South Africa will need a hefty amount of $250 billion to ultimately transition from being dependent on coal-fired power plants to instead using green energy. But South Africa, one of the world’s biggest sources of greenhouse gases, will need to rely on support from other countries and follow a strict strategy over the next three decades for the transition to be successful, according to a study done by Stellenbosch University.
The Blended Finance Taskforce and the Centre for Sustainability Transitions at Stellenbosch University said that the money and resources will have to be directed towards more than just closing down coal-fired power plants and building wind and solar power plants; funding will also need to go toward communities that are reliant on the coal industry, which currently employs about 125 000 people, each with between three and 10 dependents. The study states that the funds will mostly have to come from the private sector, as reported by BusinessTech.
The country will of course need financial support to manage the transition. South Africa is currently in negotiation with a group of countries consisting of the USA, UK, Germany, France and the European Union for $8.5 billion in climate grants and concessional loans. This deal was initially announced at last year’s COP26 climate summit in Glasgow and aims to see South Africa take its first steps in transitioning away from coal-fired power plants. Some details of the deal are expected before the COP27 climate summit in Egypt at the end of 2022.
“The $8.5 billion pledge can be a catalyst to unlock this $250 billion,” researchers said in the study released Thursday. “It should offer the global blueprint for transition finance.”
South Africa is considered an ideal nation with which to make an energy transition deal, since much of its coal-fired power infrastructure is nearing its end and South Africa’s economy is heavily dependent on fossil fuel. This current energy transition deal could encourage and be repeated with other coal-dependent nations such as Vietnam, Indonesia and India.
But South Africa has a long, complex and expensive journey ahead before it can reach its mark. According to a strategy outlined in the study, the country would need to install 5 gigawatts of renewable energy capacity every year until 2050. Researchers predict that it would create 5 000 jobs a year over the next decade in the construction, operation and maintenance of the new plants.
What would the expenditure of this transition look like over the next three decades? Financing will have to come from the private sector, both in South Africa and the rest of the world. The researchers envision the expenditure as follows:
- $125 billion on 150 gigawatts of solar and wind power plants
- $18 billion on 33 gigawatts of battery storage
- $8 billion on 5 gigawatts of pumped hydro storage
- $18 billion on 30 gigawatts of natural gas-fired power generation
- $50 billion on improving the power transmission and distribution networks
- $24 billion to close the coal-fired power plants owned by national power utility, Eskom Holdings SOC Ltd, by 2040
- $10 billion to compensate affected coal workers and to rehabilitate the environment at idled coal mines
Internally, government-linked institutions such as the Public Investment Corp, the Development Bank of Southern Africa Ltd and the Industrial Development Corp, should play a role in the financing of the project.
“The majority of the $250 billion needed for South Africa’s Just Energy Transition can be funded by private finance investing into scaling renewables and other enabling infrastructure,” the researchers said. “About a third of the funding will be needed from capital providers with a mandate that is not entirely commercial” to support the social costs of the transition.
As a country which relies on coal for more than 80% of its electricity, South Africa would be an ideal example to other countries that are also working on energy transition – if this project is run properly, of course.
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