South Africa to revisit shutdown of coal-fired power plants to unlock JET funding

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  • Bloomberg reports that South Africa will provide a new timeline for the shutdown of coal-fired power plants in a bid to secure about US$2.5 billion in climate finance.

The timetable to be proposed to the Climate Investment Funds in June aims to ensure the country remains on track to obtain funding under the so-called Just Energy Transition Partnership — a $9.3-billion pact with some of the world’s richest nations. South Africa generates around 80% of its electricity from coal-fired power stations.

At COP 26 in November 2021, the governments of South Africa, France, Germany, the United Kingdom and the United States of America, along with the European Union, issued a Political Declaration announcing a new ambitious, long-term Just Energy Transition Partnership (JETP) with a combined pledge of US$ 8,5 billion in funding. The International Partners Group (IPG) as it is called, aims to accelerate the decarbonisation of South Africa’s economy to help it achieve the ambitious goals set out in South Africa’s updated Nationally Determined Contribution emissions goals.

Late last year, the South Africa’s Cabinet approved the Just Energy Transition Implementation Plan,  but there has been a push back from factions within the ruling party. The Secretary General of the ruling ANC party in South Africa, Fikile Mbalula, has slammed the investment partnership offer saying that the pact is responsible for the country’s blackouts. South Africa’s energy minister, Gwede Mantashe, snubbed US1 billion green energy MOU announcement with Denmark and The Netherlands. Read more

Early last year, South Africa told its partners in the pact it planned to delay the planned shutdown of its 14 coal-fired plants to address record electricity outages. The authorities didn’t set new closure dates.

“What we are presenting to the CIF is an adjustment to the decommissioning plan linked to an emissions target that we have to achieve,” said Neil Cole, a finance manager at the Project Management Unit, which is overseeing the JETP for South Africa, within the presidency.

If the proposal is accepted, South Africa will secure $500 million of 10- to 30-year loans with an interest rate of less than 1% and a grace period of eight years from the World Bank-affiliated CIF, Cole said in an interview with Bloomberg.

Related news: Additional US$3.5 billion pledge for South Africa’s JET plan but pushback from labour and energy minister remain

A ‘Just’ approach underpins the Plan, aiming to ensure that those most directly affected by a transition from coal – workers and communities including women and girls – are not left behind. It identifies $98 billion in financial requirements over five years to begin South Africa’s 20 year energy transition.  Investment will be required from both public and private sectors.

The IPG is mobilising an initial $8.5 billion to catalyse the first phase of the programme.

The funding package will be disbursed through various mechanisms over the five year period including grants, concessional loans and investments and risk sharing instruments. The IPG’s funding will align to the Investment Plan and be geared towards: coal plant de-commissioning; funding alternative employment in coal mining areas; investments which will facilitate accelerated deployment of renewable energy and investments in new sectors of the green economy.

Related news: Vietnam signs landmark US$ 15 billion JET plan deal for transition away from coal power

In November last year, a joint 12 month update to leaders by South Africa and the IPG summarises key technical progress that has contributed to the development of the JETP Investment Plan. It, and the preceding six month update to leaders, also outline measures undertaken by the government of South Africa to strengthen the enabling environment for South Africa’s long-term energy transition.

The IPG’s initial $8.5 billion funding package includes:

  • $2.6 billion through the Climate Investment Funds Accelerating Coal Transition Investment Plan (CIF ACT);
  • $1 billion from France;
  • $1 billion from Germany;
  • $1.8 billion from the UK;
  • $1 billion from the US;
  • $1 billion from the EU

Some of this funding is already programmed while other parts of it have still to be finalised and programmed in line with the final Investment Plan.  Work to programme the full $8.5 billion will continue in coming months.

In addition to the $8.5 billion, the World Bank Board has recently approved the Eskom Just Energy Transition project which is providing $0.5 billion of financing in support of South Africa’s Just Energy Transition.

