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A group of the world’s richest nations that pledged $8.5bn in climate finance to SA wants the money to be used to retire coal-fired power plants, according to a senior US official involved in the talks, damping suggestions some could be channelled to producing electric vehicles (EVs) and green hydrogen.

The funds pledged by the US, UK, France, Germany and the EU and announced at the COP26 climate summit in Glasgow in November, can also be used to construct renewable energy facilities, the official said, asking not to be identified as the talks are private.

The money can also be used to strengthen SA’s grid to make it easier for renewable energy producers to access the grid and cushion communities dependent on coal during the transition to green energy.

The aim is to conclude a deal, complete with investment plans, by the COP27 climate summit in Egypt in November at the latest, the official said.

The stance helps clear doubts about the use of the funds. State-power utility Eskom had initiated the talks in 2021 in a bid to raise money to help reduce its reliance on the coal that is used to generate more than 80% of SA’s electricity.

Meanwhile, the trade & industry ministry has been lobbying to use the financing to develop new, climate-friendly sectors in the economy, such as electric vehicles and green hydrogen.

When initially announced, the deal was hailed as one of the standout achievements at COP26 and is seen as a prototype of a funding model that could be used to decarbonise other coal-dependent states. SA is the world’s 12th-biggest source of greenhouse gases, with Eskom accounting for about 40% of its emissions.

The option of channelling money to other industries was raised soon after talks on the details of the deal began. SA’s automotive industry is one of its biggest exporters and needs to transition to electric vehicles to maintain its market share, while an abundance of sun and wind means the country could be a competitive green-hydrogen producer. 

Any money for electric cars and hydrogen will probably come from bilateral deals as the closure of coal plants will be a quicker way of cutting global emissions, the official said. In February, President Cyril Ramaphosa spoke of plans to attract $18bn of investment into a green hydrogen industry and trade, industry & competition minister Ebrahim Patel said Germany had identified the nation as a potential source of the fuel.

Green hydrogen

Green hydrogen, which is made by splitting water using renewable energy, is seen as a way of decarbonising activities such as steelmaking and shipping. The country doesn’t currently make green hydrogen on a commercial scale or produce any electric vehicles. 

Eskom and the trade department didn’t immediately respond to queries. 

The $8.5bn, which will come in the form of concessional loans and grants, could also be a catalyst for additional private investment, the official said. 

Eskom has proposed closing a number of its 17 coal-fired plants and replacing them with renewable energy and possibly gas, as well as converting the stations to other uses to limit the affect on jobs. There are about 90,000 coal miners in SA with most mines and coal-fired plants in the eastern province of Mpumalanga. 

Funding for transmission lines would see the grid strengthened in the Northern Cape, an arid province with almost uninterrupted sunlight, and in the Eastern Cape, which is suited to wind plants. Eskom, which has forecast that it will have R416bn ($27bn) in debt by the end of March, has previously estimated that it needs R180bn to expand its transmission and distribution networks.

Bloomberg News. More stories like this are available on bloomberg.com


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