South Africa's state-run electricity company was unable to access a cheap $2.5 billion loan to build critical electricity transmission infrastructure that would help end the country's devastating energy crisis.
This effectively halted the Just Energy Transition Partnership, a landmark climate finance deal, and increased the country's dependence on coal-fired power generation. Six people familiar with the situation, including U.S. Treasury officials, said the Treasury is pressuring Eskom not to take on new debt and it is unclear how private investors can participate. This is said to be hindering the deployment of approximately $7 billion in energy financing.
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Eskom said the suspension of additional debt without approval from the finance minister was the main reason for its inability to complete the loan. This funding is aimed at targeting a key weakness in South Africa's energy system, namely the lack of transmission capacity in provinces with the greatest potential for solar and wind power.
“Eskom welcomes the allocation of some of these funds to enable grid expansion,” the company said in response to questions.
The slow progress of JETP, first announced at the 2021 International Climate Conference, highlights the difficulty of transitioning to cleaner energy and the need to soften the blow on coal-dependent communities.
South Africa's agreements with the United States, the United Kingdom, France, Germany, the European Union, the Netherlands and Denmark were hailed as a template for similar agreements with other developing countries such as Indonesia and Vietnam. But it has been plagued by political infighting and gridlock over the closure of coal-fired power plants.
no grid
Eskom, which has around R443 billion ($23 billion) in debt, is working with Treasury and the Office of the President on how to access financing, including “off-balance sheet options” (a reference to debt not directly held by utilities) He said he is doing so. Legal liability for.
South Africa's president said an exemption could be granted to allow Eskom to invest in transmission infrastructure. South Africa's Treasury Department did not respond to requests for comment.
The country's Western partners are frustrated but remain committed, the people said, asking not to be named because the conversations are private. Funds available for loans, grants and guarantees have increased to $9.3 billion from an initial $8.5 billion, a U.S. Treasury official said, asking not to be named in line with government policy. Of this, he will be paid $716 million in the form of grants.
U.S. officials said investment partners have assured Eskom and the South African National Treasury that transmission loans are available at attractive interest rates and that grid strengthening is essential to accelerate investment in power plants. The company is encouraging people to take on loans. The people said they were looking forward to progress after Dan Malokane takes over as Eskom's chief executive next month.
The official said South Africa needs to pass an electricity regulation reform bill that provides clarity on how the private sector can invest in transmission assets.
The country has yet to complete the process of separating Eskom's electricity transmission arm from the rest of the company, despite President Cyril Ramaphosa saying in February 2019 that the government would “immediately begin this process”. . This is an important step necessary to attract investment. JETP funding was completed in November, several months behind schedule.
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The president's office said information on how private companies could invest in electricity transmission would be provided “in due course” and said the government planned to pass the ERA bill before the May 29 election.
Representative officials from other countries participating in the agreement expressed similar concerns about the pace of investment in transmission, saying there was a lack of projects ready for funding. A 2.1 billion euro ($2.27 billion) Spanish program aimed at funding energy and water projects in South Africa, separate from JETP, was similarly not used, the people said.
The European Investment Bank, the European Union's funding agency, said it was “ready” to provide 1 billion euros, but has not yet committed any funds as part of the program.
Adding to the frustration is that coal-fired power plants that South Africa agreed to phase out as part of the deal will remain open for a long time, jeopardizing pledges to reduce greenhouse gas emissions. U.S. officials said the decision was understandable as South Africa regularly experiences power outages, but it threatened JETP's important goals.
The president said he did not expect the 'trajectory' of emissions reductions to be affected.
So far, around $591 million in grants have been allocated from France and Germany, and only €1.1 billion in loans have been disbursed, while other investment partners have yet to announce the distribution of pledged amounts. do not have.
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