MSIZI KHOZA: Just transition plan is a crucial start

SA’s just energy transition investment plan, a 216-page document aimed at guiding R1.5-trillion in investment over the next five years, has been approved by the cabinet and the country’s foreign funding partners — an important milestone in the shift to a more sustainable and competitive economy.

This comes a year after SA unveiled an $8.5bn (R147bn) funding deal with the US, UK, France, Germany and the EU — the International Partner Group (IPG). Those funds, which will soon start flowing, are expected to derisk transition projects and draw in additional funding from development finance institutions, the private sector, and philanthropic organisations.

Because an unplanned energy transition would be chaotic and painful for the communities dependent on the coal sector, mapping the way forward has been a critical first step. While the plan is not perfect and doubts over the state’s ability to implement it are of course warranted, it appears solid and well considered.

It seeks to protect those on the front line of the energy transition, while also kickstarting new industries that could breathe new life into SA’s struggling economy.

In Mpumalanga, the heart of SA’s coal belt, 90,000 direct jobs are on the line at coal mines and power plants as the polluting fossil fuel faces a steady decline — and there are tens of thousands more across the broader value chain.

There’s no time to waste in setting plans in motion to safeguard those livelihoods. As the just energy transition plan notes, seven of Eskom’s coal plants will reach their end of life by the end of 2030 and two more by 2035, out of a total of 15. By 2050, only Kusile, Medupi and one unit of the Majuba power plant are expected to remain operational.

To cushion the blow, decommissioned plants will be repurposed through the addition of solar and wind generation capacity and battery storage units, according to the plan. And coal mining lands will eventually be reused for high-value agriculture and housing projects.

Over the next five years the investment plan allocates R12.3bn towards developmental infrastructure in Mpumalanga’s coal towns, R24bn towards supporting new, non-coal businesses in the coal belt, and R5.6bn for reskilling, support for workers who want to pursue opportunities out of the province, and temporary income support.

Meanwhile, the plan envisages the addition of 50GW of clean energy capacity by 2030 alongside extensive investments in transmission and distribution infrastructure. This would ensure energy security, even as old coal plants are shut, while also creating a steady pipeline of job opportunities across Mpumalanga and other provinces.

It also identifies R128.1bn in investments needed to establish an electric vehicle manufacturing industry in SA over the next five years. Shifting the country’s vehicle manufacturing sector — which employs more people than the coal industry — from combustion engines to electric vehicles is a crucial endeavour considering looming bans on petrol and diesel car sales in SA’s main export markets.

Further, R319bn is earmarked to jumpstart the country’s green hydrogen industry, which in turn will support the production of low-carbon steel, cement and ammonia, among other goods.

Of the R319bn almost half — R151bn — is the estimated capital cost for port infrastructure development. Given the size of the funding gap (R285bn), the nascent stage of development of the sector, more work needs to be done to derisk the required private sector investment.

Given a constrained fiscal envelope, private-public partnerships (PPPs) will be critical. Already one hopes Transnet’s early forays into private rail and port access will yield valuable insights for what appears to be critical future PPP initiatives.

In fact, given its mineral resources, infrastructure and expertise, SA is exceptionally well placed to play a prominent role the world’s “green” economy. The opportunity is ours to use or lose, which is why this investment plan comes at an opportune moment.

However, there are some notable omissions from the plan. For instance, there is little focus on climate change adaptation projects, which will become increasingly important as extreme weather events grow in size and frequency and wreak havoc on transport infrastructure, schools, municipal infrastructure necessary for services, and homes. There is also arguably not enough focus on emerging opportunities such as battery manufacturing, where SA holds some key advantages.

Nevertheless, it’s a road map that’s certainly worth getting behind. In the short term it offers a rapid and cost-effective solution to the country’s ongoing energy crisis, as well as early measures to protect towns and communities in the coal belt.

In the medium and long term it could catalyse SA’s re-industrialisation and reignite both the economy and labour market. In a sense, it is possibly the most monumental environmental, social and governance (ESG) strategy the world has ever seen.

And while the IPG and international multilateral development banks such as the World Bank have, rightly, focused the bulk of their efforts and energy towards the electricity issue — where they can most provide effective financial support in the form of blended finance is in nascent but potentially game-changing prioritised sectors such as green hydrogen and new energy vehicles.

The role of multilateral development banks in derisking and pivoting good ideas to become bankable projects will be critical to the successful implementation of the plan.

It is of course a mammoth undertaking, and the journey has only just begun. While the state will need a new sense of urgency — something akin to preparations for the 2010 World Cup, which had a hard end date — the private sector will also need to step up and play its part.

The stakes are high. But so are the potential rewards on offer.

• Khoza is head of ESG at Absa Corporate & Investment Bank.