Electricity & energy minister Kgosientsho Ramokgopa says factors such as exchange rates, fees and other non-price conditions have added a layer of complexity to South Africa’s Just Energy Transition Partnership (JETP) funding efforts.
Ramokgopa was responding to a written question from parliament, DA MP Kevin Mileham who had asked on what basis the minister had concluded that JETP funding wasn’t competitive, given that the facility from German development bank KfW offers a fixed interest rate of 4.31% compared to South African government bond yields of about 8.43%.
“A direct comparison between a foreign-currency fixed rate and domestic South African government bond yields isn’t like for like. A competitiveness assessment must consider the all-in, risk-adjusted cost,” Ramokgopa said.
On December 31 last year, $7.56m (about R128m), or 85%, of just energy transition grants had been allocated, and all $726m of just energy transition policy-based loan funds had been allocated.
About 28% (highly concessional $940m) of just energy transition concessional loans have been allocated, and $310m, or 8%, of just energy transition commercial instruments have been deployed.
“Project preparation is in progress for the highly concessional fee loans. In total, approximately $5.7bn in pledges from South Africa’s international partners have been allocated to just energy transition investment priorities to date, with the balance in preparation.”
Ramokgopa said these risk-adjusted costs include currency denomination and exchange rates, fees and non-price conditions that can affect effective cost and implementation flexibility, such as disbursement conditions, results-linked indicators and procurement or reporting requirements.
Project preparation is in progress for the highly concessional fee loans. In total, approximately $5.7bn in pledges from South Africa’s international partners have been allocated to JET investment priorities to date, with the balance in preparation.
— Kgosientsho Ramokgopa, electricity & energy minister
Ramokgopa said the National Treasury continuously assesses the relative cost and risk of financing options in domestic and international capital markets, including the domestic bond programme and foreign-currency issuances, alongside multilateral and bilateral loans.
“Just energy transition policy-based loans taken up to date have been deemed favourable to the fiscus … National Treasury reports on the government’s borrowing programme, instruments and cost or risk considerations as part of its debt management framework.”
The costs and terms of loans vary by facility and lender, he added.
Domestically, renewable energy projects by independent power producers (IPPs) are gaining momentum as more are being integrated with the national grid.
James Cumming, CEO of IPP Anthem, said the company’s Gamma B main transmission substation has achieved grid integration, supporting the 420MW Gamma Wind Programme in the Northern Cape.
“We do this work on behalf of Eskom,” Cumming said. “It’s funded by our wind farms through the self-build policy, where, to connect our [three] wind farms, we need to build the infrastructure. This one requires an MTS [main transmission substation] that sits on the transmission network. It’s important as it sits on the network infrastructure between the Northern Cape and the northeastern provinces of the country.”
The Anthem wind farms allow us to fund the Gamma MTS. In addition to this, Anthem must build 3 more distribution substations and over 50 km of overhead line to integrate their wind farms, which also get handed over to Eskom.
Long-term power purchase agreements with customers ensure that the prices increase at inflation – this gives price certainty.
The benefit is that they no longer have to suffer the uncertainty of how that pricing will move in a 20-year period.
The company is looking north of South Africa’s borders and is furthering gains in Eswatini with solar projects and Zambia with private generators.
Frances Phillips, a partner at consulting firm Kearney, said the global energy transition requires emerging markets to raise annual investment in clean energy from $770bn to $2.8 trillion by the early 2030s.
“Locally, the Integrated Resource Plan targets a massive scale-up of renewables, from 17GW to more than 45GW by 2030, yet we face a $98bn funding gap despite the $11bn mobilised through the JETP,” Phillips said.
“To navigate this, we advocate for a two-phase roadmap. First, strengthening our existing infrastructure by leveraging natural gas as a critical bridge to ensure energy security, and second, scaling up renewables and storage at the necessary magnitude,” she added.
This approach ensures industrial and mineral resilience, connecting the country’s critical mineral wealth, the “minerals to megawatts” concept, to the global energy transition while protecting local value chains, Phillips added.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.