Green cash infusion: SA’s $2.6bn deal to close coal plants

South Africa is gearing up for a significant shift in its energy landscape, aiming to secure $2.6 billion in climate finance by proposing a revised timetable for closing coal-fired power plants. This move, part of the Just Energy Transition Partnership, aligns with global efforts to reduce carbon emissions and transition to renewable energy sources. The funding will not only facilitate plant closures but also support grid upgrades, renewable energy production, and economic diversification in coal-dependent communities. While facing challenges and criticisms, this initiative reflects South Africa’s commitment to a sustainable energy future and climate action.

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By Antony Sguazzin

South Africa will provide a new timeline for the shutdown of coal-fired power plants in a bid to secure about $2.5 billion in climate finance, an agency in President Cyril Ramaphosa’s office said.

The timetable to be proposed to the Climate Investment Funds in June aims to ensure the country remains on track to obtain funding under the so-called Just Energy Transition Partnership — a $9.3-billion pact with some of the world’s richest nations. Under the agreement, first announced in 2021, South Africa will receive the assistance on condition it cuts its dependence on coal, which accounts for four-fifths of the nation’s electricity output.

Early last year, South Africa told its partners in the pact it planned to delay the planned shutdown of coal-fired plants — 14 of which are operated by state utility Eskom Holdings SOC Ltd. — to address record electricity outages. The authorities didn’t set new closure dates.

“What we are presenting to the CIF is an adjustment to the decommissioning plan linked to an emissions target that we have to achieve,” said Neil Cole, a finance manager at the Project Management Unit, which is overseeing the JETP for South Africa, within the presidency.

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If the proposal is accepted, South Africa will secure $500 million of 10- to 30-year loans with an interest rate of less than 1% and a grace period of eight years from the World Bank-affiliated CIF, Cole said in an interview. That will “derisk” concessional loans planned by multilateral development groups such as the International Bank for Reconstruction and Development, which has pledged $570 million. The African Development Bank has allocated $255 million and the International Finance Corp. $70 million.

“We need to unlock the $500 million for the MDBs to take any kind of interest,” he said.

A further $300 million will come from South African development agencies such as the Industrial Development Corp. and the Development Bank of Southern Africa, while $875 million is expected come from private institutions, Cole said.

The funding is part of the JETP, under which France, the US, UK, Germany and the European Union initially agreed to contribute funds to South Africa, with the Netherlands and Denmark joining the pact later. South Africa has communicated its plans to its JET partners.

Eskom’s Hendrina coal-fired power station in Mpumalanga, South Africa. Photographer: Waldo Swiegers/Bloomberg

Revised Schedule

South Africa will propose that it close Eskom’s Camden, Grootvlei and Hendrina power plants between 2027 and 2030, instead of a prior schedule of 2023 to 2027. In addition, in order to meet an annual emission-reduction target of 50 million to 71 million tons of carbon dioxide equivalent required by the CIF, the presidency is in talks with Eskom to close a number of units at other power plants. That number has yet to be decided. Eskom didn’t respond to a request for comment.

“We hope to have that data” by June, Cole said. It will be a “comprehensive shutting down. They won’t be brought back into production,” he said.

The proposal will be considered under the CIF’s Accelerating Coal Transition Investment Program.

Carbon dioxide, which is generated by burning fossil fuels, and a number of other so-called greenhouse gases are responsible for global warming.

Once the CIF hurdle has been cleared, it will be decided which South African entities will borrow the money.

Grid Upgrade

Money used to decommission coal plants and re-purpose them for the production of renewable energy may be borrowed by Eskom, while the National Treasury may take responsibility to repay funds used to create alternative employment and economic activity in coal-dependent communities.

Some of the money will also be directed to improve the efficiency of municipal grids and to allow them to accept more renewable energy. If those funds are borrowed directly by the municipalities, the National Treasury will need to provide a sovereign guarantee, Cole said.

While South Africa’s electricity cuts have eased — a result of better performance by Eskom and the increased use of privately owned solar panels — the JETP has attracted criticism from government ministers and labor unions. They argue the pact will exacerbate outages and cost tens of thousands of coal-mine and power-plant jobs.

“The aim is to strengthen the energy sector so that South Africa can comply with the agreed emissions pathway and shut down coal-fired power plants,” the German Development Ministry said in a response to questions.