- The Eskom Just Energy Transition Project (EJETP) is a $497 million project approved by the World Bank Group in November 2022 at the request of the Government of South Africa.
- It will support its public energy utility, Eskom, to decommission the 56-year-old Komati coal-fired power plant, repurpose the project area with renewable energy and batteries, and create opportunities for workers and communities.
- If successful, the project could provide a blueprint for a just energy transition in South Africa and beyond.
The project is financed by a $439.5 million World Bank loan, a $47.5 million concessional loan from the Canadian Clean Energy and Forest Climate Facility (CCEFCF), and a $10 million grant from the Energy Sector Management Assistance Program (ESMAP).
What impact will this project have on South Africa’s energy security?
South Africa’s highly coal-dependent power generation is aging, unreliable, polluting, and unable to keep up with demand. The current power supply gap is estimated at 4-to-6 GW causing load shedding of up to 10 hours daily, affecting people’s day-to-day life and the country’s economic prospects. Although electricity access is high compared to regional averages, about 10% of South Africans still lack access to electricity and 47% are considered “energy poor”. Investing in reform that provides reliable electricity services and universal electricity access is urgently needed.
Renewable solutions require less than 2-year build time (coal requires 10-12 years) after financial closure. Additionally, renewables will help ensure South Africa can continue to have competitive exports in the face of growing carbon tariffs (e.g., European Union’s Carbon Border Adjustment Mechanism – CBAM) and provides a significant reduction in emissions (NOx, SOx, PPM, CO2) and water usage.
The project will finance the decommissioning of a 1 GW coal plant that is over 56 years old. Only one of its units (Unit 9 with installed capacity of 125MW) was operational at the time of the shutdown on October 31, 2022. The other eight units were taken out of operation, with some of them formally put in cold reserve mode but without adequate maintenance schedules, between February 2017 and May 2022. The Komati power station had been operating at only 125 MW capacity since 2021. This will be replaced with a combination of 220 MW of renewable energy solutions (including 150 MW solar PV solar and 70 MW wind) and 150 MW batteries, improving power supply and grid stability.
Beyond improving supply and grid stability, the technical solutions tested at Komati can demonstrate how South Africa can integrate renewables and batteries in the national energy grid, leading to employment creation opportunities through the installation of those new technologies.
The age of Eskom’s coal fleet makes large overhaul investments for long extension of life of the old coal plants unfeasible even though smaller investments to extend the life of some of the units for a few years may be technically and financially viable. However, the biggest challenge is implementation, and extending the life of units and plants would require detailed technical studies, raising financing, procuring goods and services, and implementing an overhaul which could take many years.
The project is also in line with South Africa’s Integrated Resource Plan (IRP), a 2019 analysis of its energy needs and costs. The plan concludes wind and solar are least cost technologies and calls for reducing the share of fossil fuel as the primary energy mix and scaling up renewable energy.
How does this project fit South Africa’s overall development strategy?
Reducing greenhouse gas emissions is in line with the government’s goal to transition South Africa toward a low-carbon, resilient economy and society by 2050, as outlined in the Just Transition Framework for South Africa, championed by the Presidential Climate Change Commission (PCC) and endorsed by the cabinet in August 2022. In addition, according to the IRP 2019, by 2030, South Africa plans to retire 12 GW of coal plants and add 18 GW of new wind and solar PV to meet energy needs.
The project is also consistent with commitments under the country’s updated Nationally Determined Commitments (NDCs) to a mitigation range of between 398-510 MtCO2e by 2025, and to between 350-420 MtCO2e by 2030.
Why not extend the life of the Komati power plant as energy shortages plague the country?
In 2017, a decision was taken to follow a ramp-down station effort to zero production, based on turbine running hours/major failure and to place units on extended cold reserve/reserve storage. As of 2018, units were shut down based on the respective dead stop dates.
As units were shut down, various spares/plant equipment was removed and transferred to other units and power stations for utilization (equipment includes coal plant feeders, mill gearboxes, generator metering systems, and other electrical equipment). At the time the project was approved in November 2022, the final unit that was operational (Unit 9 -125 MW) was out of service, reaching the end of its economic life.
Without a complete overhaul and huge investments to replace generators and related equipment the Komati power plant cannot be brought back to life.
Investment into newer technologies, in particular renewables, is the most affordable and fastest solution to meet South Africa’s power needs. They are the least cost option since many financing sources are available at concessional or below-market rates when compared to investment into old coal technology. Similarly, renewables take about only two years to build, compared with a 10-12 year lead time for coal.
What impact will this project have on jobs?
Under this project, workers affected by the closure of the Komati coal plant are supported through a comprehensive plan negotiated between and with the workers and unions.
