ESG: USHERING IN A JUST TRANSITION

USHERING IN A JUST TRANSITION

HOPE FOR THE FUTURE OF CLEAN ENERGY

By Koketso Mamabolo

The world set itself a challenge: net-zero emissions by 2030. This goal cannot be achieved without cutting down, and eventually abandoning the burning of fossil fuels to generate electricity. The good news is that coal, gas and oil are falling out of favour while renewable energy sources are steadily taking over. In South Africa, the ‘winds of change’ have opened up an opportunity for the business community to play their part and the financial windfall could bring muchneeded growth to the local economy. In 2021/22 alone, the Renewable

Energy Independent Power Producer Procurement Programme (REIPPPP) attracted R50-billion in investments. The opportunities for independent power producers (IPPs) to get involved are set to increase as South Africa turns to renewable energy to meet demand. But how did we get to this point? And what does the future hold?

And then there was light

South Africa’s first large-scale renewable energy projects came online in 2013 - but the journey began earlier. In 1998 the White Paper on Energy Policy was published and was followed by the White Paper on Renewable Energy five years later.

“However, the renewable energy framework took shape only with the IRP 2010 - 2030 [Integrated Resource Plan] in 2010,” says Green Cape, in its latest renewable energy market intelligence report.

“The purpose of the IRP 2010 was to determine the preferred energy mix over the next 20 years. It included allocations for renewable energy, amounting to 14 725 MW; coal-fired plants of 6 250 MW, and gas-fired power plants of 3 726 MW.”

“ AROUND 10% OF THE WHOLESALE GENERATION CAPACITY IN SOUTH AFRICA COMES FROM LARGE-SCALE RENEWABLE ENERGY PROJECTS. ”

The Independent Power Producers Office (IPPO) was established in the same year to provide advisory services, manage the procurement process and monitor and evaluate contracts. With this came the Independent Power Producer Procurement Programme (IPPPP) - an initiative involving what was then known as the Department of Energy, National Treasury and the Development Bank of Southern Africa (DBSA). The IPPO is currently based at the DBSA.

“Since the establishment of the Independent Power Producers Office in 2010, over 6.42 GW of electricity from renewable energy sources has been procured from 112 Independent Power Producers (IPPs),” says Green Cape. To date 81 IPPs have been involved in making 5.25 GW operational. The Department of Mineral Resources and Energy (DMRE) and the IPPO are aiming to procure 11.83 GW by 2030. The target includes 6 800 MW for solar and on-shore wind and another 513 MW for battery storage.

The South African market

One of the key questions facing the global community is how to meet the growing demand for electricity while transitioning to cleaner energy sources. The projections by the International Energy Agency for 2021 predicted global electricity demand to rise by more than 1 000 terawatt hours (TWh).

Of the electricity generated globally, 29% came from renewable sources in 2020/21, which saw the use of coal, gas and oil dropping by as much as 8%. The 2021 industry expansion is expected to represent the fastest growth rate since the 1970s. Almost 70% of the global renewable growth will likely come from solar PV and wind. These two sources are at the heart of local growth, dominating the South African market.

Solar PV and wind are “backed by a growing small-scale embedded generation market (mostly solar PV for commercial and industrial businesses) and private sector large-scale projects for energy-intensive users such as mines,” says Green Cape.

“Based on the R/MW [rands per megawatt] overnight capital cost per technology, the approximate South African market value per technology based on IRP 2019 allocations is R99-billion for solar PV, R271-billion for wind and R48-billion for distributed generation up to 100 MW.”

Around 10% of the wholesale generation capacity in South Africa comes from large-scale renewable energy projects. “The industry is showing growth and potential with just over 5 GW of large-scale connected and operational capacity.”

Just Energy Transition Plan

“The plan is clear that there is no tradeoff between tackling climate change and supporting economic growth,” says President Cyril Ramaphosa, in his message in the Just Energy Transition Investment Plan, published before COP27 in Egypt “Instead a just energy transition can attract investment, create new industries and jobs, and help us to achieve energy security and resilience.”

The five-year plan is a response to the United Nations Framework Convention on Climate Change (UNFCCC) at COP26. The partnership was formed between the governments of South Africa, the EU, the US, the UK, France and Germany. Together they are known as the International Partners Group (IPG).

