‘There is hope’ for SA’s Just Energy Transition despite concerns about funding gap

South Africa’s daring plan to quit coal while sparking growth and keeping the lights on starred again in the State of the Nation Address (Sona) and the recent budget speeches, promising a solution to end crippling blackouts, while moving to a green economy.

The plan has the potential to spark large-scale investment in South Africa and change the course of development, despite concerns about a funding gap in the plan.

In his 2023 Sona, President Cyril Ramaphosa explained that around R1.5 trillion will be invested over the next five years to kickstart the country’s Just Energy Transition (JET).

This investment is set to develop new frontiers such as renewable energy, green hydrogen, and electric vehicles as part of its Just Energy Transition Investment Plan (JET-IP). The start was a $8.5 billion (about R128 billion) pledge by rich nations at the Glasgow climate conference (COP26) two years ago.

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At the time, the pledge made global headlines as a breakthrough for developing countries. But it’s just the start. Ramaphosa’s own Presidential Climate Commission (PCC) has pointed out that the deal – called the Just Energy Transition Plan (JETP) – was never meant to finance the whole transition – it is simply a catalyst to attract investment.

Daniel Mminele, former head of the Presidential Climate Finance Task Team, warned of a R700 billion funding gap which can be closed only by using the money to spark further investment.

Net-zero carbon climate targets

In its most recent Country Climate and Development Report, the World Bank estimated the country will require $8.5 trillion between now and 2050 to meet its net-zero carbon climate targets – about 4.4% of GDP per annum.

But they also highlight the immense developmental opportunity that lies in making the necessary investment.

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Peter Attard Montalto, head of capital markets at research firm Intellidex, says a large amount of climate financing can flow into South Africa in the coming years.

“It (JETP) has been positive in highlighting issues and South Africa on the international stage,” says Montalto.

No-one left behind?

Leanne Govindsamy, attorney at the Centre for Environmental Rights, said at a Fair Finance Coalition of Southern Africa media briefing that communities could not be a budget afterthought and that the coming investment was needed to help pull them forward.

She expressed a real fear that JET-IP’s proposed funding falls far short of what is needed to support workers and communities affected by the transition away from coal.

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It was critical to ensure that Eskom continued to implement its JET projects and secure the promised funding, despite Eskom boss André de Ruyter’s recent departure from the power utility.

Labour and civil society argue the funding allocated is not enough to address the social and economic impacts of the transition.

The cost of kicking out coal

South Africa, the world’s 13th-biggest emitter of carbon, is still highly dependent on coal.

Eskom plans to shutter nine power stations by 2035, most of them in Mpumalanga. This will terminate 15GW of electricity and put 55 000 jobs at risk. But the real ingenuity of the JETP is to use the funds not to only transition, but to keep the country’s lights on. That is why Eskom – at least with De Ruyter at the helm – was at the centre of negotiations.

Just Energy Transition: Who will get what?

JET-IP plans to spend R711.4 billion on the electricity sector over the coming five years. Most of the cash – R647.7 billion – will flow to generation, storage, and network infrastructure.

Developing South Africa’s New Energy Vehicle sector will require R128.1 billion and makes up 8.5% of the funding requirement, while developing green hydrogen is set to cost R319 billion or 21.2% of the budget – a similar budget to the R319.1 billion to help municipalities with the transition.

At the bottom of this sits skills development at R2.7 billion, or 0.18%, and this is this figure that has communities worried. Currently only about 2.7% of the funding would be in the form of grants. The balance will be made up of regular loans and concessional loans from various finance institutions that will weigh on the country’s debt burden.

It is the concessional loans that makes the JETP a worthy deal for SA. Loans are funds that are provided to a country with the expectation that they will be paid back with interest; while concessional loans are loans that are provided at a below-market interest rate, typically offered by international financial institutions or donor countries to provide aid.

Earth Life Africa’s Thabo Sibeko called for public finance institutions such as the Development Bank of Southern Africa, as well as local banks, to invest in local communities to ensure the “just” element in the JET plan is translated into real investment in communities.

“Specifically in areas where communities are directly affected. This is an opportunity to invest and help in this energy crisis,” he said.

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Mpumalanga will need a further R60.4 billion for significant new investment and reskilling. By far the largest part – R24 billion – is for diversifying local communities.

Mminele explained that the JET investments are embedded alongside the technical ones to make sure that workers and communities are not left behind.

“The investment plan includes interventions along coal-producing and coal-reliant areas to spearhead diversification,” he said.

In his budget, Finance Minister Enoch Godongwana said it was vital to ensure communities such as those tied to high-emitting industries – steel, chemicals and plastics, and cement – are not left behind, either. Instead, they should be equipped with new skills, as well as economic and employment opportunities and supported by a coherent industrial policy.

African Climate Reality Project activist Courtney Morgan says that at the moment it is largely an infrastructure development plan and that it needed to develop into a “just” energy transition and infrastructure plan.

Despite the concerns, the plan has ignited hope in South Africa of creating a new greener future, with equal development. It is a real shot at a future where South Africa will get left behind as the world moves to a new climate regime.

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Written by Yolandi Groenewald