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Engineering News editor Terence Creamer reflects on developments this week with regard to South Africa's unveiling of its Just Energy Transition Investment Plan, or JET-IP; the high-level support received for the JET-IP at COP27; the funding that has started to emerge as a result; and what is likely to happen next in terms of the country's energy transition.

The National Treasury has released details of what it describes as “highly concessional” loans with a combined value of €600-million, which are the first to be advanced under the $8.5-billion Just Energy Transition Partnership that South Africa entered into with several developed countries in 2021.

The €300-million apiece loans were concluded this week with France’s Agence Française de Développement (AFD) and Germany’s Kreditanstalt für Wiederaufbau (KFW) with the proceeds flowing directly to the National Treasury.

In a statement the National Treasury reported that both loans had a 20-year maturity, including five-year grace periods.

The AFD loan carried an interest rate of 3.6%, equivalent to a six-month Euribor plus 129 basis points, while the interest rate on the KfW loan was 3%, equivalent to a six-month Euribor plus 129 basis points.

“The estimated cost for the government of South Africa to raise an equivalent loan today in the market would be around 8.9%.

“This estimate is based on a fair value estimation of South Africa’s foreign currency bonds relative to the risk-free rate, secondary market activity and historical issue spreads,” the National Treasury said in a statement.

It also reported that both loans were sovereign loans that take the form of non-earmarked budget financing that is transferred directly into the National Revenue Fund of South Africa.

“These loans are in support of the policy and institutional reforms undertaken by the government of South Africa in support of its just energy transition.

“The loans are highly concessional as their terms are substantially more generous than what the government of South Africa would be able to raise in capital markets.”

The National Treasury added that replacing market lending with much cheaper concessional loans, allowed South Africa to reduce its cost of funding and overall debt burden, which was advantageous given the high interest rate environment and in a context where South Africa had a high debt stock.

“By lowering debt service costs, the government of South Africa creates more fiscal space for critical social and other priorities.”

The National Treasury added that the just energy transition could attract investment, create new industries and jobs, and help South Africa to achieve energy security and climate resilience.

“South Africa requires more support for its just energy transition given the large scale of the required transition in the context of the current socioeconomic challenges and will therefore continue discussions with various multilateral lenders in pursuit of this objective.”

The recently released Just Energy Transition Investment Plan, or JET-IP, points to an investment requirement of R1.5-trillion over the coming five years to support a shift from coal to renewables in the electricity sector, as well as to facilitate electric vehicle manufacturing and green hydrogen production.

The International Partners Group (IPG) of France, Germany, the UK, the US and the EU jointly endorsed South Africa’s Just Energy Transition Investment Plan (JET-IP) during the World Leaders Summit at COP27, which took place at Sharm El Sheikh, Egypt, on November 7. Engineering News editor Terence Creamer spoke to Presidential Climate Finance Task Team head Daniel Mminele about the significance of the endorsement and what it means for both the mobilisation of the $8.5-billion Just Energy Transition Partnership (JETP) funding package and South Africa’s far larger $99-billion (R1.5-trillion) JET-IP, which is proposed for implementation over the coming five years to 2027.

Terence Creamer: Could you reflect on the significance of the IPG’s endorsement of South Africa’s JET-IP?

Daniel Mminele: It is a very pleasing development in the sense that we have seen emphatic endorsements from all the leaders – UK Prime Minister Rishi Sunak, US President Joe Biden, French President Emmanuel Macron, German Chancellor Olaf Scholz and European Commission President Ursula von der Leyen – who made very strong comments in support of South Africa's plan. With the work that we have undertaken since the announcement that was made at COP26, we have essentially refuted some of the narrative that was being pushed, which was that we weren't going to make our deadline of being able to provide a substantive update by COP27. The feedback that we received in Sharm El Sheikh is really encouraging and people are continuing to refer to the potential for this JET-IP to serve as a model, or as a benchmark, for other countries to follow. As you know, the plan that has been developed is South African-owned and South African-led, and it makes sure that South Africa-specific ambitions and priorities are taken care of and that the plan overall is aligned to our international decarbonisation commitments, while at the same time speaking to the need to put us on a new, inclusive and thus sustainable growth and development path.

