Corporate report

Twelve-month update on progress in advancing the South Africa Just Energy Transition Partnership

Published 10 November 2022

1. Introduction

At the UNFCCC COP26 in November 2021, the governments of South Africa and France, Germany, the United Kingdom, the United States of America, and the European Union (the International Partners Group - IPG) announced a new ambitious, long-term Just Energy Transition Partnership (JETP). The JETP supports the Republic of South Africa’s (RSA) commitment, in the context of its domestic climate policy, to decarbonise its energy intensive economy and transition to cleaner energy sources and, in doing so, achieve the best possible outcome within its stated Nationally Determined Contribution (NDC) range. A critical distinguishing feature of the JETP is its emphasis on the centrality of a just transition in the structuring of the Just Energy Transition Investment Plan (JET IP), its financing and implementation.

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 to 5 years to advance the JETP. It was determined that the partners would within 6 months and 12 months provide a progress update to leaders. This update records progress since the 6-month Leaders Update, which is annexed hereto.

The key milestone achieved during the last 6 months was the development of the JET IP by South Africa with the following key features:

• it has been developed through a country-led and country-owned process building on national knowledge base from public and private sector, civil society, academia and trade union inputs
• it is rooted in South Africa’s plans and processes around decarbonisation and gives expression to these long-standing plans through the lens of three priority sectors, and a proposed portfolio of investments and other interventions
• it is complementary to, and not separate from South Africa’s broader long term development agenda, aimed at tackling unemployment, inequality and poverty, and thus be in support of economic growth and job creation efforts
• it is focused on ‘justice’ in South Africa and the financing needs to recognise the social costs associated with achieving the updated NDC targets, and the broader climate response. In this context, the just transition aims to improve the quality of livelihoods, particularly those directly impacted by the transition, and ensure shared benefits, risks, and responsibilities from the transition

The JETP Secretariat, under guidance of the Presidential Climate Finance Task Team (PCFTT), and IPG, developed the JET IP, which was endorsed by the Government of South Africa and the governments of the IPG in October 2022.

2. The Just Energy Transition Investment Plan

The JET IP was developed over the course of 2022, in a dynamic context along with several supportive policies and processes being launched, including the Just Transition Framework adopted by Cabinet in August 2022 and far-reaching energy sector reforms that are unlocking investment in renewable energy. The JET IP was developed through a country-owned, country-led engagement process, which drew on South Africa’s extensive knowledge base amongst policymakers, academia, civil society, and business. This was complemented by engagements with technical working groups and stakeholder discussions with youth, labour, business, civil society, local government, and faith-based organisations. The South African government has undertaken to maintain an open dialogue with the stakeholders to enhance the efficacy and impact of the JET IP, especially during the implementation phases ahead.

The JET IP supports the goals of energy security, just transition and economic growth, in terms of clarifying its priority investment requirements over the next five years in the electricity, new energy vehicles (NEVs), and green hydrogen (GH2) sectors. Just transition initiatives (particularly arising from the electricity sector transition in Mpumalanga) are elaborated within these sectors, and two cross-cutting priorities have been identified for skills development and municipal capacity as key components of the JET IP.

The JET IP articulates the need for R1,48 trillion (USD 98 billion)^{[footnote 1]} investment in the 3 priority sectors categorised into infrastructure, planning, skills, economic diversification, social, and monitoring investments over a period of 5 years. The JET IP is not exhaustive of all the transition needs in South Africa. It sets out the guiding principles for implementation, considering the Just Transition Framework.

3. Recent policy developments

South Africa has an ongoing process of electricity sector reforms to ensure long term energy security in the context of developing a clean, inclusive and sustainable energy system. More recently, the President of South Africa announced several urgent interventions to address its electricity supply crises towards attaining energy security. These interventions support the implementation of the Just Energy Transition Investment Plan. These reforms include accelerated procurement of new generation capacity, enablement for a large increase in private investment in generation capacity, enablement for business and households to invest in rooftop solar, and further steps in the transformation of the electricity sector. In particular, the President announced that:

• the licensing thresholds for embedded generation are removed completely, enabling private investment in large, utility-scale generation projects
• Bid Window 6 for wind and solar power will be doubled from 2 600 MW to 5 200 MW
• further requests for proposals will be issued for battery storage and gas power generation
• the IRP is to be reviewed to reflect the need for additional generation capacity and South Africa’s climate commitments
• special legislation is being developed and expedited to address legal and regulatory obstacles to new generation capacity, and regulations are being streamlined or waived where possible, including for solar projects in areas of low and medium environmental sensitivity
• environmental authorisations have been waived for the development of new transmission and distribution lines and substations in areas of low and medium sensitivity and within strategic electricity corridors
• a pragmatic approach will be taken to local content requirements for near-term renewable energy investments, with the designated local content for solar panels reduced from 100% to 35% for Bid Window 5
• there will be incentives for rooftop solar, Eskom will develop feed-in tariffs for the purchase of surplus electricity from residential customers. National Treasury is undertaking further work on tax incentives for investment in small-scale embedded generation
• a law-enforcement team is working with Eskom to address crime and corruption
• Eskom restructuring into 3 entities will be enhanced with the appointment of boards for the transmission and generation entities. The transmission grid will remain state-owned
• the Minister of Finance outlined a sustainable solution to the Eskom debt in the Medium-term Budget Policy Statement in October 2022
• government will use climate funding provided through the JETP to invest in the transmission grid and repurpose coal power plants that have reached end of life
• Eskom to recruit engineers and experts, including former employees, to ensure it has the required skills to rehabilitate its fleet of power stations
• information will be shared with private investors to guide their investment in the national grid
• the establishment of a new National Energy Crisis Council (NECC), to be chaired by the Director-General in the Presidency’s Office, will strengthen Presidential oversight of delivery against announced reforms

