Billions in climate funds have SA agencies tussling

The lenders will need to consider a range of investment proposals and decide which ones to back.
Image: Bloomberg

One of the biggest announcements from last year’s COP26 climate talks was a pledge by some rich countries to provide $8.5 billion to help South Africa transition away from coal. Now different interests within the country are tussling over how that money should be distributed.

Eskom, the embattled state-owned utility, is proposing that a substantial portion be used to expand the grid in order to encourage more investment in renewable electricity, according to people familiar with the situation.

Read: SA secures R131bn commitment to transition to low carbon economy

If the money is allocated to Eskom and its projects, the people said, some of it would also be used to retire coal-fired power plants that account for more than 80% of South Africa’s electricity supply — the originally stated purpose of the deal funded by the US, UK, Germany, France and European Union.

They asked not be identified as the talks are private. Those funds would also help cushion the economic hit to coal-dependent communities as the dirtiest fossil fuel is phased out.

But Eskom faces competition from the South African Department of Trade, Industry and Competition (DTIC), which is also seeking funds for two programs.

The first would boost electric-vehicle production, helping preserve cars as one of the nation’s most important exports. The second would invest in green hydrogen in a bid to position South Africa as a major producer as interest grows in its use in decarbonising activities such as steelmaking and shipping. The country doesn’t currently produce any EVs or make green hydrogen on a commercial scale.

The South Africa funding deal has been cited by experts as a breakthrough that could become a model for developed nations to help finance energy transitions in other developing countries, which have contributed relatively little to global warming so far.

The financial support is meant to help them cut emissions without having to sacrifice development goals such as reducing poverty and increasing energy access.

The money is set to come in the form of concessional loans and some grants. The lenders will need to consider a range of investment proposals and decide which ones to back, one of the people said. Additional finance may also be available from institutions such as the New Development Bank, which is funded by the BRICS group of nations, and the African Development Bank, the person said.

Read: SA’s COP26 green deal could translate into a R500bn boost

Eskom initiated talks with the lender countries before COP26 and intervention by the industry department has caused some tension, two of the people said.

Eskom declined to comment. The DTIC referred questions to Daniel Mminele, a former central banker who heads the Presidential Climate Finance Task Team which will negotiate the $8.5 billion deal.

Mminele didn’t answer a call to his mobile phone or immediately respond to a text message.

An estimated R180 billion ($12 billion) is needed to fund the state utility’s plan to expand its transmission and distribution network, which is seen by the government as an effective way to move the country away from coal.

Eskom will struggle to finance that expansion on its own, given it’s R392 billion in debt. Much of the improvements will be made in the Eastern and Northern Cape provinces, where the climate is suitable for generating wind and solar power. The grid there are currently too weak to support a significant increase in power plants.

Read: Mminele exit: Absa board faces serious questions

Eskom still expects to receive the bulk of the international funding deal as it argues its programs would slash South Africa’s greenhouse-gas emissions — the 13th highest in the world — more quickly than the industry department’s proposals, the people said. But there’s been some support for the hydrogen plans, particularly from Germany, one of the people said.

Ebrahim Patel, South Africa’s DTIC, said in an interview last week that Germany has identified South Africa as a potential source of the fuel.

The outcome of the negotiations will be closely watched by emerging markets and climate diplomats around the world. It could determine how future agreements are structured, even if it takes years to find out which path leads to a better result for the planet.

© 2022 Bloomberg

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If I had a wish list:

1. Pumped storage. If it were not built incompetently / corruptly, Ingula would have been a 1.3GW roughly 18hour pumped storage scheme for a billion dollars. (It cost 2.5billion because of gross incompetence and corruption). So building another say 2GW / 24h would make an enormous difference to network ability to respond to supply demand variances. And its operating cost is negligible compared to coal/gas/diesel. We would then have almost 5GW of power and say 20h storage. We are still a long way from battery energy storage at the network scale.

2. Ignore IPP wind and solar as they incur only an energy cost. The capex all sits on the IPP side. But Eskom itself could look to building a few GW of wind and solar optimally located at its network points. Cost of capital and profit requirement within Eskom would be lower so these could sell to Transmission even cheaper than the 40c/kWh IPP. But has to be contracted on pure EPC Turnkey and not go near Eskom’s program management – it has not completed anything on time in budget since 1940.

3. If we have certainty of supply and price, a lot of fast response gas generation.

We have all supposedly been paying for transmission and distribution for decades – not clear why we must now fund tens of billions on that? Imagine you had a million to spend upgrading your house and told the family that need to spend R700k on the foundations…

There is so much loot there it will turn into a violent and bloody free for all !!!!

End of comments.

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