Reference is made in the IPG statement to the fact that the funding will be dispersed using various mechanisms, including grants, concessional loans and risk-sharing instruments. How will these flows actually take place and will it all be managed through the National Treasury?

There will be a multitude of disbursement mechanisms, which actually will inform much of the next part of the work that we need to do. Right at the outset, we defined a set of principles, about nine of them, that would guide us in how we would put the financing package together. One of the principles is that the financing flows from the partner countries should be certain and predictable, so as to avoid any delays. Another one was that they should take advantage of the capacity and the capability that exists within South Africa by, for instance, involving our own development finance institutions (DFIs), such as the Development Bank of Southern African and the Industrial Development Corporation. That is the kind of work that we will now need to get into more granularity. But in principle, the potential implementation partners through which funds will flow is clearly government, or the National Treasury, but also other implementing institutions such as the DFIs, State-owned enterprises, the private sector and other social partners. So, there’ll be a multitude of implementing partners, but it’s fair to say that the bulk of it will come through the fiscus.

When you say a principle of ‘certainty and predictability’ of the flows should apply, how will that be realised?

The political declaration that was signed in Glasgow giving rise to the JETP indicated that these countries were committing to mobilise an initial amount of $8.5-billion over the initial period of three to five years, subject to concurrence on an investment framework, which is essentially what we've put on the table now with the JET-IP. So, there are certain elements of the financing package that couldn't be suffi...

The French and German development banks, AFD and KfW, have signed agreements with the South African government to each extend €300-million in concessional financing to support the country’s transition to a cleaner energy system that is less reliant on coal.

The €600-million is the first to be confirmed under the $8.5-billion Just Energy Transition Partnership (JETP) announced at COP26 in November 2021, and follows the publication by South Africa of the Just Energy Transition Investment Plan (JET-IP) ahead of COP27, which is currently under way in Sharm El Sheikh, Egypt.

The JET-IP was officially endorsed by the JETP international partnership group of France, Germany, the UK, the US and the European Union (EU) on November 7, opening the way for the flow of funds under the $8.5-billion funding package, comprising: $2.6-billion from the Climate Investment Funds Accelerating Coal Transition Investment Plan; $1-billion from France; $1-billion from Germany; $1.8-billion from the UK; $1-billion from the US; and $1-billion from the EU.

The funding package will be disbursed through various mechanisms over a five-year period including grants, concessional loans and investments and risk sharing instruments and will be directed towards projects outlined in the JET-IP.

The AFD and KfW financing agreements were signed at a ceremony held on the side-lines of COP27 and attended by President Cyril Ramaphosa, President Emmanuel Macron and Chancellor Olaf Scholz.

The funds will flow directly to South Africa’s National Treasury, whose acting director-general Ismail Momoniat immediately welcomed the concessional funding from AFD and KfW.

While South Africa still required more support for its R1.5-trillion ($99-billion) five-year JET-IP, Momoniat said the funding would play a catalytic role and would contribute to government’s efforts to mitigate rising government debt costs.

In a joint statement, the French and German governments said the signing represented a significant milestone in the implementation of the JETP and the mobilisation of the initial $8.5-billion over the next three to five years.

German Ambassador to South Africa Andreas Peschke said the agreements represented a “concrete implementation of our partnership”, while French Embassy Chargé d’affaires Arnaud Roux said the loan translated Macron’s words of support for South Africa's decarbonisation programme “into actions”.

Ahead of COP27, the World Bank Group approved a $497-million financing package for the ‘Komati Just Energy Transition Project’ to be financed jointly through a $439.5-million World Bank loan, a $47.5-million concessional loan from the Canadian Clean Energy and Forest Climate Facility, and a $10-million grant from the Energy Sector Management Assistance Program.

