21 June 2022
At the UNFCCC COP26 in November 2021, the governments of South Africa, with France, Germany, the United Kingdom, the United States of America, and the European Union – together forming the International Partners Group (IPG) – announced a new ambitious, long-term Just Energy Transition Partnership (JETP) to support the Republic of South Africa’s (RSA) decarbonization effort in the context of domestic climate policy, including transitioning its economy towards cleaner energy sources. A distinguishing feature of the JETP is its emphasis on the centrality of a just transition in the structuring of the investment plan and financing package.
The JETP is a pathbreaking initiative and the first of its kind. It is long-term and ambitious in its aspiration to support South Africa’s pathway to a low carbon economy and climate resilient society; to accelerate the just transition and the decarbonization of the electricity system (including rehabilitation and repurposing of mines); and to support the development of new economic opportunities such as green hydrogen and electric vehicles amongst other interventions to support RSA’s shift towards a greener future.
In line with the political declaration issued in November 2021, the IPG undertook to mobilise an initial amount of $8.5 billion over the next 3-5 years to advance the Partnership. It was determined that the Partners would within six months provide a leader level progress update.
Given South Africa’s commitment to decarbonise its energy intensive economy as set out in its Nationally Determined Contribution (NDC), and the commitment of the IPG to support developing countries in achieving this in ways that are inclusive and equitable, the Partnership has the potential to provide a model that could be replicated across the globe. In particular it has the potential to practically demonstrate how a just transition could be achieved and financed and to serve as a catalyst for a new inclusive development path in which every effort is made to leave no-one behind.
In addition, given South Africa’s vulnerability to the impacts of climate change, as tragically demonstrated by the recent devastating floods and loss of life and property in KwaZulu-Natal, the urgency of investments in climate-resilient infrastructure is clear.
As such, the JETP opens the way for long-term, ambitious and systemic climate actions to be funded through a range of instruments that support flexible and rapid implementation in ways that build confidence in a just energy transition. Key to realising the finance and the implementation of the JETP will be the finalisation of a fully approved and actionable Investment Plan (JETP-IP), with the intention of achieving this by November 2022 and COP27. The investment plan will identify the projects and activities required to achieve a just transition, and guide the use of funds.
Key priorities of the Partnership include:
- Accelerating decarbonisation of South Africa’s electricity sector, including expanding renewable energy sources and strengthening the transmission network to accommodate new investments in renewables;
- Protecting vulnerable workers and communities affected by the move away from fossil fuels;
- Supporting the reform process underway and future reforms essential to strengthen the enabling environment for the just transition;
- Addressing environmental aspects of the transition, including mine rehabilitation;
- Supporting the repurposing of mine sites (e.g. for renewable energy and agriculture);
- Supporting opportunities for technological innovation and both public and private investment to drive the creation of green and quality jobs including in the Green Hydrogen and Electric Vehicles sectors; and In the design of the Partnership, ensuring that the programme gives due consideration to South Africa’s fiscal challenges.
Building an enabling environment
The JETP benefits from, and will be enabled by, policy reforms that have been implemented in South Africa since COP 26 and which affirm the relevance and focus of the JETP. These include, but are not limited to:
- An updated Climate Change Bill was tabled in Parliament in early 2022. The legislation would create a regulatory framework that enables the development of an effective climate change response and a long-term, just transition to a low-carbon economy and climate-resilient society.
- Similarly draft legislation has been published that proposes significant changes in the regulation of the electricity sector, including to establish an independent transmission operator to enable a competitive electricity market, alongside the restructuring of Eskom.
- The Presidential Climate Commission (PCC) has just concluded a wide consultation process on a Just Transition Framework released on 23 February 2022 which will be finalised and presented to Cabinet. This is supported by the release of a Just Energy Transition discussion document by the Department of Mineral Resources and Energy (DMRE) that gives further substance to South Africa’s approach to a just transition.
- A sixth round of bids for renewables under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is underway, consistent with the country’s Integrated Resource Plan.
- Notably, the raising of the licensing threshold for new generation capacity from 1MW to 100MW has opened the way for the private sector to invest in renewable energy projects, with approximately 4.5 GW of projects currently in development, and for the domestic banking sector to allocate substantial capital to this. The work to eliminate administrative and regulatory inefficiencies in this regard is progressing. The first two 100MW projects had their registration approved in May 2022 and will soon commence construction.
- Positive developments related to green hydrogen are in place, including the development of a Hydrogen Economy Roadmap led by the Department of Science and Innovation. The Industrial Development Corporation, working with KfW, is identifying early-stage project potential, and in the Northern Cape work is underway to develop a port at Boegoebaai that is critical to the development of an export market for green hydrogen.
- South Africa launched a South African Green finance taxonomy in April 2022 that outlines assets, projects, and sectors that are eligible to be defined as “green” in line with international best practice and national priorities. It is a voluntary market tool, with regulatory guidance expected later in 2022 followed by the development of a regulatory instrument from 2023.
