Introduction
By PEP-affiliated researchers Dr Heinrich Bohlmann and Dr Jessika Bohlmann of the University of Pretoria
Transitioning away from coal, South Africa’s primary energy source, necessitates significant investment, with funding needs for renewable infrastructure projected at R1.9 billion by 2050. Achieving this transition will be a complex task given the financial and operational constraints faced by the country’s state-owned utility, Eskom. This blog is based on a detailed research study conducted under the Center for Global Development (CGD) - Partnership for Economic Policy (PEP) collaboration.
The Urgency for a Just Energy Transition in South Africa
South Africa’s energy transition is critical to mitigate its contribution to global greenhouse gas emissions and to improve public health and air quality. The nation’s reliance on coal contributes significantly to local air pollution, causing adverse health effects, particularly in mining-intensive areas in the Mpumalanga region. The economic cost of air pollution is rising, and coal’s environmental toll has created a necessity for sustainable alternatives.
MDBs’ Essential Role in South Africa’s Energy Transition
MDBs offer two main forms of support crucial to South Africa’s energy transition: concessional financing and technical assistance. Concessional finance, which offers loans at below-market interest rates, can significantly ease South Africa’s debt burden associated with renewable energy projects. With substantial funding needs for renewable infrastructure estimated at R1.9 billion by 2050, MDBs are essential in filling the financing gap.
Furthermore, MDBs bring valuable technical expertise to project preparation and execution, helping address logistical and operational challenges. In South Africa’s case, their involvement is not merely about financing but also about facilitating the shift to a greener economy by supporting policies and reforms aimed at strengthening governance and transparency, particularly within Eskom.
Socio-Economic Implications of the Energy Transition
Transitioning away from coal poses economic risks, particularly for coal-dependent regions like Mpumalanga. Job losses in mining and coal power generation are inevitable, raising concerns about community stability and economic resilience. An effective energy transition must include a social safety net to support displaced workers and ensure local economies are resilient.
The recent research findings emphasize the importance of MDB-funded workforce retraining programs. Such programs can provide coal sector workers with skills to transition into new industries, reducing unemployment and economic displacement. Additionally, community support initiatives and investments in emerging industries can revitalize regional economies, shifting the economic base from coal to more sustainable sectors like renewable energy.
Key Recommendations for a Sustainable Transition
Based on the conclusions drawn from both the research results and discussions with relevant stakeholders, here are several actionable recommendations that can facilitate South Africa’s energy transition while safeguarding socio-economic stability:
- Increase concessional finance through MDBs to support renewable energy projects and ensure debt sustainability.
- Implement workforce retraining programs to equip coal sector workers with skills for renewable energy and other industries.
- Strengthen governance reforms at Eskom to enhance operational efficiency and attract investments.
- Promote economic diversification in coal-dependent regions to create alternative employment opportunities.
- Develop national financing strategies in collaboration with MDBs, private investors, and government agencies.
Conclusion:
South Africa’s energy transition represents both a challenge and an opportunity. By engaging MDBs, implementing essential governance reforms, and providing socio-economic support, South Africa can navigate the complexities of the energy transition while setting a precedent for sustainable development in the Global South. With MDB support, South Africa has the potential to achieve a just and equitable energy shift, securing long-term environmental and economic resilience in a rapidly changing global energy landscape.
Acknowledgements:
The above blog benefits from research on “How Multilateral Development Banks Can Support Green Energy Transitions in South Africa,” a project funded by the Center for Global Development (CGD) and coordinated by PEP.
