Who is contributing what to South Africa’s clean energy turnaround?

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A leaked summary shows that Germany and France are providing cheap loans, while the UK is making the biggest contribution to mobilizing private finance.

Some 97% of the $8.5bn package rich countries are offering South Africa to switch from coal to clean energy will be given as loans.

That can be seen in a summary of financing provisions obtained by Climate Home News.

It shows that $4.6bn, 54% of the funding, is in concessional lending, with better loan terms than South Africa can access on the open market. Just under half of that money is provided by Germany and France.

The remaining $3.7 billion, or 43%, includes a mix of commercial loans and investment guarantees to de-risk projects so they attract private investors. These will come from the EU, the US and the UK, which contributes the largest share.

Donor countries will collectively give just $230 million as grants – 2.7% of the total package.

South Africa’s cabinet approved an investment plan for the money on Wednesday, but has yet to publish it. A launch is expected at the Cop27 climate summit next month.

The South African government has been in negotiations with partner governments since reaching an overall agreement at the Cop26 climate summit in November 2021.

South African President Cyril Ramaphosa has repeatedly said his government would only accept a deal that offered good terms. Most of the money should come from grants, he said shortly after Cop26, and any loans should be at favorable rates.

The Ramaphosa government has been trying to reduce the country’s sovereign debt, which is around 70% of GDP.

A distinctive feature of the package was its focus on supporting workers in the transition to clean energy, with social protection measures and training.

But according to the breakdown seen by Climate Home, less than 1% of the money is earmarked for direct social investments. Instead, 5% is to develop a green hydrogen sector.

reuse coal power plants

South Africa applied for the funds so debt-ridden state utility Eskom could reuse coal-fired power plants. The funding is expected to help Eskom decommission three coal-fired power plants and replace them with renewables.

The dire financial situation of the utility company means that it cannot borrow money at market rates.

Through their development agencies, Germany and France are providing, respectively, $1.2 billion and $1 billion in concessional financing.

Most of it comes from the Climate Investment Funds (CIF) Accelerating the Coal Transition initiative.

With $500 million in seed funding, the CIF initiative is expected to leverage another $2.1 billion in both public and private funding, according to documents released last week. That includes an estimated $875 million from the private sector, counted toward the $8.5 billion total.

South Africa approves $8.5 billion energy transition investment plan

By de-risking investments and reforming policies, the partners seek to attract more private sector investment in renewable energy. About 80% of the package is destined for the electricity sector.

The UK government, which led negotiations on the package with the EU, provides most of the commercial loans and guarantees to unlock financing from the African Development Bank and the private sector, contributing a total of £1.7bn. Dollars.

US contribution

The US provides $1 billion in financing through its Development Finance Corporation (DFC), the terms of which are not sufficiently preferential to be considered concessional financing.

Jake Schmidt of the US-based Natural Resources Defense Council told Climate Home that the relatively small US contribution could be explained by the fact that Washington has “historically fewer bilateral relations with South Africa than other contributing countries.

Schmidt added that donor countries need to mobilize more money to make a deal attractive to other coal-dependent emerging countries negotiating an energy transition partnership, including Indonesia and Vietnam.

“I hope they find a slightly better offer for other countries if they are going to move this forward. South Africa desperately needs funding because Eskom is heavily in debt. But others may not be so desperate.”

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