Partnerships with SOEs put just transition on horizon
Despite the governance struggles of South Africa’s state-owned enterprises (SOEs) over the past decade, they will still play a critical role in the local economy as their assets account for a significant percentage of the country’s GDP.
SOEs such as Eskom have a vital mandate in driving socioeconomic development and unlocking growth potential not only in the country, but also the region.
The demand for energy transition in Africa is huge. The African Development Bank estimates the continent will need about $1.2-trillion worth of investments to enable energy security and the just transition to more sustainable energy solutions while ensuring continued access and economic growth.
At present, this isn’t an investment cost readily available on the continent, and that creates an opportunity for broader partnerships with other investors and pools of capital from outside Africa.
Recent data and analysis from the International Energy Agency estimates that more than 700million of Sub-Saharan Africa’s population still has no access to electricity. Africans need energy that is reliable, affordable, safe and sustainable while balancing transitional measures.
More than a year ago Standard Bank took a bold decision to support Eskom to the tune of $500m to roll out its transmission network. However, this did not constitute the bank’s exposure to fossil fuels, but to help Eskom expand its transmission network to connect to renewable projects, largely in the Northern Cape.
Most of Standard Bank’s renewable energy projects are now under construction, largely those awarded during Bid Window 5 of the Renewable Energy Independent Power Producers Procurement Programme, and the Emergency Energy Round of initiatives in South Africa.
Others relate to self-generation by mining companies and other large corporates.
To date South Africa has experienced just over 100 days without load-shedding, providing a notable improvement in the business environment compared with 2023. Rolling blackouts lasted the equivalent of 289 days in 2023, up from 157 in 2022, disrupting economic activity and increasing costs for businesses.
Significant changes are on the horizon for the rest of 2024, bringing to life vital partnerships forged between business, industry and government to drive the stalled reform agenda.
In its latest Monitory Policy Committee Report, the Reserve Bank has reduced its assumption on the number of load-shedding days in 2024 to 180 from 200. Loadshedding’s projected cost to GDP in 2024 has also been revised down to 0.5 percentage points versus 2 percentage points in 2023 and fading to 0.2 percentage points for 2025 and 0.04 percentage points for 2026.
This demonstrates how key reforms by the government can accelerate the energy turnaround and boost business confidence.
Writing in his weekly newsletter, President Cyril Ramaphosa said that 100 days without loadshedding “is not a reason to relax”, adding that the milestone was an encouragement to do more and work faster to ensure a secure supply of electricity.
While Eskom has plenty of work ahead, there is growing confidence that the historic downward trend of its plants has stabilised, and this is backed up by sustained positive performance at priority power stations. A clear message of performance and accountability has emerged from Eskom in the past few months, boosting much-needed investor confidence.
Africa’s energy transition opportunity is immense. However, local financial institutions lack sufficient capital muscle to seize it meaningfully. Over the past decade, the Gulf Cooperation Council has emerged as a major investor across Africa, with a growing number of trade deals significantly benefiting both regions.
Standard Bank remains committed to tapping into different sources of funding, forging better relationships with development finance institutions that want to invest in these opportunities. Together as the private sector and development finance institutions we can combine our origination, credit and risk management capabilities for the benefit of the continent.
Africa is an ideal destination for investments in renewable energy technologies, and the potential for micro- and off-grid renewable systems is immense. The solution to Africa’s energy challenges, however, goes beyond government intervention as demonstrated in the Eskom case.
We have an opportunity to help shepherd not only South Africa, but Africa’s just transition, increasing the continent’s resilience, creating jobs and reducing poverty anchored on a sustainable approach to energy security for the continent.