South Africa gets applause for landmark green energy financing deal

World leaders have hailed a deal announced by President Cyril Ramaphosa to the effect that South Africa has secured a landmark commitment of $9 billion of highly concessional climate financing from developed countries and the EU, to help the country away from coal to cleaner forms of energy.

The resources are explicitly intended to assist South Africa’s energy giant Eskom to close down its coal power stations before the end of their normal life-span, and to build a renewable energy sector.

It will also support the expansion and upgrade the transmission grid to enable connections of new renewable energy plants.

The governments include the UK, the US, France and Germany.

UK Prime Minister Boris Johnson, who is hosting the COP26 conference, described the agreement as “a game-changing partnership that will set a precedent for how countries can work together to accelerate the transition to clean, green energy and technology”.

The commitment was agreed in a political declaration finalised at COP26 in Glasgow and is the first significant financing deal to emerge from the climate conference.

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COP26 has set a goal of raising $100bn a year for the next five years to help developing countries with climate change mitigation and adaptation.

However, there has been much scepticism from the developing world over whether promised financing would materialise.

On Tuesday, Ramaphosa said: “Through the political declaration issued today to establish this partnership, partner countries will mobilise an initial $8.5bn (R131bn) over the next three to five years through a range of instruments, including grants and concessional finance, to support the implementation of our revised nationally determined contribution through a just transition to a low-carbon and climate-resilient economy.”

Nationally determined contributions are voluntary targets set by governments to reduce national emissions.

The governments, whose climate envoys visited South Africa in September, said that “the partnership aims to accelerate the decarbonisation of SA’s economy, with a focus on the electricity system, to help it achieve the ambitious goals set out in its updated nationally determined contribution emissions goals.”

The first phase of financing will be made through “mechanisms including grants, concessional loans and investments and risk sharing instruments”, and would also “mobilise the private sector”, they said.

It is expected to prevent up to between 1 Gigatonne (Gt) and 1.5Gt of carbon dioxide from entering the atmosphere over the next 20 years.

US President Joe Biden said the partnership was evidence that the Group of 7 countries are living up to their pledges to assist the developing world on climate-related matters.

European Commission president Ursula von der Leyen said the agreement was a “global first and could become a template on how to support just transition around the world”.

The political agreement takes special note of South Africa’s commitment to a “just transition” in which communities and workers whose livelihoods have been built on the carbon economy are assisted into pathways of work and supported.

Ramaphosa said: “At the heart of this partnership is the importance of a just transition, which includes support for workers and communities affected by the transition away from coal and enables the creation of quality green jobs.

“For the transition to be just, decarbonisation must be implemented in a manner that promotes and sustains employment, livelihoods and economic inclusion for historically marginalised communities and sectors of our society.

A joint task force will be established to take forward the partnership over the coming months.”

While the partner governments have stressed that their main focus will be on Eskom and the electricity sector, which is where the quick wins to reduce global emissions lie, the South Africa government also wants the green transition to include funding for the switch over to manufacturing of electric vehicles and development plans for the manufacturing of green hydrogen.

Ramaphosa said the financial resources would “accelerate investment in renewable energy and the development of new sectors such as electric vehicles and green hydrogen.

This will provide a significant boost to investment and growth while ensuring Eskom can access resources to finance repurposing of coal-fired power stations due for decommissioning over the next 15 years.”

The R130bn commitment follows a letter of intention from the Climate Investment Funds (CIF) to assist SA with grant funding of between $200m and $500m, depending on the presentation of an acceptable plan.

South Africa’s draft plan on the just transition is seeking far higher amounts of funding from the international community. Eskom requires R400bn over the next 10 years, while funding for electric vehicles and green hydrogen are at the initial stages, aimed at project development.

However, both Eskom and the country are constrained by high debt levels. Even though the financing on offer is concessional and would be offered at close to zero interest rates, it will nonetheless have to be repaid.

For Eskom, which is unable to service its existing debt burden, also in the region of R400bn, from its own revenue, a bigger debt solution and assistance from government is required.