Spain to provide $2.3 billion for South Africa’s clean energy transition

Overcoming South Africa’s significant climate, water and energy crises will mean embracing the new opportunities of a green economy, highlights the government’s Just Energy Transition Investment Plan (JET IP). Driven by industrial development, innovation and economic diversification, this sustainable and economically resilient future will be characterised by decent work, social inclusion and lower poverty levels, it states.

Spain has now announced a USD $2.3 billion (R42 billion) investment to help fund this future. The funding will cover potential investments in renewable energy, battery storage, transmission, green hydrogen and electric vehicles. Unlike other transition finance schemes, it will include water and sanitation projects as well.

The funding will be provided through a blend of financial tools, including €15 million in grants for feasibility studies and the remainder in loans at about half the cost of commercial credit, risk insurance and capital investments, said Spain’s Ambassador Raimundo Robredo Rubio in an interview at his nation’s embassy in Pretoria. “This is the first time in history we have done something like this,” he said. “It is tailor-made just for South Africa,” with the potential to replicate it in other countries.

Progress on the Just Energy Transition Partnership

While not part of it, the Spanish initiative aligns with the aims of the USD $8.5 billion (R155 billion) Just Energy Transition Partnership (JETP) between South Africa and funding partners including the US, UK and the European Union. The package comprises 81 per cent loans and 4 per cent grants, while the rest are guarantees.

That program has been hailed as a pioneering example of how international finance partnerships can curb developing economies away from coal dependence. However, there is still much more funding to secure. The JET IP estimates it will need a total of USD $82 billion (R1.5 trillion) over the next five years to facilitate South Africa’s transition.

IRENA’S 2023 report on global renewable finance also warns of skewed loan-to-grant mix, highlighting the need for more grants in future JETPs to avoid increased sovereign indebtedness. “Grants should play a bigger part of the financing packages in order to give beneficiary countries a socially just funding scheme”, the report states.

Solving the energy crisis: The Just Transition v coal

Achieving a Just Transition in time to avert the worst impacts of climate change requires a well-managed and rapid shift away from coal and towards “affordable, decentralised, diversely owned renewable energy systems”, highlights the JET IP. 

South Africa’s energy crisis caused by ageing and unreliable coal plants also means that rapidly shifting toward renewable energy sources is already the least costly option to solve the crisis, say World Bank economists. Investing in renewables and transmission could quickly increase electricity supply and help eliminate load-shedding, saving South Africa approximately USD $192 billion (R3.5 trillion) by 2030.

However, South Africa’s electricity minister is advocating for channelling more state funding towards the ageing and failing coal fleet, as well as emissions limits exemptions and extending retirement dates. These plans not only conflict with the Cabinet-approved JET IP, but they would also jeopardise the billions in investment by international donors that are essential to fund it.