Eskom CEO Andrè de Ruyter describes the $8.5-billion (R131-billion) financing package announced at COP26 as “an important first step” in light of the fact that South Africa’s energy transition is expected to require investments of between $30- and $35-billion over the coming 15 years.

He says that funding – pledged as part of a political agreement concluded with France, Germany, the UK, the US and the European Union – will support a socially and economically just energy transition in South Africa, while enabling the country to meet its new Nationally Determined Contribution (NDC) targets.

“As a major contributor to South Africa’s carbon footprint, Eskom will play a pivotal role in enabling a just energy transition from coal to low- and no-carbon sources of electricity generation,” De Ruyter said in a statement.

Presidential Commission on Climate Change, deputy chairperson Valli Moosa, likewise, welcomed the financial package, which he said would help accelerate the decarbonisation of the South African economy and support a just transition which prioritises the needs of workers and vulnerable communities.

Moosa said that the funding, which would be disbursed over a three- to five-year period, included a combination of grant and concessionary finance, but did not provide a breakdown.

It is understood that the bulk of the funding will flow in the form of concessional loans, rather than grants. However, some grant funding could be available for South Africa to shore up decarbonisation and social plans and to support vulnerable workers and communities.

Details of the transaction, or transactions, were still to be finalised, with a taskforce to be established to identify potential financing instruments and develop a full work programme over the coming 12 months.

Speaking during a virtual discussion on the package, hosted by the Business Day, Meridian Economics MD Grove Steyn, who has done extensive work on a concessional climate package for South Africa, described the announcement as potentially critical for assisting Eskom to make immediate transition-supportive investments and to begin giving practical impetus to the just transition.

However, it was not yet clear whether the deal would assist government in addressing Eskom’s unsustainable debt burden, which would still have to be resolved to enable the unbundled Eskom units of transmission, distribution and generation to approach the capital markets for the funding required for a decarbonised and reliable electricity sector that could support economic growth.

Steyn estimates that about R1-trillion would have to be invested by both Eskom and the private sector across the electricity value chain over the coming ten years to meet that objective even before taking account of the country’s aspirations to build a green hydrogen sector and introduce electric mobility.

“Ultimately, we have to actually fix the underlying structure so that the industry can raise low-cost, long-term funds from the capital markets without government guarantees” Steyn said.

The $8.5-billion package was nevertheless viewed as a landmark for South Africa’s transition and potentially pioneering in defining the just transition aspects of such a transition.

Congress of South Africa Trade Unions (Cosatu) labour market policy coordinator Lebogang Mulaisi said that while the “devil is in the details” she was encouraged by the political declaration’s embedding of the just transition concept as part of the financing package.

Mulaisi indicated that Cosatu would seek to have a direct input in shaping the modalities of the transaction such that workers and their livelihoods were prioritised, including through the possible inspiration of the principle of a jobs guarantee in the future transaction, or transactions that arose from the agreement.

Intellidex capital markets research head Peter Attard Montalto argued that most of the $8.5-billion should be directed the way of initiatives that would struggle to raise finance on the capital markets, notably the coal-plant repowering and repurposing and community upliftment interventions.

Given that the transactions were “somewhat experimental”, Attard Montalto urged South Africa to fully embrace the opportunity to leverage the global and local expertise that would be unleashed by the political declaration to define “best practice” in the area of the just transition.

The prospect of using the package as a template for similar transactions elsewhere was underlined by UK Prime Minister and COP26 host Boris Johnson who said: “This game-changing partnership will set a precedent for how countries can work together to accelerate the transition to clean, green energy and technology."

President Cyril Ramaphosa added: “We look forward to a long-term partnership that can serve as an appropriate model of support for climate action from developed to developing countries, recognising the importance of a just transition to a low-carbon, climate-resilient society that promotes employment and livelihoods.”

Business Unity South Africa CEO Cas Coovadia also welcomed the package, which he said would be "critical in enabling the leveraging of existing partnerships and developing new partnerships, bilaterally, multilaterally and with individual countries and institutions".

"This agreement will facilitate the transition to green energy, including enabling private investment to be leveraged through collaboration and partnerships."