South Africa’s Energy Crisis is a Stress Test for the Global Energy Transition
South African President Cyril Ramaphosa is facing one of his toughest challenges yet as Africa’s most advanced economy buckles under the pressure from the country’s deepening energy crisis. The South African government has declared a state of national disaster to address the crisis, and accelerating the growth of South Africa’s nascent renewable energy industry features prominently among proposed solutions.
Climate activists and financiers are taking the opportunity to drive a transition away from coal dependency for the nation’s energy supply. To help jumpstart this transition, Western countries pledged $8.5 billion to South Africa during the COP27 meeting in November. Even as the energy crisis continues to batter the economy with no clear end in sight, key stakeholders remain unconvinced that the $8.5 billion dollar deal put forward is good news for South Africa — here’s why.
South Africa’s state owned utility can’t keep the lights on.
South Africa is one of the largest electricity markets on the African continent. Over 80% of South Africa’s electricity comes from coal fired plants, making it the 15th largest carbon emitter in the world. The crisis is largely due to problems with Eskom, South Africa’s beleaguered state owned utility. Eksom produces 90% of the country's electricity from a fleet of coal-fired power plants, but the plants are old and poorly maintained, leading to frequent breakdowns and rolling power cuts. Many of these coal plants are starting to age and break down, resulting in frequent load shedding and forcing South Africans to face rolling blackouts for as long as 12 hours a day.
Additionally, Eskom is heavily in debt, adding to the challenges of maintaining a reliable power grid. In October, South African Finance Minister Enoch Godongwana announced that the South African government would transfer somewhere between a third to two thirds of Eskom’s $22 billions of debt to the government’s balance sheet. These liabilities only add financial pressure to South Africa’s economy as the country is poised to lose $49 million dollars per day due to loadshedding. With 250 days of blackouts expected this year, the crisis will result in a $13 billion hit to the economy and slash half the nation’s projected GDP growth down to 1.2%.
Eskom has historically been averse to integrating renewables into its power supply, and it has been accused of utilizing its monopoly status to prevent independent power producers from delivering competitively priced power to the grid. Eskom was accused of using its control of transmission lines to block investors from installing more than one megawatt of solar energy into the grid. Eskom’s woes, however, have forced the government to reconsider unbundling Eskom’s generation from its transmission capacities.
Now South Africa’s coal industry itself stands in the crosshairs of the environmentalists and renewable industry lobby that continues to mount pressure on South Africa to divest from coal.
Coal is tied to the legacy of apartheid in South Africa.
Since the early 1880’s, the mining industry in South Africa had been controlled by white conglomerates, with black South Africans excluded from ownership and control of mine assets. Following the end of Apartheid, the ANC controlled government mandated an unbundling of mining houses, and pushed for those assets sold to black people.
In 2002, the South African government built on that policy when it drafted a mining charter proposing that companies be at least 26% black-owned to obtain a government mining license. This draft charter became law in 2005 as part of the broader-based black economic empowerment (B-BBEE) policy, which aimed to enable black people to participate fully in all sectors of the economy. While black-owned companies in the mining industry grew significantly in the decades since, most of these companies were in the coal industry due to the mining houses desire to maintain control of the most lucrative assets in the industry.
The prominence of coal in South Africa’s economy, however, continued to grow. South Africa is the world's seventh-largest coal producer, and coal mining directly employs over 120,000 people. In 2020, South Africa produced 252 million tons of coal, with a value of over US$6.4 billion.
Today the coal industry still remains one of the few black-owned industries in South Africa, and the black elite that have been beneficiaries of the industry have deep ties to the ANC, South Africa’s ruling party. The nation’s energy minister, Gwede Mantashe, has emerged as an outspoken champion of South Africa’s coal industry, mounting defenses of the coal industry in news conferences and in court. Mantashe, a former coal miner and union leader, is the national chairperson of the ANC.
In Africa, Western powers are tall on rhetoric and short on funding.
In November 2022, during the COP27 meeting, Western countries pledged $8.5 billion to help South Africa transition away from coal and towards renewable energy sources. However, less than $300 million of the capital offered comes in the form of grants, while the rest is a mix of commercial loans, concessional loans and investment guarantees. Critics argue that the financing package is likely to add on to South Africa’s debt burden, and that more concessional funding is needed to support the country's transition to a low-carbon economy. Most prominent among them is Minister Mantashe himself, who has gone as far as to allude to an outright rejection of the deal should negotiations not make way to more grants and concessional funding.
That criticism is not without merit. The funding deal offered to South Africa starkly differs from the $1.2 billion dollar grant-heavy funding that jump-started the renewable energy industry in the oil-dependent Kazakhstan about a decade ago. Last year, a US-Japan led coalition sponsored a $20 billion dollar deal to bolster the transition in coal-dependent Indonesia’s economy to renewables. Despite the claim that it was modeled on South Africa’s deal, Indonesia’s deal was less hastily arranged, and featured over $10 billion in concessional funding.
Africa has contributed to less than 1% of global climate emissions, yet the continent’s young nations find themselves the front lines of climate change’s most immediate consequences. Despite the political pressure to see these countries transition away from fossil fuels, Africa’s fragile economies have generally received little support from international financiers. Of the $2.8 trillion invested in renewable energy between 2000 and 2020, only 2% went to Africa (while Asia received over 40%). As exemplified in the deal offered to South Africa, Western countries undermine the energy transition by trying to cash in on the solutions to problems they are most responsible for creating.
The deal doesn’t just suffer from economic shortsightedness - it is weakened by lack of consideration to its political viability. As the Speaker Tip O’Neil famously remarked, all politics is local. In Africa and across the developing world, the contours of politics trace rules and boundaries governed by the legacy of colonialism and apartheid. South Africa’s energy crisis continues to demonstrate that the politics of the global energy transition will not be spared from the Late Speaker’s maxim.
