South Africa’s energy transition proves a balancing act despite EU funding

Despite the $8.5 billion EU-led Just Energy Transition partnership with South Africa, the country is facing a significant uphill struggle to develop the green infrastructure needed to achieve net zero, with coal continuing to be a key player in the country’s energy mix for the foreseeable future. When the governments of South Africa, France, Germany, the UK and the US, along with the European Union, decided at COP26 in Glasgow to collaborate to decarbonise South Africa’s energy sector, they knew the road ahead would be bumpy and long. Details provided by the panellists at the opening of Enlit Africa, hosted in Cape Town from 7-9 June, confirmed that this journey is indeed facing many challenges.

South Africa is facing a fine balancing act as it looks to define a plan to net zero, secure the investment needed to make that plan a reality and ensure a just energy transition that doesn’t leave anyone behind. While the ball is in South Africa’s court to take the first, crucial steps toward decarbonisation, collaboration between national and international stakeholders is key.

Funding fundamentals
However, funding from global partners like the European Union and the US is only a slice of an energy transition pie. Other variables needed such as private sector funding, successful public-private partnerships and a regulatory framework that encourages investment. All while ensuring energy security, a priority on the global agenda.

André de Ruyter, Group Chief Executive of South Africa’s state-owned utility Eskom, said: “South Africa’s energy transition has become inevitable, however, we require substantial investment in new generation and concerted efforts on many fronts. It’s a doable project, but it will take billions to make it happen”.

Currently, South Africa’s energy sector is going through a period of change, as Eskom moves to unbundle and market reforms are expected to enable electricity trade and a rapid rollout of new generation capacity funded by the private sector. These are positive signals for investors, however, moving from a monopoly-type market to a competitive landscape brings risks and uncertainties, as does an energy sector that continues to rely heavily on coal power. Coupled with regulatory change and the country’s reliance on coal, grid access is one of the biggest hindrances to South Africa’s green transition. Over the next decade, significant investments are needed to build 8000-10,000km of transmission lines and 101 new substations – a plan that will require R131 billion ($8 billion) to roll. This is significantly more than the value Just Energy Transition partnership.

Also, between 3000 and 6000MW of gas-fired generation infrastructure will need to be developed, as gas will prove to be an important transition fuel, providing the dispatchable power needed to make up for the variability of renewables. It’s this need for system stability that is keeping the country dependent on coal. According to De Ruyter, “we will continue to use coal for a long period of time, way beyond 2035”.

South Africa’s economy is historically based on coal, said De Ruyter, and the country can’t ignore the decades of investment in the coal value chain. South Africa has a moral and social obligation to ensure those assets are not merely abandoned and communities left without jobs.

Investment and government commitment
According to De Ruyter, Eskom is not just looking to grants and international climate funding in order to change its operations. “The private sector is waiting with bated breath for opportunities to invest.”
And the private sector will certainly need to come to the party, if South Africa, the world’s largest carbon emitter, is to shift away from coal while maintaining economic growth. Tanja Werheit, German consul general in South Africa, added: “A whole government and whole society approach is needed to ensure we speed up the transition. A just and sustainable energy transition can offer South Africa great economic opportunities.”

Bernard Rey, head of corporation, EU delegation to South Africa, highlighted that Europe is truly behind Africa in its green development efforts and will support the government in its drive for a clean energy future. However, to successfully support South Africa, he said it is important “that Europe acts together, with all member states acting as team Europe”.

“If we are organised and want to achieve greater scale, impact and transformation – financial instruments must be harmonised. “We can provide resources to the budget of the state, resources that unlock green investments within public and private sectors,” but this process must be a knowledge-based transition including dialogue with all stakeholders, added Rey.

The opening keynote emphasised that Africa’s energy transition is inextricably linked to the green transition of the rest of the world and according to Werheit, other nations that are reliant on fossil fuels can use South Africa’s shift from coal and the multilateral approach to achieve this in a just way as a blueprint. Rey concluded that Europe has many of the same problems, and a successful energy transition in South Africa will prove to be a mutual learning exercise.