Additional important policy actions initiated in September 2022 supportive of the JET IP portfolio are:

• the government announced the procurement by Eskom of 1000MW of renewable power from IPPs and appointment of a new Board
• the Minister for Trade and Industry announced reform of the automotive incentives regime to orientate the industry to electric vehicles
• adoption by Cabinet of ‘A Framework for a Just Transition in South Africa’. The Framework, which goes beyond the JET IP, informed the development of the JET IP and is intended to guide implementation, so as to ensure that the principles of restorative, distributive and procedural justice are adhered to

4. Financing package

The JET IP expresses South Africa’s needs from 2023 to 2027 of R1.5 trillion with the IPG offer contributing US$8.5 billion package of grants, concessional and commercial funding from France, Germany, United Kingdom, United States of America, and the European Union is provided in the table below.

The IPG funding will be geared towards supporting the urgent needs expressed in SA’s JET IP, being the

i) strengthening and expansion of the transmission and distribution grid

ii) decommissioning and repurposing of coal plants

iii) accelerating renewable energy investment

iv) energy efficiency measures, and

v) preparing and laying the social infrastructure to enable a just energy transition for affected workers, communities, and related locations, including job creation opportunities in affected coal mining regions

US$ millions	Grants/techical assistance	Concessional loans	Commercial loans	Guarantees	Total (source)
CIF/ACT ($500 million to leverage an additional $2.1 billion)	50	2,555	0	0	2,605
European Union - EIB	35	1,000	0	0	1,035
France	2.5	1,000	0	0	1,002.5
Germany	198	770	0	0	968
United Kingdom	24	0	500	1,300	1,824
United States	20.15	0	1,000	0	1,020.15
Total (instrument)	329.7	5,325	1,500	1,300	8,455.7

5. Potential private and third sector support to the Investment Plan

The remaining financing need is going to require significant investment from a range of sources including the private sector and third sector to deliver on the JET IP in a just and inclusive manner. The catalytic use of concessional and grant funding, as well as guarantees from government, DFIs (in addition to the IPG pledges), climate finance institutions, and philanthropies, will need to be deployed in a way that mobilises additional local and international private sector capital.

Consequently, the PCFTT and the IPG have begun engagements with philanthropies on the potential and specifics of their support, especially on the ‘just’ components of the transition. A number of international and domestic private sector organisations have also been engaged.

The PCFTT are also commenced engagement with other countries interested in supporting South Africa’s transition journey through providing catalytic capital for the JET IP.

6. The way forward

The PCFTT and the IPG are committed to continued engagement via [a joint secretariat] as well as regular formal meetings with senior officials and ministers as part of continuing to give effect to the Partnership. They commit to bring in a broader set of parties to increase financing, including philanthropies, multilateral development banks, Development Finance Institutions, NGOs and other donors.

The next key deliverable is the development of the Implementation Plan for first 5-year JET IP (2023 to 2027), the cornerstones of which will be:

• strong governance arrangements for ensuring leadership, oversight, transparency, safeguards, and accountability at various locations of JET IP delivery
• robust management arrangements for planning, performance, reporting, and communications, at various locations of JET IP delivery
• a Monitoring, Evaluation and Learning Framework for the measurement of success and continuous improvement, and
• a Risk Management Framework for identifying potential risks and implementing mitigation measures to reduce material risks to the JET IP

These will be developed in collaboration with the IPG as the financing agreements are being concluded and executed for each JET IP programme and project. Importantly, the Implementation Plan will be grounded in existing South African institutions and systems and will adopt global best practice in the identified disciplines.

The indicative timeline for the presentation of the Implementation Plan is late February 2023.

The partners re-affirm their shared commitment to ensuring that the principles of distributive, restorative and procedural justice, as set out in ‘A Framework for a Just Transition in South Africa’ are embedded within implementation of the JET IP and the JETP, with particular regard to under-served and vulnerable communities. In doing so, we also re-affirm our commitment from twelve months ago at Glasgow to leave no one behind as South Africa moves onto a path of sustainable and climate resilient economic growth.

Joint updates to leaders will be provided on an annual basis. In doing so, the government of South Africa and the IPG will share key progress against the JETP, and lessons learned, to inform our and other countries’ pursuit of a Just Energy Transition and our global commitment to net zero and a greener, cleaner future.

Presidential Climate Finance Task Team and the International Partners Group

1. Based on ZAR15:USD1 exchange rate as per current National Treasury budget rate ↩