many voices across the sector. From there it is all about driving actions and investment.
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