COP26’s $8.5bn pledge to SA sparks funding tussle
One of the biggest announcements from last year’s COP26 climate talks was a pledge by some rich countries to provide $8.5bn (about R128bn) to help SA transition away from coal. Now, different interests are tussling over how that money should be used.
Eskom is proposing that a substantial portion be used to expand the grid to encourage more investment in renewable electricity, according to people familiar with the situation.
If the money is allocated to Eskom and its projects, the people said, some of it would also be used to retire coal-fired power plants that account for more than 80% of SA’s electricity supply the originally stated purpose of the deal funded by the US, the UK, Germany, France and the EU. The people asked not be identified as the talks are private.
Those funds would also help to cushion the economic hit to coal-dependent communities as the fossil fuel is phased out.
But Eskom faces competition from the department of trade, industry & competition (DTIC), which is also seeking funds for two programmes. The first would boost electric-vehicle (EV) production, helping preserve cars as one of the nation’s most important exports. The second would invest in green hydrogen in a bid to position SA as a major producer as interest grows in its use in decarbonising such activities as steelmaking and shipping. SA doesn’t currently produce any EVs or make green hydrogen on a commercial scale.
It is hoped the funding deal will provide a model for helping developing nations cut emissions without having to sacrifice development goals such as reducing poverty and increasing energy access.
The money is set to come in the form of concessional loans and some grants. The lenders will need to consider various investment proposals and decide which ones to back, one of the people said.
Additional finance may also be available from institutions such as the New Development Bank, which is funded by the Brics group of nations, and the African Development Bank, the person said.
Eskom initiated talks with the lender countries before COP26 and intervention by the DTIC has caused some tension, two of the sources said.
Eskom declined to comment.
The DTIC referred questions to Daniel Mminele, a former central banker who heads the Presidential Climate Finance Task Team, which will negotiate the $8.5bn deal. Mminele didn’t answer a call or immediately respond to a text message.
About R180bn is needed to fund Eskom’s plan to expand its transmission and distribution network, which the government sees as an effective way to move the country away from coal. Eskom will struggle to finance that expansion on its own, given that it is R392bn in debt.
Much of the improvements will be made in the Eastern Cape and Northern Cape, where the climate is suitable for generating wind and solar power. The grid there would have to be strengthened if it is to support a significant increase in power plants.
Eskom still expects to receive the bulk of the international funding deal as it argues that its programmes would slash SA’s greenhouse-gas emissions the 13th highest in the world more quickly than the DTIC’s proposals, the people said.
But there’s been some support for the hydrogen plans, particularly from Germany, one of the people said. Trade & industry minister Ebrahim Patel said in an interview last week that Germany has identified SA as a potential source of the fuel.
The outcome of the negotiations will be closely watched by emerging markets and climate diplomats around the world. It could determine how future agreements are structured, even if it takes years to find out which path leads to a better result for the planet.