South Africa could show the world the way to ‘net zero’

What can rich countries do to help the developing world battle climate change? What’s happening in South Africa right now embodies that central question of fairness.

Africa’s third largest economy is also the world’s 12th most serious emitter of carbon dioxide. At Cop26 in Glasgow last November — where I worked with the British government — the UK, US, France, Germany and the rest of the EU joined together to allocate US$8.5-billion in seed money to South Africa. It’s the world’s first Just Energy Transition Partnership (JETP), a crucial effort to ease the economic and social disruptions that poorer countries face as they attempt to lower their carbon footprints.

The money is meant to allow South Africa to retire a colossal but creaking (and corruption-riddled) fleet of coal plants. Just as importantly, the funds will support the workers who will need to find new jobs. In the country’s coal belt of Mpumalanga, some 120 000 workers are employed in coal production, mining and transportation. The region already has a 35% youth unemployment rate. The country must focus on concerted reskilling because there’s great scepticism that high-tech jobs in green hydrogen or electrical vehicles will go to former miners.

If South Africa can pull this off, it will become a template for action elsewhere.

The coal plants that produce 84% of South Africa’s energy are run by Eskom. The gigantic public utility has been failing for more than a decade — and not just financially. Many of the power plants are spluttering to the end of their lives. This year is the worst ever, with South Africans suffering through more load shedding than before. Considered uninvestable by international finance, Eskom has been a drag on the whole economy as it soaks up huge government subsidies.

The answer is to restructure Eskom into two parts: one with good finances and the other with distressed assets that can be slowly liquidated. With a “cordon sanitaire” put around the poorly performing parts, “good” Eskom — with funds from the World Bank and other international financial institutions — can become a platform for reliable and clean energy generation, including renewables.

Komati

That’s exactly what Eskom is trying to do at its Komati power station. For 60 years, Komati was one of South Africa’s largest coal plants. This month, however, its last coal-burning unit will be turned off. A new workshop is already making containerised solar microgrids. These are repurposed shipping crates full of batteries powered by solar panels that will be deployed to far-flung rural communities currently off the electricity grid. Eskom also wants Komati to make agrivoltaics — solar panels erected in fields amid growing crops. Additionally, the utility will lease land around the power plant for solar farms.

But this is still a transition, not yet a termination. The country still faces tough questions about where to focus its climate investment. For example, should it put funds into improving the grid in a poorly served part of the country that, nevertheless, has the potential for substantial growth in solar and wind power? Or should financing be targeted at mining centres like Mpumalanga, which are already electrified but will need the jobs created by the infusion of cash?

Eskom also has to maintain ageing power stations and upgrade younger ones. Coal will continue to have a role, though in gradually declining amounts as wind, solar and green hydrogen are joined by new liquefied natural gas flows. If cheaper energy flourishes, coal will fizzle out quickly.

Read: Eskom seeks business backing in fight to end load shedding

Until then, South Africa will need more funds — $50-$60-billion in the medium term but, in total, probably a sum closer to $250-billion — to reach its climate goals. Some of the $8.5-billion in JETP funding will be outright grants but more of it will be concessional finance — loans at lower than market value — to pay for projects the private sector won’t. It will be kick-starter cash to build confidence with the intention of leveraging in even more capital.

The private financial sector, however, is still nervous of anything Eskom-related. There are influential sectors of South Africa that oppose sacrificing Eskom jobs — and are just as wary of big foreign businesses taking profits out of the country. Unless that changes, international financing will hold back.

Read: Government to take over part of Eskom’s R396-billion debt

To help, President Cyril Ramaphosa has lifted restrictions to allow more private electricity generation. A South African solar farm should be a no brainer. At Cop26, former Bank of England governor Mark Carney’s Glasgow Financial Alliance for Net Zero announced $1.3-trillion of private finance ready to back low-carbon projects. If South Africa can improve its energy investment environment, this money should start to flow.

If Eskom and South Africa make progress, Vietnam, Indonesia, Senegal and India are likely to follow. The rest of the world will then have a clearer route to net zero.  — Allegra Stratton, (c) 2022 Bloomberg LP

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