South Africa could save R100 billion ($6.6 billion) by accelerating the closing of coal-fired power plants in return for cheap loans to fund a transition to cleaner forms of electricity, a proposal developed by Meridian Economics shows.
Africa’s most industrialized nation needs to cut emissions to meet its Paris Agreement commitments to counter climate change. State power utility Eskom Holdings SOC Ltd., which produces more than 90% of the nation’s power, mainly from coal, has little scope to fund green energy projects because it’s buried in debt and the government’s own finances are overstretched.
Meridian, a Cape Town-based think tank, estimates South Africa needs to build as much as 6,000 megawatts of renewable projects annually to meet its emissions targets. That would require an investment of about R450 billion over the next decade, while another R200 billion would have to be spent on transmission lines and distribution grids.
Meridian’s so-called Just Transition Transaction, which has been in the works for several years, envisions the government securing a concessional, debt-financing package to help fund the shift away from coal. The money could be raised in the capital markets and from development finance institutions and be guaranteed by developed nations, it said in a report released on Tuesday.
Cheap Loans
The proposal envisions a financing facility being set up and overseen by a multilateral climate-finance institution, such as the Climate Investment Funds, and it providing South Africa with $16 billion in loans over five years at an annual interest rate of 5.5%. The rate could be cut to 1.5% if the government sticks to its commitments to cut its emissions of carbon, based on an offset price of $7 a ton a concession that could deliver savings of R100 billion over 25 years calculated on a net-present-value basis, it said.
Meridian is headed by Grove Steyn, who sits on President Cyril Ramaphosa’s Economic Advisory Council. Its proposal has been discussed with South Africa’s government and potential backers.
“We are at a relatively early stage; people are still getting their heads around the options,” Steyn told reporters in an online briefing. “Where this is going to end, we can’t say. People seem to take these ideas very seriously.’
