South Africa's $8.5 bn plan to exit coal offers template for green shift

South Africa and its investment partners launched an $8.5 billion plan to shift from coal toward green energy at the COP27 climate summit, in a potentially landmark deal for the transition away from fossil fuels.
 

The Just Energy Transition Plan -- backed by the UK, US, France, Germany and the European Union -- is seen as a blueprint for other coal-dependent developing nations to cut greenhouse gas emissions. The plan for South Africa envisages 90% of the funds being used to decommission coal-fired power plants in tandem with developing renewable energy generation and strengthening grid infrastructure. 

It marks a breakthrough in bringing middle-income countries, which are often highly-indebted and lack a green regulatory framework, on board with efforts to keep global warming to 1.5 degrees celsius. It provides a template for nations such as Indonesia and India, and is symbolically important after Russia’s invasion of Ukraine spurred demand for the dirtiest fossil fuel.

The plan’s sign-off by President Cyril Ramaphosa, Charles Michel, president of the European Council and other partners follows a year of intense negotiations with investment partners on how the money would be spent, as well as the breakdown between grants and loans. Just last month, the deal hung in the balance as South Africa pushed for better funding terms.

South Africa relies on coal for more than 80% of its power and is the world’s 13th-biggest source of planet-warming gases. Western nations focused talks on repurposing coal-fired plants owned by troubled state utility Eskom Holdings SOC Ltd. to produce renewable energy. South Africa pushed for support to develop green hydrogen and electric vehicle production.

The investment plan targets $7.6 billion being invested in electricity infrastructure, $700 million in developing green-hydrogen projects and $200 million in an electric-vehicle industry over the next five years. That’s still far short of what South Africa needs, but the hope is that it provides a downpayment for more money, especially from the private sector. 

The government’s plan for green transition costs for the five years through 2027 is 1.5 trillion rand ($84 billion), of which the $8.5 billion forms a part.

South Africa’s JETP was first announced at the United Nations’ COP26 climate summit in Glasgow last year. A similar deal is expected to be unveiled with Indonesia at the Group-of-20 summit in Bali this month, while discussions are also taking place with India, Vietnam and Senegal.

--With assistance from Antony Sguazzin.