It was meant to be the model for climate justice: rich countries helping poorer ones break their dependence on coal as part of saving the planet from the devastating effects of climate change. But nearly 18 months later, South Africa’s $8.5 billion transition plan looks more like an example to avoid, as Bloomberg points out.
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Only one coal plant has closed since the Just Energy Transition Partnership (JETP) was announced with much fanfare at COP26 in Glasgow. Now some South African politicians are pushing to keep other stations open longer than planned – possibly for years – as the country struggles to end the daily power cuts that irritate voters and deter foreign investors. .
JETP’s success hinges on a plan by Eskom Holdings SOC, the state-owned power company responsible for around 40% of South Africa’s emissions, to replace most of its 14 remaining coal-fired power plants with electricity. wind and solar energy. However, successive postponements have slowed the program since its inception, overshadowing similar agreements currently in place with Indonesia, Vietnam, Senegal and India.
Indebted and dependent on state funding, Eskom has been searching for a leader since CEO Andre de Ruyter resigned in February, accusing a government minister of corruption.
Decades of indecision, mismanagement and corruption have damaged the company beyond repair. The resigning CEO claimed that the money embezzled from the company amounted to well over one billion rand ($55 million) per month.
…And the additional obstacles
Beyond the Eskom affair, the challenges are just as formidable. Political unrest and critical personnel changes hampered progress. The government has so far neglected the difficult task of negotiating with the unions. And the country’s energy minister, a former miner and trade unionist, describes himself as a “coal fundamentalist”.
It is therefore not surprising that the government plan on which the funding depends has already delayed the achievement of the terms.
The statement of the Managing Director of Eskom’s JETP office to Bloomberg is typical of the country’s intentions: “It makes no sense to shut down units at coal-fired power plants when we have an energy crisis.”
When the idea of helping developing countries shift away from fossil fuels became a priority at G7 meetings, South Africa emerged as a seemingly ideal test case. It was decided that it would be easier to develop a plan in a country with one large energy company rather than several small ones. A country with lots of sunshine and strong winds would also be suitable for renewables – and Eskom was already considering a possible green transition, but lacked the funds to make it happen.
Five partners – Germany, France, Britain, the United States and the EU – have agreed to provide some of the money South Africa needs to close dilapidated coal-fired power stations, increase transmission capacity, add renewable energy and stimulate the development of electric and hydrogen industry vehicles. to create new jobs.
Coal is fundamental in South Africa
Coal is the fundamental fuel on which South Africa’s economy, the most advanced on the continent, has been built. Cheap energy from abundant coal deposits fueled the gold mines which earned foreign currency for the apartheid government. In a country without oil, Sasol uses coal to make fuel. Today, coal-fired power plants provide more than 80% of South Africa’s electricity, making it more dependent on the dirtiest fossil fuels than any other major economy.
Another aspect of the difficulties raised in the implementation of South Africa’s energy transition program relates to the fact that the ruling African National Congress has used coal to boost black-owned businesses and provide jobs to his constituents. It is particularly complicated in South Africa, where coal is part of the history of the struggle for liberation from colonial oppression.
But now that Eskom and government finances have deteriorated, power stations and towns in South Africa’s eastern coal belt have been left to rot, with half capacity at any one time. Eskom had to block electricity for the past few years. This year there have been power outages every day, often for more than 10 hours at a time.
Energy Minister Gwende Madase, who oversees the increase in renewable energy production, and the new Electricity Minister, Kgosientsho Ramokgopa, have made it clear that their priority is to reduce blackouts. They argue that the quickest way to do this is to restructure coal-fired power plants, which has the added benefit of preserving jobs and safety nets.
Eskom estimates that 53 gigawatts of clean energy will need to be installed by 2032 to compensate for the six coal-fired power plants that must be decommissioned by then. But large RES projects being built in the western provinces with high wind potential are hampered by a lack of grid capacity.
nothing is a joke
However, the terms of a 254 billion rand debt rescue program announced by the government in February prohibit the company from investing in new production capacity. It cannot take on more debt without permission from the Ministry of Finance and can only spend within narrow limits.
South Africa estimates that it will need around 1.5 trillion. rand ($81 billion) over the next five years to begin the transition from power lines to starting a hydrogen industry.
The $8.5 billion offered by international partners is aimed at mobilizing more investment. Spain, for example, said this month it would provide 2.1 billion euros ($2.3 billion) for energy transition and water needs.
But most money has a price. JETP financing consists of a combination of grants, concessional financing, commercial loans and debt guarantees. Under the current agreement, only 4% of the total does not have to be reimbursed. South African Finance Minister Enoch Godongwana expressed concern about some of the terms of the loan. Even President Cyril Ramaphosa, who has championed the deal, has asked for more money in the form of grants.
While Eskom launched the talks that led to JETP, its main domestic backers have since left.
All of this has confused financiers who have said in private talks they are also worried about how Eskom’s planned restructuring into three separate units – generation, transmission and distribution – under a single holding company will be handled. But even those plans have been delayed.
Meanwhile, worsening power cuts are increasing pressure on the country’s president, Cyril Ramaphosa, a year before a general election in which the ANC could lose its majority for the first time.
Although they disagree on the energy transition to clean energy, Ramaphosa depends on the Minister of Energy for his political survival as he backed him when he was in danger of losing an intra-party vote.
The ANC also depends on an increasingly difficult relationship with the Congress of South African Trade Unions, which has 1.8 million members. Ramaphosa has so far avoided confronting them over the issue of coal-fired plant shutdowns, piling up the problems in the future.
“It must succeed”
However, the rich countries are not abandoning the agreement, because it is essential for them to demonstrate that the JETP can succeed.
Statements from officials such as Anthony Phillipson, the British High Commissioner to South Africa, are telling that “the UK is fully committed to supporting South Africa’s just energy transition”.
In a similar vein, Alexia Latortou, assistant secretary for international trade and development at the US Treasury Department, said her country also supports the program, a stance that echoes sentiments from the German and French embassies.
Ramaphosa has engaged in a race to pass a revamped Electricity Regulation Act that will incentivize private investors to invest in the electricity market – reducing the burden on Eskom to accelerate clean energy development – ahead of an election that could lead to a coalition government.