- A Sustainability and Climate Change Disclosure Guidance, based on the recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD), was launched by the Johannesburg Stock Exchange 14 June 2022.
- The National Treasury has also indicated that the carbon tax rate will progressively increase every year to reach US$20 per tonne of carbon dioxide equivalent by 2026. In the second phase after 2025, the medium-term to long-term path will include more rapid and aggressive annual increases thereafter, to at least US$30 by 2030, accelerating to higher levels by 2035, 2040 and up to US$120 beyond 2050.
- The DMRE is working to finalise a National Mine Closure Strategy, which will bring policy clarity and provide operational guidance for mine closures.
- A South African Renewable Energy Master Plan is being developed that will outline a roadmap to support the expansion of renewable energy sources and supply chains in the country.
In addition, significant work on the just transition has been undertaken outside of government that the Partnership can draw from, including:
- The Congress of South African Trade Unions’ (COSATU) Just Transition Blueprint, which reflects the active engagement of organised labour in developing policy responses for affected workers;
- The Life After Coal Campaign’s Just Transition Open Agenda, which is one of several inputs that civil society have made on the just transition;
- The sustainability and climate disclosure guidance as well as guidance related to sustainable bonds and transition securities listings issued by Johannesburg Stock Exchange; and
- Work undertaken by organised business such as the National Business Initiative and Business Unity SA, as well as academic and policy research institutions such as Mistra, the CSIR and TIPS, on the trajectory that South Africa could take to meet the lower end of the NDC target range and move towards a net zero pathway.
Taken cumulatively, these developments have placed the just energy transition, in all its elements, at the centre of the national policy agenda and action by stakeholders across society. Likewise, the JETP is being debated widely across South African society and is seen as a potential catalyst to enable key interventions in support of more rapid decarbonisation. Specifically, its potential to support the resolution of South Africa’s electricity supply shortfall, contribute to economic recovery and avenues for sustaining and improving the quality of livelihoods affected by the transition through alternative employment opportunities is well recognised, as is the potential for the Programme to leverage significant new private sector investment.
Following the announcement of the Partnership at COP26, the IPG was set up to coordinate amongst its members and with the government of the Republic of South Africa. It is currently chaired by the United Kingdom and co-ordination takes place between respective capitals as well as amongst their Missions in South Africa. The IPG has worked to ensure a common approach to the Partnership from IPG members, engaged with the DFIs and MDBs that are the key entities involved in the delivery of the JETP and had multiple engagements with the South African government.
In February, President Cyril Ramaphosa appointed Mr Daniel Mminele, a former Deputy Governor of the South African Reserve Bank and Group CEO of Absa, to lead a Presidential Climate Finance Task Team (PCFTT) that is the counterpart for the IPG within South Africa. Mr Mminele has moved swiftly to appoint PCFTT members representing key government departments and state-owned entities, as well as leading experts. The PCFTT reports to an Inter-Ministerial Committee that is chaired by President Ramaphosa. Its mandate is to engage with the IPG with a view to advising Cabinet on the composition, affordability, and alignment of the financing package with the South African regulatory environment; coordinate relevant government departments, development finance institutions, and the private sector; and oversee the development of relevant financing mechanisms and facilities to enable the flow of international climate finance to support South Africa’s just transition in the electricity, electric vehicles and green hydrogen sectors.
Mr Mminele’s appointment has created a platform for ongoing engagement between the Partners on the content and shape of the JETP and on the work necessary to implement it. Frequent discussions between the IPG Chair and Mr Mminele, as well as with the IPG more broadly, are underway and are building both consensus and clarity on the scope and nature of the Partnership.
Support structures: JETP Secretariat
The Partnership’s work is supported by a JETP Secretariat that provides a technical and coordination function to the Partnership, in a neutral and objective manner. The Climate Investment Fund Board has been approached by the IPG and generously agreed to resource and support the work of the Secretariat. All JETP partners have agreed to the appointment of Ms Joanne Yawitch, outgoing Chief Executive Officer of the National Business Initiative in South Africa, as Head of the Secretariat.
The Secretariat conducted a set of engagements in South Africa in early May 2022 to inform its work in supporting the JETP in terms of its scope, structure, and timelines.
These consultations included the PCFTT, the IPG, relevant government focal points and development finance institutions and formally initiated the process to support the development of the JETP-IP. Key issues discussed included:
- Consultations on the nature of the financial offer, including its sources, composition, concessionality, conditionalities and how it could be structured for maximum impact, as well as the ways in which it could be leveraged to bring in additional finance;
- Developing a shared understanding of ambition in relevant priority areas and in relation to South Africa’s NDC range and the investment activities related to this in each of the identified priority areas;
- Consultations on the JETP IP outline and contents, including how the just transition elements should be centrally embedded as a fundamental element of the programme, as well as critical next steps and timelines for its finalisation; and
- The scope, roles and responsibility of the JETP Secretariat, including finalising its Terms of Reference.
The above areas for consideration are based on analytical work that includes:
- Assessment of relevant policies, guidelines and analytical work and the on-going work in the Just Transition area.