International Partners Group financial support 

The IPG has supported South Africa’s Just Energy Transition in a variety of ways both directly and indirectly.  A fuller description of support is provided below.

Early progress in deploying the $8.5 billion support of Investment Plan

The Climate Investment Fund Accelerating Coal Transition (CIF ACT) Investment plan will provide $2.6 billion in total including $500 million of highly concessional Accelerating Coal Transition funding provided by the CIF.   IPG members (Germany, the UK and the US) provide approximately 65% of funding for the overall CIF ACT programme. The CIF ACT Investment Plan will support the decommissioning and repurposing of three coal power stations, community development and energy efficiency projects in Mpumalanga.  The World Bank’s Eskom Just Energy Transition project will provide finance for decommissioning and repurposing a further coal power station.

France and Germany are providing $600 million ($300 million each) for a concessional policy loan to South Africa to support the JETP.  The loan will be formally signed during COP27.

A number of IPG grant funded activities contributed to the development of the Investment Plan and will contribute to ongoing analytical and policy work as South Africa moves towards implementation.  These include:

  • The UK has funded work with municipalities and affected communities in the two most coal-dependant municipalities in Mpumalanga (eMalahleni & Steve Tshwete Local Municipality) to co-develop a coherent and inclusive just transition plan for each municipality.
  • Germany has funded the integration of renewable energy (particularly solar energy) into the existing energy grid. Measures to increase energy efficiency are being developed in cooperation with local authorities.
  • The U.S. Trade and Development Agency funded a Clean Energy and Climate Infrastructure Event Series to promote cooperation on clean energy topics between the public and private sectors in the United States and South Africa.  The series inaugurated with a two-day workshop on green hydrogen, held last week [October 31 – November 1] in Cape Town.  USTDA also intends to support preparation of projects to strengthen South Africa’s grid and accelerate deployment of renewable energy.
  • The EU has awarded grants to increase the participation of South Africa’s civil society in reducing emissions and adapting to climate change, while enhancing gender equality and the participation of the youth by strengthening skills.
  • France has funded work for the development of a climate finance mapping and tracking tool, the execution of a study related to the localization potential for solar PV and storage value chains in South Africa as well as support to Eskom for the refinement of its JET strategy and implementation plan.

Elements of the $8.5 billion still to be programmed.

A further $2.2 billion of sovereign loans will be programmed by France’s AfD, Germany’s KfW and the EU’s European Investment Bank in support of the Investment Plan.  The details of these loans will be announced as they are finalised.

$1.5 billion of Development Finance Institution support for private sector investment is available from the US and the UK. This will take the form of patient investments which will either seek to crowd in private sector investment to new and riskier areas or provide investment where the private sector is currently unwilling or unable to invest.  Details of these investments will be announced as they are finalised.

The UK is providing $1.3 billion of guarantees to enable enhanced AfDB lending in support of activities set out in the Investment Plan.  Details of the related loans will be announced once they have been agreed between the AfDB and the South Africa Government.

Additional IPG resources beyond the $8.5 billion

Further details of the $8.5 billion package are set out in the Investment Plan.  In addition, the following additional resources are being made available by IPG members:

  • The US is making $45 million in highly concessional funding available through Power Africa
  • The European Investment Bank is making a €200 million loan to a South African bank for on-lending to eligible onshore wind and solar photovoltaic projects in South Africa.  Germany is providing €30 million to help South Africa develop Sustainable Aviation Fuel and €5 million to work on a Green LFG value chain.
  • In the second half of 2022, Germany offered 395 Million Euro to support the JET IP implementation, including 125 Million grants.

Some IPG contributions will be made in the provider’s domestic currency, which may be impacted by fluctuations in conversion against the dollar which means that the numbers may not total exactly $8.5 billion.  As of the date of finalising the Investment Plan they totalled $8.455 billion.

Author: Bryan Groenendaal


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