The US withdrawal from the Just Energy Transition Partnership (JETP) last week removes about $1bn from SA’s climate financing, but research group BMI says the actual impact will be limited as the country turns to China to fill the gap.
BMI, a subsidiary of ratings agency Fitch, said this week that SA’s energy transition will maintain its momentum despite the US withdrawal from the JETP, which includes France, Germany, the EU and UK.
According to the report, the remaining partner nations continue to provide significant backing for SA, which is also talking to other organisations to fill the financial gap left by the US.
“Although we expect the loss of US funding in the JETP to be disruptive and potentially add further delays to these programmes, we see other international partners stepping up to fill the void and ensure continuity,” the group said in a note.
Additionally, the US exit from the JETP leaves “very limited grant money that needs to be replaced” since the country’s financing pledge is largely in the form of loans and equity.
That reduces the burden on other lenders and just energy transition partners to “make up the shortfall”, said BMI.
Business Day reported last week SA was seeking alternative funding to plug the climate financing gap of more than $1bn after the US withdrawal from the climate financing initiative.
The just energy transition project management unit of the presidency was reportedly informed of the US decision last Friday by the US embassy in SA, which cited President Donald Trump’s executive orders signed on January 20 and February 7.
Trump's climate pushback
The US move is part of Trump’s pushback on climate change despite overwhelming scientific evidence that the planet is warming. He has also withdrawn his country from the Paris Agreement and pulled back on the US International Climate Plan and the Climate Damage Fund.
With JETP members reportedly planning to meet soon to discuss the implications of the US withdrawal and ways to maintain the $45bn energy transition funding commitments to Indonesia, Vietnam and SA, BMI said this “proactive response” offsets the threat of the US’s diminished role.
Against this backdrop, SA will increasingly turn to other bilateral partners to support its energy transition with China taking centre stage, BMI said.
China’s investment in Sub-Saharan Africa’s energy sector, particularly power plants and renewable generation, has been strong and though it has declined in recent years on shifting geopolitical dynamics, BMI projects a rebound in investment.
At the Forum on China-Africa Cooperation summit last year, Chinese President Xi Jinping committed more than $50bn in support for Africa over the next three years compared to $40bn in 2021, but down from $50bn in 2018.
China’s approach to investment in SA’s power generation sector is increasingly multifaceted, with growing attention on strategic partnerships and engagement in infrastructure, which offers a “compelling alternative” to US initiatives, said BMI.
The JETP is central to supporting SA’s energy transition by targeting the decommissioning of ageing coal-fired power plants while addressing the broader, socioeconomic impacts of such a shift.
SA’s reliance on coal is driven by its abundant resources of the fossil fuel, cost-effectiveness and the “necessity to maintain grid stability amidst frequent power shortages,” BMI said, with coal projected to contribute about 80% of the country’s power mix until 2034.
“Eskom’s plan to extend the operational life of key coal-fired plants until 2030 highlights the challenges in swiftly transitioning to cleaner alternatives, indicating that coal will continue to be a significant component of SA’s energy mix,” it added.
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