South Africa's Cabinet has approved the Just Energy Transition Implementation Plan

South Africa's Cabinet has approved the Just Energy Transition Implementation Plan (JET IP). The JET IP is set for a five-year period (2023-2027) and sets out several interventions and investments which are needed in South Africa for the country to transition into a low carbon and climate resilient economy.

The JET IP is in line with South Africa’s updated Nationally Determined Contribution which was lodged with the United Nations Framework Convention on Climate Change (UNFCCC) prior to its 26th Conference of the Parties (COP 26) in Glasgow in November 2021, and South Africa’s Long-term Low-Emissions Development Strategy submitted to the UNFCCC in 2020.

The JET IP is premised on South Africa’s National Development Plan (NDP) 2030, with its focus on tackling the country’s systemic challenges of poverty, inequality, and unemployment. If carefully implemented, South Africa’s energy transition is an opportunity for the country to drive industrial development, innovation, and economic diversification. Therefore, the JET IP is an invitation to international and local investors and donors to partner with South Africa on the just energy transition journey.

Put broadly, to support the goals of energy security, just transition and economic growth, the development and approval of the JET IP allows South Africa to clarify its priority investment requirements in the electricity sector, New Energy Vehicle (NEV) Sector and the Green Hydrogen (GH₂) Sector.

In the electricity sector, the infrastructure investment priorities are:

• to manage the decommissioning of the retiring coal generation fleet, in line with a revised Integrated Resource Plan (which remains to be published), and in tandem with the development of renewable energy generation at scale and pace;
• to timeously strengthen the transmission grid infrastructure to accommodate the shift to renewable energy; and
• to modernise the electricity distribution system.

In the NEV sector, the JET IP is focused on transitioning the automotive sector value chains as the global shift to electric vehicle production gains momentum, building NEV supply chain localisation, and setting the base for NEV manufacturing and component manufacturing, to protect sector employment and promote new growth in sustainable manufacturing.

In the GH₂ sector, investment is focused on key interventions to set South Africa in becoming a world-leading exporter of GH₂ by incubating local GH₂ ecosystems; undertaking critical planning, feasibility, and proofs of concept; and developing the necessary skills.

Overall, the JET IP will be implemented through a managed, phased, long-term process of economic, social, and environmental change. It will involve multi-year, multi-sectoral, and multi-jurisdictional initiatives with many stakeholders, including significant capacity building to manage the scale of the just energy transition.

The success of the JET IP will depend on the scale and availability of concessional finance. On this point, the National Treasury recently announced that South Africa has signed bilateral loan agreements with the World Bank, German state-owned development and investment bank Kreditanstalt für Wiederaufbau (KfW) and the African Development Bank (ADB) to support South Africa’s Just Energy Transition. The concessional financing includes a loan of $1 billion from the World Bank, €500 million from KfW and a further $300 million from the ADB. These are sovereign loans provided directly to the National Treasury for general budget expenditure purposes. The loans are in line with South Africa's funding strategy to diversify the country's funding mix for international borrowing. Furthermore, the loans will be used to support the Government's key reforms under both the climate change and electricity sector.

Although the availability of concessional finance is positive for the development of South Africa, it goes without saying that the success of the country in achieving its goals will also depend on strong governance arrangements, robust management arrangements, monitoring, evaluation and learning frameworks, and risk management framework.