- A preliminary review of the investment and policy implications of achieving the most ambitious target possible within South Africa’s updated NDC range through 2030 and beyond, including a preliminary costing and related financing needs of achieving the lower end of the range.
- Mapping the development financiers’ activities and programmes that support the Just Energy Transition, and which are under implementation, preparation, and planned. This includes the following 15 entities: European Commission (EC), IBRD, KfW, GIZ, DEG, AfDB, IFC, AFD, FCDO, BII, EIB, DFC as well as DBSA, IDC and NDB. The analysis addresses both qualitative and quantitative terms, disaggregated by instrument type (grants, concessional loans as defined by the OECD DAC methodology, and non-concessional loans/guarantee). This will provide an insight into the landscape of activities and associated financing by development banks, which will further complement the JET-IP process.
The JETP Secretariat consultations took place at the same time as the second mission of the Accelerating Coal Transition Investment Programme (ACT-IP) funded by the CIF and led by the WBG and the AfDB were in South Africa. The ACT-IP and its programming will be aligned with and supportive of the broader JETP and that it is be developed as an integral element of the broader programme.
Working Group establishment
The JETP will establish five working groups that will be the vehicle through which key technical expertise and experience can be mobilised to inform the development of the JETP-IP. The PCFTT and the IPG have decided to establish a cross-cutting Finance Working Group, an Implementation Working Group, and three working groups addressing the power sector, green hydrogen and the transport sector. Just transition and environmental considerations will be incorporated into each working group.
The terms of reference for the working groups are being developed and will focus on the sequencing of investments relative to the NDC, their contribution to a just transition, and South Africa’s ambitions, priorities, and environmental challenges.
Work is underway by the JETP Secretariat to identify the expertise required for the working groups, including representatives from governments, bilateral and multilateral institutions, and the private sector.
Discussions are underway between the PCFTT and the IPG regarding the nature of funding to be provided through the partnership. The IPG has provided the PCFTT with further detail on the financing instruments that may be offered. This information from the IPG has opened the way for more detailed engagement, including with key DFIs and MDBs. The PCFTT is presently analysing this material together with South Africa’s National Treasury with a view to ensuring that these instruments meet South Africa’s investment needs and fiscal realities.
These discussions are taking place in the context of the JETP’s assessment of the total financing needs for the full period of transition. They are cognisant of the need to consider all forms of finance, including grants, concessional and non-concessional and public and private finance, as well as to ensure that the total package of financing is appropriately structured to support South Africa’s climate ambitions.
In addition, there is considerable interest in the JETP from other potential financiers and donors.
JETP linked initiatives in progress
Importantly, and central to the JETP, South Africa is conducting a countrywide consultation process on the just transition as a core element of its climate response. The JETP will build on existing work relevant to the Partnership, including the financing and architecture that would allow for the just transition to be realised in ways that open up opportunities for affected workers and communities.
The JETP recognizes that there are a number of bilateral and multilateral initiatives at different degrees of readiness that will seek to support South Africa in meeting its short and long-term goals. The Eskom Just Energy Transition Project at Komati is under development and will likely be presented to the World Bank Board for approval before COP27. This project addresses the repowering and repurposing of the Komati Power Station and has a substantial social and just transition component. In addition, project preparation for the Accelerating Coal Transition (ACT) Investment Programme run under the auspices of the CIF is underway. The proposed support involves an indicative allocation of $200-500 million linked to country needs and ambition. This Programme, supported by the IBRD, IFC and the African Development Bank, is to be submitted for approval by October 2022. In addition, work is in progress regarding transmission network strengthening and the private sector pipeline of renewables projects all create the basis for the JETP Investment Plan within an environment that is aligned to and supportive of its aims.
There is also ongoing work related to both green hydrogen and electric vehicles, including a partnership between KfW and South Africa’s Industrial Development Corporation to support potential green hydrogen-related investments and UK support for the development of the Hydrogen Roadmap. In addition, a policy-based operation is already under preparation by AFD and KfW to support South Africa’s priorities.
Focus for the next six months
The Political Declaration determined the JETP’s foundation, its principles and basis for engagement. The declaration emphasizes the long-term nature of the Partnership and ensuring that the financing package supports and meets country needs and catalyses the necessary action.
The Principals are strongly focused on mobilising investment in the short term, within the context of a longer-term plan, and are using the JETP-IP to compile an emerging portfolio in the priority sectors set out in the Political Declaration.
While momentum has built up in relation to the JETP, there is much work to be done both to refine the financing package and to develop the JETP-IP. These two objectives will be the focus of the forthcoming period, with significant work already underway.
Work plan with milestones leading up to COP27
The indicative work plan to December 2022 contains the following priority deliverables and targets:
- Establishment of Working Groups by June 2022
- Draft JETP-IP by July 2022
- Second draft JETP-IP by September 2022
- Final JETP-IP by October 2022
- IPG and PCFTT sign-off by early November 2022
PRESIDENTIAL CLIMATE FINANCE TASK TEAM AND THE INTERNATIONAL PARTNERS GROUP