The R1.48-trillion Just Energy Transition Investment Plan (JET IP) zeroes in on the priorities over the next five years and provides suggestions on how the IPG’s first offer to South Africa of $8.5-billion (over R150-billion) can be used.

The Presidential Climate Finance Task Team (PCFTT) worked closely with the IPG members in evaluating the offer, in order to advise the President’s cabinet on what the offer entails and how it fits into the country’s needs and aspirations.

“The South African government has undertaken to maintain an open dialogue with the stakeholders, facilitated through the Presidential Climate Commission (PCC) to enhance the efficacy and impact of the JET IP, especially during the implementation phases ahead,” reads the document outlining the plan.

“In particular, JETP [sic] recognised the essential contribution required from the private sector and the role of philanthropic capital in contributing to the financial gap expressed in this investment plan, including developing approaches to support the just transition in affected regions of South Africa.”

How does SA define the just transition?

“A just transition aims to achieve a quality life for all South Africans, in the context of increasing the ability to adapt to the adverse impacts of climate, fostering climate resilience, and reaching net-zero greenhouse gas emissions by 2050, in line with best available science. A just transition contributes to the goals of decent work for all, social inclusion, and the eradication of poverty. A just transition puts people at the centre of decision making, especially those most impacted, the poor, women, people with disabilities, and the youthempowering and equipping them for new opportunities of the future.”

Funding needs (2023 - 2027)

The majority of the R1.48-trillion investment required will need to go to the development of the electricity sector. Most of the R711.4-billion that needs to go to the sector will go towards infrastructure, with electricity generation infrastructure being top of the agenda.

The priorities include decommissioning the ageing coal generation fleet, while simultaneously increasing the scale and rate of development in renewable energy generation. Transmission infrastructure will have to be improved and the distribution system brought up-to-date. According to the JET IP, the Mpumalanga province - which is home to the majority of the country’s coal generation fleet - needs R60.4-billion in investment to off-set the impact of moving from coal to renewable energy sources.

Most of the country’s GHG emissions are produced by 15 coal-fired power plants, 14 of which are operated by Eskom and one by a privately-owned operator. Over the next three decades, 13 of the plants will be due for retirement, leaving only the two youngest (Medupi and Kusile) at the end of 2050.

One of the 13 plants, Komati Power Station, reached the end of its operating life at the end of October this year. According to a statement from Eskom, Komati Power Station will be repurposed, making it “one of the largest coal-fired power plant decommissioning, repowering and repurposing projects globally.” This will make it the benchmark for similar projects around the world.

“The power plant will be converted into a renewable generation site powered with 150 MW of solar, 70 MW of wind and 150 MW of storage batteries, thereby continuing to put the site and its associated transmission infrastructure into good use and to provide economic opportunities to the community.”

Eskom goes on to say: “Funding for this facility, which will enable a ‘just’ transition for the local community following the decommissioning of the power station, has already been received from one of the developmental finance institutions (DFIs) and Eskom will make an official announcement in due course.”

A month later, the World Bank Group’s board approved Eskom’s request for $497-million in funding for the project.

“I am encouraged to see South Africa taking steps to produce more electricity while finishing the closure of the 60-yearold Komati coal plant,” said the World Bank Group’s president, David Malpass, on a visit to the decommissioned power plant. “Moving toward an efficient lower carbon growth model will require large investments in new capacity and grid upgrades to absorb renewables. These are important steps to repair the ailing energy sector and provide reliable access to electricity for businesses and people.”

Political Declaration signed by the IPG

“Establishing an ambitious long-term partnership to support South Africa’s pathway to low emissions and climateresilient development, to accelerate the just transition and the decarbonisation of the electricity system, and to develop new economic opportunities such as green hydrogen and electric vehicles amongst other interventions to support South Africa’s shift towards a low carbon future.”

Sources:

Eskom | Green Cape | ESI Africa | Presidency RSA

ELECTRICITY INFRASTRUCTURE REQUIREMENTS

New batteries- R23.1 Billion

Decommissioning of coal plants- R4.1Billion

Distribution- R13.8 Billion

New Wind- R241.7 Billion

Transmission R131.8 Billion

New Solar Photovoltaic (PV) - R233.2 Billion