SA will have to make quick work of plugging a R700bn gap for the implementation of its just energy transition plan that is to be implemented over the next five years.
The Just Energy Transition Investment Plan (JET-IP), launched ahead of the UN’s COP27 climate summit held in Egypt last month, sets out the country’s funding needs for the next five years to, primarily, transition from coal-fired to renewable energy.
The transition, as set out in the R1.5-trillion plan, will be integral to SA meeting is global emissions reduction commitments. Failure will see the country locked out of important export markets.
Daniel Mminele, who heads the Presidential Climate Finance Task Team, told MPs on Tuesday that of the roughly R1.5-trillion needed to implement the JET-IP, about R700bn required “to meet our climate change targets” had yet to be determined.
Mminele told MPs serving on the mineral resources and energy committee the balance, about R800bn, is already committed with a fair amount of certainty from SA’s Just Energy Transition Partnership (JETP) with the US, UK, France, Germany and the EU, from the private sector, and from public entities such as development finance institutions and multilateral development banks.
The JETP will contribute $8.5bn (about R147bn), private-sector investment is expected to amount to roughly R500bn and the government has secured, or is in talks to secure about R150bn from development finance institutions, Mminele said.
JETP package detail
He also provided more detail on the structure of the $8.5bn JETP funding package, which will contribute about 12% of the total amount needed to implement SA’s JET-IP. Less than 4% will be in the form of grants, 35% will be available as commercial loans or guarantee instruments, and the remaining 45% will come as concessional loans.
The EU — through the European Investment Bank, France, Germany — and the US will each contribute about $1bn, and the UK will contribute $1.8bn, the largest share by any one country, mostly via commercial loans and guarantees.
Roughly $2.5bn will partly come from multilateral climate finance institution Climate Investment Funds in the form of $500m in grant and concessional loan financing that will be leveraged to obtain a further $2bn in concessional loans.
This means that through the JETP, SA will be taking on debt of about $8.1bn (about R140bn) in one form or another.
Several committee members expressed their concern about the affordability of loans being taken on by SA, but Mminele said the JET-IP would “stand and fall with the availability of financial resources”.
Any financing instrument taken on to fund the implementation of the plan will need to consider SA’s “need for fiscal sustainability”, he said.
“All debt-related terms should be at more attractive rates than National Treasury could secure on capital markets on its own, and it should not lead to SA getting caught up in unduly onerous reporting requirements,” he said.
Mminele said SA was one of the most highly carbon intensive economies, which exposed the country to certain “transition risks that can affect our trade system because of the degree of carbon embedded in our products”.
The goal of the JET-IP is to put the country on course to achieve its revised nationally determined contribution (NDC) submitted at COP26. The revised NDC committed the country to reduce carbon emissions within a target range of 350-million tonnes to 420-million tonnes of CO²-equivalent by 2030, and to achieve net-zero emissions by 2050. That would be a reduction of about 20%-33% from current emissions by 2030.
Three priorities
The three priority sectors identified in the plan are electricity, electric vehicles and green hydrogen.
The power sector will demand two-thirds of the R1.5-trillion JET-IP spending, with funding directed primarily towards decommissioning coal-fired plants, expanding and strengthening the transmission grid and investment in new renewable energy generation.
About R128bn is budgeted for investments on decarbonising the automotive sector and supporting the switch to manufacturing electric vehicles from combustion engine-powered vehicles.
About R320bn will be spent on supporting the development of a green hydrogen industry in SA — including R150bn on port infrastructure for green hydrogen exports.
ANC MP Thokozile Malinga said the JET-IP plan, which has already been formally endorsed by the cabinet, “did not sit well” with her. As a resident of Mpumalanga, Malinga said she was concerned about the effect the energy transition would have on the province’s economy and jobs.
“Most coal comes from Mpumalanga. You say that mines and power stations will be decommissioned, and workers reskilled, but how do you reskill a mineworker that is not educated and that has been working as a miner for 30 or 40 years,” she asked.
Other MPs were also critical about the JET-IP’s perceived overwhelming focus on “phasing out coal and repurposing of coal stations”.
Mminele and minister in the presidency Mondli Gungubele, outlined the economic risks SA would face if it failed to reduce carbon emissions in line with international commitments.
Referring specifically to SA’s automotive industry, Gungubele said the majority of the country’s trading partners will, by 2030, no longer be importing cars that emit greenhouse gases.
“If we don’t move at pace with that call, we will lose our position [as an exporter], placing no less than 100,000 jobs are at risk in the automotive sector,” he said
Mminele said the coal-dependent electricity sector was responsible for 45% of SA’s greenhouse gas emissions and as such offered the largest mitigation potential “if we decarbonise the sector and diversify the energy mix”.
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