South Africa’s ‘Just Energy Transition Partnership’: Lessons For Asian Countries

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South Africa’s ‘Just Energy Transition Partnership’: Lessons For Asian Countries

Photo by Mr Novel

The South African JETP marks a groundbreaking moment for global energy financing. It has set the stage for a new climate-progress model that can unite developed and developing countries, as well as public and private financiers, on the path towards a just energy transition.

15 November 2022 – by Viktor Tachev

The South African Just Energy Transition Partnership (JETP) initiative might be imperfect, but it gives countries like Vietnam and Indonesia a blueprint for abandoning fossil fuels. Asian nations are now perfectly positioned to refine and build upon the South African JETP model and unlock the entire scope of benefits relating to the green energy transition.

South Africa’s Just Energy Transition Partnership

At COP26 Glasgow, the governments of South Africa, France, Germany, the UK, the USA and the EU announced an ambitious, long-term Just Energy Transition Partnership (JETP). The launch of the JETP investment took place at COP27 Egypt.

Its goal is to accelerate the decarbonisation of South Africa’s economy and help achieve the goals laid in its nationally determined contributions (NDCs). The JETP covers three priority areas for financing: the energy sector, electric vehicles and green hydrogen. The plan identifies a need for USD 98 billion in public and private financing over the next five years.

The group of supporting countries (the International Partners Group) will fund the program’s first phase by mobilising USD 8.5 billion. The funds will be in the form of grants, concessional loans, investments and risk-sharing mechanisms. The funding will cover key areas, including coal plant closure, renewable energy investments, green economy sectors and alternative employment opportunities for coal mining industry professionals.

The World Bank will provide another USD 0.5 billion in financing for the JETP.  

Limitations of the South African Just Energy Transition Partnership

As a pioneering project, it is natural for the South African JETP to have some weak points.

For example, Zero Carbon Analytics’ “Risks & Rewards of Just Energy Transition Partnerships” report describes the plan as “lacking transparency”. This comes despite the South African JETP being the most advanced among all plans currently in development.

In addition, the analysis also highlights the partnership’s failure to engage civil society organisations, communities and trade unions. The discussions for the plan have only involved the South African government, the IPG and development finance institutions. Furthermore, crucial information has remained confidential. Apart from the discussion at COP26, there has been no formal civil society consultation on the proposed partnership.

Another potential drawback of the South African JETP is its focus on green hydrogen. Experts consider green hydrogen an expensive, impractical and mostly untested power source. Due to this, investing in green hydrogen technologies might generate a sub-optimal return on investment compared to other renewable sources.

However, the deficiencies of the South African JETP may serve as a blessing in disguise, as they highlight the areas that other JETP countries can focus on.

The Lessons Asian Countries Can Take From the South African Just Energy Transition Partnership

While the South African JETP is the first to launch, such pilot projects have long been in discussion. At the European Union-African Union Summit in February this year, officials announced pilot partnerships in Ivory Coast, Kenya, Morocco and Egypt. In June, the G7 announced it was working on JETPs with India, Indonesia, Senegal and Vietnam.

The Asian countries from the list are in a similar position to South Africa, since their economies are also heavily coal-dependent. Furthermore, they are struggling to advance their NDCs and aim to expand gas extraction and power.

Some of the key lessons Asian countries can take from South Africa’s JETP include:

Ensuring Better Use of Financing and Involving the Public Sector

In addition to the JETPs, the Asian Development Bank is working on an Energy Transition Mechanism. It will combine public and private finance for the early retirement of coal power plants in Indonesia, the Philippines and Vietnam.

However, Zero Carbon Analytics warns that public funding for such blended finance mechanisms mainly comes as loans. These loans are often expected to deliver an ROI. As a result, there is a persistent failure to channel funding to countries that need it the most and causes where it can make the biggest difference.

Leaked reports reveal that only a small portion of South Africa’s JETP funding (2.7% of all funds) would come as grants. Furthermore, they would mainly cover research.

If Asian countries prioritise public financing with zero or low-return targets, they can channel it towards supporting communities or workers needing reskilling – initiatives that often remain in the shadow of commercially available and profit-generating projects.

Currently, the participation of private financing is low. For every USD 1 in public finance, private investors have mobilised just USD 0.37.

Ending Fossil Fuel Financing, Including Gas

India, Indonesia and Vietnam all have massive coal fleets. Coal’s share in their power generation mixes is 50%, 56% and 34%, respectively. Furthermore, India’s Power Ministry has opposed starting JETP negotiations, arguing that coal shouldn’t be defined as a polluting fuel.

To align with a 1.5°C goal, countries should cut coal plants’ average lifetime from 46 to 20 years. The early closure would come with high financial costs, especially considering that the coal fleets in those countries are relatively young.

Furthermore, India plans a 15% increase in the share of natural gas in the energy mix by 2030. Vietnam targets a 337% growth in gas power. Indonesia plans to almost double its gas production by 2030. To avoid exacerbating the stranded asset risk from existing coal infrastructure, Asian countries should halt their gas expansion plans. This is also critical for donor countries, as they risk breaking their commitment to ending fossil fuel financing by the end of 2022.

A Focus on Working Solutions

Asian countries are already racing against time to decarbonise their fossil fuel-heavy economies. Due to this, they should avoid wasting scarce resources, as well as time and energy, on distracting technologies or solutions lacking viability. A prime example of this is South Africa’s focus on green hydrogen.

The same goes for funding projects that might reduce emissions but also take a toll on the environment. For example, in Indonesia, where a JETP is about to be established by the end of 2022, the government plans for coal/biomass co-firing in 52 power stations. However, Zero Carbon Analytics warns that such a strategy would require forest plantations 35 times the size of Jakarta. This would cause massive deforestation and increased emissions.

Asian Countries and the Mission to Perfect JETPs

The South African JETP leaves a lot to be desired. Yet, it shows that the leading global economies are starting to give developing countries a hand in accelerating their decarbonisation. Furthermore, such partnerships ensure that economies won’t lose competitiveness on the path to achieving their NDC targets. They indicate just the opposite: the economies will grow sustainably.

However, the South African JETP is just the first step. Now, countries working on such deals have to show that they are refining the model by accelerating progress, expanding program scopes and concentrating only on technologies that can maximise investments, like solar and wind. Most importantly, they must promote dialogue with civil society and maintain transparency. Ultimately, the mission of shaping a better future is common for all.

by Viktor Tachev

Viktor has years of experience in financial markets and energy finance, working as a marketing consultant and content creator for leading institutions, NGOs, and tech startups. He is a regular contributor to knowledge hubs and magazines, tackling the latest trends in sustainability and green energy.

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