The workers at the Komati plant will be provided with a combination of measures including transfers to other Eskom projects and operations, re-skilling and upskilling for deployment to the renewable plants and voluntary separation packages for those who choose to retire from the coal sector. Some jobs will be retained at the power station for up to five years during the transition period. The project will also help build in-house technical capacity for future repurposing projects and the renewable energy component will create some new jobs.
A significant share of project financing ($47.5 million has been earmarked for the socio-economic component of the project) will be devoted to creating diverse economic opportunities for local communities and workers. Community development projects, skills training, incubation support and business development services for new and existing MSMEs are expected to create jobs in areas such as agriculture, local manufacturing, and digital technology. These activities are expected to benefit approximately 15,000 people, including Komati workers receiving transition support. These activities will be carried out in coordination with local government, civil society organizations, and the private sector to optimize benefits and for transformative impacts.
How will this project improve local communities’ health and well-being?
The power sector generates 41% of South Africa’s CO2 emissions, due mainly to Eskom’s fleet composition. Its 15 coal-fired power plants, with an average age of 41 years, provide 38.7 GW of the country’s 52.5 GW installed capacity.
The decommissioning of the 56-year coal-fired plant will reduce carbon emissions and improve the ambient air quality in the vicinity of the plant.
The project contributes to improving surface and groundwater quality through the dismantling, demolition, and removal of several buildings, structures, and dams, as well as the rehabilitation and clean-up of contaminated areas and removal of hazardous waste, including ash dumps.
Why is Eskom borrowing from the World Bank?
Decommissioning Komati is an important step towards a just energy transition which will lead to long-term security in power supply and decrease carbon emissions from the electricity sector. With better quality of power supply and grid stability in the long term, Eskom will be a stronger utility that provides better service to its clients. Eskom also stands to gain valuable experience in operating new hybrid technologies which can speed up future renewables’ integration, as well as learn how to manage the transition for Eskom workers and contractors to mitigate socio-economic impacts.
This project’s financial package includes highly concessional financing that is lower than Eskom’s average cost of debt for similar instruments, leading to an estimated reduction of at least $78 million in the present value of Eskom’s debt service costs. As such, it has made an immediate positive impact on Eskom’s budget.
How were stakeholders consulted and are there plans for more engagements?
Consultations are being carried out on an ongoing basis with relevant stakeholders and local communities as part of project preparation. Eskom has prepared a stakeholder engagement plan (SEP) for consultation with the relevant government departments including provincial and local government, labor, civil society organizations (CSOs), community groups, and the private sector. The SEP will be implemented to ensure that all stakeholders are informed about project developments, consulted on potential socio-economic mitigation strategies, and empowered to participate in transition planning to offset the impacts of the project. Accordingly, communications materials including a video, infographics, etc., have been prepared. Additional mechanisms for engaging and empowering communities throughout the project cycle include:
- EJETP (Eskom Just Energy Transition) Stakeholder Engagement Platform with representation of Eskom, relevant government ministries and institutes, local government, labor unions, CSOs, community groups, and the private sector. The platform will establish a deliberative process for effective communication and decision-making between Eskom and the wider community on its coal transition strategy and JET framework based on lessons learnt from EJETP and other related initiatives.
- EJETP Community Forum will establish a two-way communication channel to share relevant communication and get regular feedback from the workers, local communities, and other project stakeholders, specifically on the EJETP.
- EJETP Grievance Redress Mechanism will provide an accessible and effective means for beneficiaries and other interested parties to raise concerns and seek grievance redress.
What is the timeline for the completion of project activities?
The last remaining operating unit of Komati (Unit 9) was shut down on October 31, 2022.
Planning and implementation of decommissioning will take 4-5 years (including a 1.5-year preparatory phase).
How does this project relate to other Just Energy Transition initiatives in South Africa?
There are currently three major initiatives by the international donor community to support South Africa’s just energy transition. While at different stages of development, they are all interrelated. Besides the Eskom Just Energy Transition Project they include:
- The Climate Investment Funds (CIF) Accelerating Coal Transition (ACT) Investment Plan (IP) approved in October 2022. ACT will provide $500 million in concessional funds, to be blended with about $1 billion from multilaterals (World Bank, International Finance Corporation, African Development Bank) as well as about $1 billion of private sector financing, to finance coal power plant decommissioning and repurposing, capacity replacement, community-driven development in Mpumalanga province (where coal plants are concentrated), as well as energy efficiency.
- The Just Energy Transition Partnership (JETP), established following a declaration at COP26 by the Government of South Africa with contributions from France, Germany, the United Kingdom, the United States, and the European Union to mobilize $8.5 billion over the next 3-5 years to support South Africa’s energy transition plans.
Source: The World Bank