State-owned electricity producer Eskom has identified a portfolio of ‘just energy transition’ projects valued at around R400 billion that it will seek to finance using concessional funds obtained from international financiers who have pledged to support decarbonization initiatives in developing countries, including South Africa. .
GM just energy transition Mandy rambharos reported Thursday that the pipeline includes wind, solar and gas and battery projects, some of which will be implemented at its decommissioned coal-fired power plants, starting with Komati in 2022.
It also includes the construction of at least 8,000 km of transmission lines, 12 new substations in four provinces, the deployment of 110 transformers by 2030 to strengthen the network, the reinforcement of critical distribution corridors and the deployment of microgrids in places of Hard access. to electrify using the electrical network.
Eskom proposes to finance the projects through a just energy transition financing mechanism, which has been conceptualized as a multi-tranche, multi-year mechanism, financed by a syndicate of multiple lenders on a “pay-for-performance” basis.
Rambharos said the facility, which he compared to a construction loan, has been consulted with several lending counterparts, who have expressed enthusiasm for its simplicity.
There is also strong support for the fact that there is an option to opt out of projects that might not be covered by lenders’ mandates, such as gas-to-power projects.
The facility was also discussed with climate envoys from France, Germany, the UK, the US, and the European Union who visited South Africa in late September as part of preparations for the COP26 climate talks scheduled for Glasgow, Scotland in November.
During the visit, it was agreed that the ‘Just Transition Financing Mechanism’ should be supported to allow South Africa to implement, starting with Eskom, its most ambitious climate action plans, while addressing the social impacts of the transition.
South Africa has deposited an updated Nationally Determined Contribution range of 420 to 350 million tonnes of carbon dioxide equivalent (Mt CO2-eq) by 2030 with the United Nations Framework Convention on Climate Change, which represents a notable improvement on its 2015 commitment of 614 Mt CO2-eq is 398 Mt CO2-eq.
THREE FIVE YEARS TRANQUES
Speaking during a webinar hosted by the South Africa Oil & Gas Alliance, Rambharos said Eskom currently anticipates the facility being rolled out in three five-year tranches through 2035.
However, he said it was premature to indicate how much the utility would seek to collect in each tranche, as discussions were still ongoing.
However, the first tranche was likely to be significantly smaller than subsequent tranches, as the initial financing would be for feasibility studies to advance the projects to bankability.
It was also too early to establish what impact the new loans would have on Eskom’s already unsustainable debt profile, but Rambharos emphasized that the prospective lenders he had surveyed had indicated a desire to provide Eskom with financial support for its transition, despite their current debt problem. .
However, Eskom did not anticipate using the facility to address its inherited debt and was in separate discussions with the National Treasury to find a solution to the debt. It also did not aim to pursue any debt forgiveness in exchange for decarbonization.
Rambharos also could not say what the interest rate differential would be for loans under the line of finance, saying only that it would seek “highly favorable” terms relative to what was commercially available.
Eskom had also made the decision to include gas to energy in its just transition strategy, despite growing opposition to the use of gas globally.
The decision was based on the need for a ready technology to complement the variability of renewable energy in order to accelerate the transition from coal and the possible transition to green hydrogen in time.
However, Rambharos emphasized that Eskom’s long-term vision was to become a renewable energy company and deploy gas as a transitional fuel.
The gas projects listed in Eskom’s Just Transition Strategy included a 1,000 MW repower project at the Komati power plant site and 3,000 MW at Richards Bay in KwaZulu-Natal.