Climate finance to transform energy infrastructure as part of a just transition in South Africa. Research report for SNAPFI project
Prior to 2020, the South African economy was facing major socio-economic challenges, struggling to eliminate poverty and reduce persistent inequality. The COVID crisis has deepened the financial crisis, with the last major agency putting the country's rating below investment grade, or 'junk status'. The recovery plan starts with rescue. The climate crisis is longer-term but still needs as urgent action as ever. The country is preparing to enhance its nationally determined contribution in an unprecedented context. Decarbonisation of the electricity sector is a priority – but in the SA context requires careful attention to communities and workers dependent on coal. The just transition transaction (JTT) is being developed in technical detail since 2019 by Meridian Economics (2020) and making the financial deal is work in progress. In brief, the transaction mobilises blended finance to fund the accelerated phase out of coal, thereby accelerating a transition from coal to renewable energy, and a portion of the concessional funds flows into Just Transition fund. This case study reflects on the JTT, seeking to understand its architecture, the potential to catalyse changes in the complex set of challenges in the electricity sector, by funding accelerated phase-out of coal and a just transition in South Africa, with broader implications for international climate finance. The time-scale of developing the transaction is fluid, while implementation of decommissioning would take many years. The purpose of the study is to understand the potential of a just transition transaction to accelerate the phase out of coal-fired power and to fund development projects. The purpose requires a specific focus, and it is important to understand what is included in the scope of this case study, and what lies beyond that scope.