Support for a just energy transition

Implementing the phase-out of coal in a socially responsible manner

^{As of: 03/2024}

South Africa’s electricity supply has been highly dependent on coal-fired power plants. These are associated with high levels of greenhouse gas emissions. The government has initiated reforms in this sector. In the future, much of the country’s energy will come from renewable sources. At the Climate Change Conference in Glasgow, Germany and the European Union, as well as other G7 donor countries pledged generous support for South Africa’s energy transition. On behalf of the German Federal Government, KfW is therefore working with GIZ to promote the expansion of renewable energies in South Africa, a socially responsible energy transition and the introduction of green hydrogen production on an industrial scale. This is Germany’s contribution to the Just Energy Transition Partnership (JETP) with South Africa.

Project title	Just Energy Transition Partnership (JETP) with South Africa
Commissioned by	Federal Ministry for Economic Cooperation and Development (BMZ)
Country/Region	South Africa
Project partners	Government of South Africa, municipalities, other strategic implementation partners

Current situation

South Africa has been heavily dependent on coal-fired power generation, with 80% of the country’s electricity being generated from coal. Low electricity prices have attracted energy-intensive companies but what once appeared to be an advantage is now a trap. Coal-fired power generation produces high levels of carbon dioxide emissions, as international comparisons show – South Africa is one of the world’s 17 highest emitters. In addition, outdated coal-fired power plants are prone to breakdowns, which can lead to hours of blackouts. All these factors have led to a rethink. The South African government wants to become less dependent on coal-fired electricity to meet its ambitious nationally determined contributions (NDCs) target of reducing emissions by 350 to 420 megatons of carbon dioxide equivalent by 2030.

Renewable energies, especially wind power and solar energy, will be significantly expanded. The transition initially threatens jobs in coal mining and power plants. Currently, 90,000 people in South Africa work in coal mining. Unemployment is very high at nearly 32% nationally, and even higher in the coal regions. This leads to social unrest.

Man carrying cable drum — Solar and wind power have great potential in South Africa.

Project approach

Together with the European Union, France, the USA and the United Kingdom, Germany committed to a Just Energy Transition Partnership (JETP) with South Africa at the UN Climate Change Conference in Glasgow. Denmark and the Netherlands have also been added to the International Partners Group. The common objective is to support a socially affordable energy transition in South Africa. As part of the JETP, up to USD 8.5 billion has been pledged to South Africa by 2027. The German Financial Cooperation makes a significant contribution to the implementation.

Specifically, the German Financial Cooperation supports the following areas:

1) Reforming South Africa’s energy sector – the gradual liberalisation of the electricity market

The objective of the reforms is to unbundle the state-owned ESKOM Group, establish an independent transmission system operator and align the energy supply with renewable energies. They include an amendment to the Electricity Regulation Act of 2006, which will also allow private providers to feed electricity from renewable energies into the grid in the future. This will result in increased competition within the energy market.

2) Expansion of grid infrastructure and renewable energies:

A significant challenge in South Africa is that a large proportion of the land used to operate wind and solar power plants is located far from the economic centres where electricity is required. Therefore, a massive expansion of the grid is a prerequisite for the transformation of the energy industry. The mobilisation of private capital in renewable energies is another area of activity.

3) Supporting the market ramp-up for green hydrogen:

The energy transition also entails investigating the potential for hydrogen production. On behalf of the BMZ, KfW is financing a programme to develop a sustainable hydrogen economy in South Africa with funds from the German Federal Ministry for Economic Affairs and Climate Action. Pilot projects relating to the industrial production and use of green hydrogen are being supported. To date, the production of hydrogen has been more expensive than the generation of energy from fossil fuel sources of energy. Financial support for these projects is intended to improve their profitability. From Germany’s perspective, cooperation with South Africa in the production of green hydrogen could prove to be of strategic importance.

4) Promoting vocational education and training:

Using wind or solar power, for example, requires skilled workers. It is also important to equip the large number of young unemployed people with qualifications for a future-oriented labour market.

Impact

On behalf of the German Federal Government and in consultation with other donors, KfW supports reforms that will make a significant contribution to realising the UN 2030 Agenda for Sustainable Development by 2030. The German development cooperation support provided through KfW is aimed at achieving the ambitious South African climate targets and significantly reducing greenhouse gas emissions. The electricity market is becoming more transparent.

The pilot project for large-scale production of green hydrogen is a forward-looking initiative in terms of fossil fuel replacement. It has the potential to make hydrogen and its products marketable.

The programme financed by KfW helps to create jobs in renewable energy sources and to qualify specialists for the implementation of the energy transition.

The project contributes to the achievement of these following United Nations Sustainable Development Goals: