South Africa is key to global net zero
The money is intended to allow South Africa to retire a colossal but creaky (and riddled with corruption) fleet of coal-fired power stations. Equally important, the funds will support workers who will need to find new jobs. In the Mpumalanga coal belt, some 120,000 workers are employed in coal production, mining and transportation. The region already has a youth unemployment rate of 35%. The country needs to focus on concerted reconversion as there is great skepticism that high-tech jobs in green hydrogen or electric vehicles will go to former miners.
If South Africa can achieve this, it will become a model for action elsewhere.
The coal-fired power stations that produce 84% of South Africa’s energy are run by state-owned Eskom Holdings SOC Ltd. The gigantic utility has been bankrupt for more than a decade – and not just financially. Many power plants sputter until the end of their life. This year is the worst ever, with South Africans suffering more outages – known as “load shedding” – than before. Considered uninvestable by international finance, Eskom has been a drag on the wider economy as it absorbs huge government subsidies.
The answer is to restructure Eskom into two parts: one with good finances and the other with troubled assets that can be slowly liquidated. With a ‘cordon sanitaire’ around underperforming parts, the ‘good’ Eskom – with funds from the World Bank and other international financial institutions – can become a platform for the production of reliable and clean energy, including including renewable energy.
This is exactly what Eskom is trying to do at its Komati power plant. For 60 years, Komati was one of South Africa’s largest coal-fired power stations. This month, however, its last coal-fired unit will be turned off. A new workshop is already manufacturing containerized solar micro-grids. These are repurposed shipping crates filled with batteries powered by solar panels that will be deployed in remote rural communities currently off the power grid. Eskom also wants Komati to manufacture agrivoltaics – solar panels erected in fields amid growing crops. Additionally, the utility will lease land around the power plant for solar farms.
But it’s still a transition, not yet an end. The country still faces difficult questions about where to focus its climate investments. For example, should it invest funds in improving the grid in an underserved part of the country that, nonetheless, has substantial growth potential for solar and wind power? Or should funding be targeted at mining hubs like Mpumalanga, which are already electrified but will need the jobs created by the cash injection?
Eskom also needs to maintain aging power plants and modernize younger ones. Coal will continue to play a role, although in gradually decreasing quantities as wind, solar and green hydrogen are joined by new streams of liquefied natural gas. If cheaper energy flourishes, coal will quickly run out.
By then, South Africa will need more funds – $50 billion to $60 billion in the medium term but, in total, probably closer to $250 billion – to meet its climate goals. Some of JETP’s $8.5 billion in funding will be direct grants, but more will be concessional funding — loans at below market value — to pay for projects that the private sector will not fund. This will be a confidence boost with the intention of raising even more capital.
The private financial sector, however, is still nervous about anything Eskom. There are influential sectors in South Africa that oppose Eskom’s sacrifice of jobs – and are equally wary of big foreign companies taking their profits out of the country. Unless this changes, international funding will be curtailed.
To help, South African President Cyril Ramaphosa lifted restrictions to allow more private power generation. It also increased the size of renewable projects from 1 megawatt to 100 megawatts. 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 in private funding ready to support low-carbon projects. If South Africa can improve its energy investment environment, that money should start flowing.
If Eskom and South Africa progress, Vietnam, Indonesia, Senegal and India should follow. The rest of the world will then have a clearer road to net zero.
More other writers at Bloomberg Opinion:
How to Net Zero Profitably: Hendrik du Toit
From the Rhine to the Tigris, the rivers are warnings: Andreas Kluth
• When the weather gets hot enough to kill: David Fickling and Ruth Pollard
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Allegra Stratton is the editor of Bloomberg News and writes the Readout newsletter. She previously worked in the UK government and is co-founder of Zeroism, a climate and energy consultancy.
More stories like this are available at bloomberg.com/opinion