South Africa is a kingpin of the Global South: we are the biggest carbon emitter on the African continent, and the 14th biggest globally. Our economy runs on a grid of ageing coal power stations, and our financially-crippled national utility, Eskom, doesn’t have the money to replace them. But a new funding proposal sitting with government could rescue the utility from financial ruin, force the rapid phase-out of coal, and pool funds to catch the workers who will lose their livelihoods as coal energy dwindles. Leonie Joubert reports
South Africa’s national utility Eskom is the lead character in the energy and emissions landscape in Africa, which is why this column has given it so much attention. Because of the size of the SA economy, and how big our emissions profile is compared with other African countries, what happens to this energy giant has significant implications for global efforts to meet the United Nations targets of nearly halving emission within 10 years, and getting down to net zero emissions by mid-century.
Eskom, and South Africa’s coal-to-liquids giant Sasol, produce three-quarters of the country’s carbon pollution. About 90 percent of Eskom’s power gets generated by coal fired power stations, most of which are falling into disrepair and will need to be replaced with new power stations.
But the utility is in the midst of a financial crisis, and no longer has money to pay for general operations, let alone service its debts. South Africa’s president Cyril Ramaphosa appointed a specialist task team to come up with solutions to the crisis, and there has long been speculation that this might be a golden opportunity for the country to make the rapid transition towards utility-scale renewable energy.
Last month, the Eskom Sustainability Task Team presented the presidency with a proposal that might do just that. Billed as the Just Transition Transaction plan, the funding arrangement will likely be a US$11 billion package of local and international commercial and concessionary finance that will be pulled together through a blended climate-finance vehicle which will fund Eskom over two decades through a tailored ‘transition fund’.
But this finance will come with tight conditions. Funders will only commit to provide financial backing if the SA government agrees to an accelerated phase-out of coal. Once the fund is operational, if the state fails to meet agreed-upon decarbonising targets over the course of the five-yearly pay-outs, some kind of penalty will apply. Either interest rates on the funds will ratchet up, funding will stop, or the funds will need to be repaid.
This is according to Dr Emily Tyler, an independent climate economist who contributes to drawing up the proposal.
Speaking at a global divestment conference held here in Cape Town in September, Tyler said the transaction plan is a way to ‘plug the hole in Eskom’s balance sheets’ but will also provide a mechanism to pool funds that can be used to support workers who will be left stranded as coal mining and power generation phase out.
This transition away from coal is inevitable, according to many energy analysts here, as global finance institutions turn their backs on funding or insuring new-coal developments in response to the urgent UN goals for cutting carbon pollution. Multilateral development banks (such as the World Bank, and the New Development Bank, the so-called ‘Brics bank’), development finance institutions (banks that are majority-owned by national governments and tend to fund development projects that the private sector is not willing to finance), and private banks are increasingly losing their appetite to invest in coal technology.
But because of South Africa’s legacy of coal power generation, and the many heavy industries that have thrived in this economy ecosystem, the country has a large number of people employed in this industry.
‘Workers and communities (in this industry) will be decimated by the inevitable transition away from coal,’ Tyler said at the conference. ‘This transaction fund is a way of getting climate finance from development finance institutions to pay for accelerated coal phase down, (but in) a managed way that doesn’t decimate the economy and communities.’
She said there is ‘currently no just transition plan in place within the government’.
However, political factions within government may cloud the critical energy policy decision-making, expected in the next few months. While the National Treasury recently called for much greater investment in utility scale renewable power because of its job creation and emissions reduction potential (laid out in its Economic transformation, inclusive growth, and competitiveness: Towards an economic strategy for South Africa document, released recently), there are concerns that a pro-coal agenda in government may still win out.