South Africa’s commitment to transitioning toward a low-emissions economy has received a significant boost with the conclusion of negotiations for a R7.6 billion ($423 million) loan from the Agence Française de Développement (AFD). The funding, part of the country’s Just Energy Transition Plan (JETP), will address the social and economic challenges of moving away from carbon-intensive energy sources like coal.

The agreement marks a milestone in international cooperation on climate action and sustainable development. It also positions South Africa as a leader in implementing equitable energy transition strategies that focus on social justice, job creation, and poverty alleviation.

A Key Step in South Africa’s Just Energy Transition

This innovative policy-based loan is the largest ever on AFD’s balance sheet and follows a €300 million ($320 million) public policy loan provided to South Africa in 2022. Together, these efforts bring France’s total contribution to South Africa’s JETP to €700 million out of the €1 billion pledged at COP26 in Glasgow in 2021.

The loan was developed in collaboration with South Africa’s JET Programme Management Unit (JET-PMU), housed in the Presidency, and the National Treasury. It is designed to maximize the social outcomes of the energy transition by ensuring that the most vulnerable communities benefit from job creation, skills development, and social support.

According to Mmakgoshi Lekhethe, Head of Asset and Liability Management at South Africa’s National Treasury:
“National Treasury will continue working through the intergovernmental system to integrate JET into our fiscal policy choices. Coordination across all spheres of government is critical to ensure the program’s success.”

Balancing Climate Action with Economic Equity

South Africa’s JETP is a cornerstone of its broader climate strategy, focusing on a fair and inclusive transition. As one of the world’s most coal-dependent economies, the country faces unique challenges in balancing its energy needs with its international climate commitments. Nearly 80% of South Africa’s electricity comes from coal-fired power plants, and the sector is a major source of employment for thousands of workers in rural areas.

The JETP seeks to ensure that the transition to renewable energy sources does not leave these workers and communities behind. Initiatives supported by the AFD loan include:

• Job Creation: Promoting employment in renewable energy sectors such as wind, solar, and green hydrogen.
• Skills Development: Equipping workers with the technical expertise needed to thrive in a low-carbon economy.
• Social Support: Providing safety nets for workers and communities displaced by the phase-out of coal.
• Governance Improvements: Strengthening institutional frameworks to ensure transparency and accountability in the energy transition process.

International Collaboration and Support

South Africa’s JETP has garnered substantial international backing, reflecting the global community’s recognition of its importance as a model for just transitions in developing economies. In addition to France, several other countries and organizations, including the United States, Germany, and the United Kingdom, have pledged financial and technical support for the plan.

The Presidential Climate Commission (PCC), a key governance body overseeing the JETP, works closely with international partners to align South Africa’s energy transition with its climate and development goals.

Audrey Rojkoff, AFD’s Regional Director for Southern Africa, emphasized the importance of balancing energy needs with equitable climate action:
“We are addressing the complexity of ensuring that the transition benefits all segments of society. With high levels of commitment, we anticipate positive outcomes throughout the process.”

A Pathway to Social and Economic Transformation

The JETP is not just an energy transition strategy; it is a vehicle for broader socio-economic transformation. By embedding social equity into policy reforms, the program aims to reduce poverty and inequality while improving access to electricity for underserved populations. This is especially significant in South Africa, where rolling blackouts (load-shedding) and energy poverty have been major challenges.

The AFD’s public policy loan includes a robust monitoring and evaluation framework to track progress on key reforms, ensuring accountability and effective implementation. This includes:

• Transitioning communities reliant on coal to alternative livelihoods.
• Expanding access to affordable and sustainable electricity.
• Reducing greenhouse gas emissions in line with South Africa’s Nationally Determined Contributions (NDCs) under the Paris Agreement.

Broader Implications for Global Climate Action

South Africa’s JETP serves as a model for other coal-dependent economies seeking to implement just transitions. The lessons learned from this program could inform similar initiatives in countries like India, Indonesia, and Vietnam, where balancing economic growth with climate commitments poses similar challenges.

The global significance of South Africa’s efforts was highlighted during COP28 in Dubai, where climate justice and equitable transitions were key themes. South Africa’s progress under the JETP demonstrates how developing nations can lead on climate action with the right mix of international support and domestic political will.

Challenges and Opportunities

Despite its promise, the JETP faces several challenges, including:

• Financing Gaps: While international contributions have been significant, South Africa still requires additional funding to meet its $98 billion energy transition investment needs over the next decade.
• Political Resistance: The coal sector remains influential in South Africa’s political landscape, and resistance from vested interests could slow progress.
• Implementation Risks: Ensuring that funds are allocated efficiently and transparently remains a priority.

However, these challenges are matched by opportunities for innovation and leadership. By leveraging its renewable energy potential and fostering public-private partnerships, South Africa can position itself as a regional leader in clean energy.

Looking Ahead

The successful conclusion of this $423 million loan agreement marks a pivotal moment in South Africa’s journey toward a sustainable and inclusive energy future. As implementation begins, all eyes will be on how the country navigates the complexities of delivering a just transition while meeting its climate commitments.

With strong governance, international collaboration, and a focus on social equity, South Africa has the potential to set a global benchmark for just energy transitions, proving that environmental sustainability and economic development can go hand in hand.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

19th November, 2024