RICHARD DOYLE AND SALOMÉ BRONKHORST: SA’s energy transition requires more than money

The conclusion of COP29 in Azerbaijan has left many people disillusioned. Developed nations pledged $300bn annually for energy transitions in developing countries, far short of the $1.3-trillion a year sought by nations such as SA.

Our $8.5bn Just Energy Transition Partnership pledge is a fraction of the R6-trillion needed by 2050 and even the R1-trillion required by 2030 for renewables, grid upgrades and infrastructure. Despite a projected 5GW annual energy shortfall, much of this funding remains underutilised.

But is finance the real obstacle to our energy transition? Not entirely. SA’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) shows that investment flows when projects are bankable, with more than R200bn mobilised from the private sector and commercial lenders across five bid windows. While private projects, such as those for Tronox, Sasol and Sibanye are progressing, the sector still lags.

The truth is there is finance for bankable projects but other persistent issues — financing complexities, grid constraints and municipal bottlenecks, among other problems — are chocking progress. These are well-known issues, but they demand sustained attention and action to unlock SA’s full renewable energy potential.

The ‘cost’ of finance

African renewables projects face financing costs two to three times higher than in developed economies. Macroeconomic and political risks — instability, currency volatility and regulatory uncertainty — increase interest rates and equity premiums. These costs, coupled with long debt tenors and high gearing ratios, are often passed on to renewable energy engineering, procurement and construction companies. Stringent security package requirements crowd out all but the largest players, limiting competition.

From our experience, a more direct approach with private off-takers on a direct capital investment basis simplifies project execution. By bypassing lenders and relying on corporate finance, projects avoid the delays and costs tied to complex sales cycles and regulatory approvals, enabling faster progress.

Grid constraints

Our energy transition faces a literal “gridlock”, with tens of gigawatts of renewable capacity stalled due to transmission bottlenecks. Juwi Renewable Energies alone has 15 projects, totalling 2.5GW of wind and solar PV awaiting grid connection. Globally, grid constraints can delay projects for years, even a decade or more, and SA is no exception.

The establishment of the National Transmission Company of SA (NTCSA) is a positive development. The company plans to manage and expand the grid, ambitiously targeting 14,000km of new transmission lines by 2030, enabling 30GW of renewable energy. If achieved, this could help shift SA towards more flexible energy markets, making renewables accessible to a broader range of businesses through shorter-term contracts instead of long-term agreements.

The Transmission Development Plan of 2024 highlights critical projects to address grid constraints. Among these are two important transmission corridors: one linking the Eastern Cape to KwaZulu-Natal, and another connecting the Northern Cape through the North West to Gauteng. These could unlock significant renewable capacity in the Northern Cape, where many large renewables projects are stranded due to grid limitations.

The NTCSA’s immediate goal is to build 5,000km of transmission lines and add 87 transformers by 2029, supported by R112bn in Treasury funding, with R32bn already in execution. However, achieving the full 14,000km target by 2030 will require significant scaling, highly streamlined (if unrealistic) grid development timelines, and about R278bn of additional funding.

In the interim, other measures can help to some extent. “Curtailment”, a controlled reduction of power production by some producers during specific periods, could allow for 4GW of additional capacity to connect to the SA grid, a significant increase given SA’s 6GW of utility-scale renewables. Investment in storage solutions, some already under way through Eskom and the REIPPPP, would also balance supply, particularly during midday grid constraints.

Municipalities are another key piece of the puzzle, responsible for distributing about half of Eskom’s electricity. Many lack the basic capacity to support renewables, with energy deals requiring expertise in legal, commercial and technical areas and in some cases access to capital. Alarmingly, about 16% of SA’s municipalities are officially classified as “dysfunctional”.

Wheeling, the mechanism that enables power producers to “transfer” energy to customers across regions, is essential for liberalised energy markets. However, wheeling agreements require intricate negotiations and compliance with Eskom and local regulations. Even functional municipalities struggle to approve projects efficiently.

In a liberalised energy market municipalities must take on roles traditionally held by Eskom or the Independent Power Producers Office, creating policies for local renewable projects, establishing energy service companies, and procuring green energy for public facilities. Addressing these gaps is critical. The national government has given dysfunctional municipalities until 2026 to stabilise operations, a necessary step to enable them to contribute effectively to the energy transition.

In addition, the National Energy Regulator of SA and the SA Local Government Association are helping municipalities adopt cost-reflective tariffs and develop guidelines to simplify wheeling and renewable integration. However, with high vacancy rates in technical roles, building long-term capacity remains a significant challenge. Industry-backed trade and business schools could bridge this skills gap, potentially leveraging socioeconomic development platforms within the REIPPPP. A national task team to support municipalities could also make a big difference.

Kill the complexity

Finally, complexity kills deals. Large energy projects require the alignment of many factors including tariffs, costs, financing and contractor availability. When external volatility disrupts this balance, projects struggle to close. This explains why so few projects continue to close — typical cycles are two to four years instead of the six months needed by the rate of change of the environment.

Before COP29 SA environment minister Dion George raised funders’ concerns about SA’s slow progress in generating bankable projects. The money is there, but reducing risks, cutting complexity and addressing bottlenecks is essential if the country is to lead Africa in renewables and reap the benefits.

• Doyle is MD of Juwi Renewable Energies SA. Bronkhorst is a science communicator.