KEY POINTS
- South Africa’s energy mix shifts to renewables as coal reliance decreases, but transmission grid limits hinder growth.
- Private firms are driving renewable adoption due to regulatory uncertainty, meeting sustainability goals amid energy shortages.
- Decarbonisation plans rely on funding delays in the Just Energy Transition Partnership, affecting green hydrogen and renewable expansion.
South Africa is advancing its renewable energy transition but requires significant investment to address growing energy demand and achieve decarbonization goals, according to a report by financial advisory firm Cresco and Standard Bank.
The country, historically reliant on coal, is restructuring its power sector to diversify its energy mix and enhance private-sector participation.
South Africa liberalizes energy market
According to IFR, the Electricity Regulation Amendment Act, signed in August, marks a critical step toward liberalizing South Africa’s energy market. By reducing state utility Eskom’s monopoly, the act aims to encourage competition and accelerate investment in renewable energy sources, particularly solar and wind. However, experts caution that progress remains slow, and meeting current demand levels might take until 2040 at the current pace.
Private sector steps up amid regulatory uncertainty
Amid delays in government-led energy projects, private-sector players, including major corporations and mining companies, are independently procuring renewable energy. This trend is driven by sustainability goals and the need for energy security.
“Companies are buying from traders and aggregators, motivated by ambitious ESG targets,” said Rentia van Tonder, Standard Bank’s head of power. However, challenges persist in aligning private energy purchases with broader environmental goals.
Slow progress on just energy transition plan
South Africa’s Just Energy Transition Partnership (JETP), unveiled at the COP26 climate summit, aims to mobilize $8.5 billion in funding from developed nations to support the country’s decarbonization efforts. While the plan promises a mix of grants, concessional loans and guarantees, little funding has materialized to date, leaving critical projects stalled.
Development finance institutions continue to negotiate the specifics of the funding framework. “We are all waiting for the first funds to flow and clarity on their allocation,” van Tonder said.
Experts stress that expanding South Africa’s transmission network is essential to integrate additional renewable capacity. Investments should also prioritize mitigating social impacts, such as job losses, as coal plants are decommissioned.
Renewable energy capacity expands slowly
South Africa currently has 6.3 GW of operational renewable energy, primarily from 93 solar and wind projects. Another 17 projects under construction will add 1.9 GW, with an additional 1.1 GW expected to secure financing soon. Despite these developments, grid constraints tied to Eskom’s Transmission Development Project may delay new capacity additions between 2030 and 2034.
Looking ahead, South Africa’s decarbonization targets envision a significant increase in renewable capacity by 2040, reducing coal reliance to 18 GW. However, achieving carbon neutrality by 2050 remains a challenge, particularly as coal-fired plants are expected to provide 27% of power in 2040.
Green hydrogen potential
Green hydrogen is gaining traction as a potential energy source post-2030, though its primary applications may lie in industrial sectors or exports rather than large-scale electricity generation.
South Africa’s renewable energy future hinges on sustained investment, efficient policy implementation, and addressing grid challenges to meet its ambitious decarbonization and energy security goals.
