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South Africa sees climate pact spurring billions in new funding

27th October 2022

By: Bloomberg

  

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South Africa expects an $8.5-billion climate-finance package that it’s negotiating with some of the world’s richest nations to attract significant additional funds to help it transition away from using coal to generate electricity.

The government is discussing a wide-ranging energy transition plan for the next five years with the UK, US, Germany, France and the European Union as a step toward securing the funds, which will pay for part of the needed investment laid out in the proposal, according to Daniel Mminele, a former central banker appointed to lead the talks for South Africa.

“There’s opportunity to raise quite a lot more as opposed to just the marginal sort of top up,” he said in an interview on Wednesday. “We may actually see, relatively soon, announcements to that effect of people that would contribute to this effort over and above the international partner group.”

The pact is key to South Africa starting to close much of an old and malfunctioning fleet of coal-fired plants and replacing them with renewable sources. It’s also made proposals for kickstarting local electric-vehicle and green-hydrogen industries.

The details of the plan will be made public at the COP27 climate talks in Egypt next month and there will be a breakdown of the funds being provided by the partners, Mminele said. An 0ct. 22 Climate Home report that said 97% of the money will be in the form of loans and guarantees with the rest being grants isn’t accurate, he said, declining to comment further.

The proposal “works on looking at the scale of need for South Africa for the five years in the three identified sectors” and identifying “the funding gap, which will guide the mobilization of further funding,” Mminele said. “It’s basically supporting what South Africa needs to do to land at the most ambitious outcome.”

In addition to replacing its coal-fired stations and expanding its power grid to allow the addition of solar and wind energy in remote parts of the country, South Africa wants to develop an electric-vehicle industry. Shipments of internal combustion engine vehicles, mainly to Europe, account for about 15% of South Africa’s total exports.

There is a need “to protect an industry that otherwise would be threatened with obsolescence,” Mminele said, adding that in addition to exports the plan explores the use of electric vehicles for public transport.

At the same time, a green-hydrogen industry would tap into South Africa’s abundant solar and wind potential and position the country as an exporter of a clean fuel that’s expected to be an important part of the fight against climate change in coming decades. Green hydrogen is produced by splitting water using renewable energy.

The funding pact, if successfully concluded, may serve as a model for similar agreements with other coal-dependent developing nations such as Indonesia and Vietnam.

Edited by Bloomberg

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