In a surprise development, JSE-listed Murray & Roberts (M&R) announced on Tuesday that it will sell it entire shareholding in Clough Limited to Italian construction multinational Webuild for A$350-million, or about R4-billion.

The company, which has undergone a major reorganisation over the last number of years, resulting in it exiting the South African general construction market in 2016, had been trading under a cautionary since October 17.

That cautionary announcement noted that the group’s working capital requirements were particularly acute for its energy, resources and infrastructure (ERI) platform, the group’s largest platform which trades under the Clough brand.

In fact, Clough made up R37.2-billion of M&R’s R59.5-billion order book as of the end of June.

The cautionary indicated that project cashflows had been dislodged by Covid-related disruptions, along with the need for additional working capital arising from the margin deterioration on the Traveler and Waitsia projects.

In a statement announcing the proposed sale and purchase agreement with Webuild M&R CEO Henry Laas reported that the group had reviewed several strategic options to address Clough’s urgent working capital needs, and the M&R board had concluded that a transaction with Webuild was the preferred course of action.

““This is a critical step, as the ERI platform is in immediate need of a significant cash injection to service their order book and commercial commitments, which Murray & Roberts is not able to provide,” Laas said.

Should the proposed transaction be concluded, the ERI platform will become part of Webuild and M&R will have no residual exposure to Clough.

M&R will retain its two other business platforms: a multinational mining platform and the sub-Saharan Africa-focused power, industrial & water platform.

In terms of the transaction agreement, the financial benefit of the proposed transaction is achieved through the cancellation of an outstanding intercompany loan account between Murray & Roberts Pty Ltd, the group’s Australian holding company, and Clough, and a cash payment of A$500 000 to M&R by Webuild. The intercompany loan in favour of Clough originated through the buy-out of the minority shareholders by M&R in 2013.

In conjunction with the potential transaction, Webuild will establish an interim loan facility of A$30 million for the benefit of Clough, which will allow Clough to continue trading until closing of the potential transaction.

M&R said in a statement that full details of the proposed transaction and the interim loan would be released soon, as required by the JSE Listings Requirements for a Category 1 transaction.

The sale and purchase agreement is subject to the fulfilment and/or waiver of a number of conditions precedent, including obtaining the requisite regulatory approvals in Australia and third-party consents, as well as continuing obligations typical for a transaction of this nature.

M&R’s share price, which slumped when the cautionary was issued, was trading more than 27% higher at R5.90 a share directly following the announcement.

Chronux director Rowan Goeller tells Engineering News that, while the Australian media had been hinting at the deal for some time, the pace at which it had materialised was nevertheless surprising.

Goeller said the positive market reaction could be ascribed largely to the “clean break” that the deal would offer M&R from Clough, which had an immediate liquidity requirement of about R2-billion, which M&R would have struggled to raise.

“I don’t think it would have been impossible for Clough to trade itself out of this situation, which is why Webuild has stepped in with this offer.

“However, South African companies don’t have a great track record in Australia and M&R’s decision to make a clean break is definitely a lower-risk option.”

That said, Clough did represent the restructured M&R’s main growth engine, with the international mining and the Southern Africa-focused construction units not in...

The Gauteng High Court has set aside the National Energy Regulator of South Africa’s (Nersa’s) most recent evaluation of Eskom’s regulatory asset base (RAB), a decision that has potential significant implications for a pending tariff determination.

The State-owned utility took the regulator’s RAB decision on legal review after Nersa more than halved Eskom’s RAB to R551-billion relative to the R1.25-trillion outlined in its revenue application for the 2022/23 financial year.

The cut in the RAB contributed to the Energy Regulator’s decision to approve a 9.61% hike for 2022/23, which was less than half the 20.5% hike for which Eskom had applied.

While the order will have no retrospective effect, the court has instructed Nersa to re-determine Eskom’s RAB for subsequent years, with implications for the tariffs to be applied in 2023/24 and 2024/25.

That tariff decision, which is currently under adjudication by Nersa following recent public hearings, was initially expected by November 7, but the regulator has until December 24 to make a determination in line with a timeline stipulated in a separate court order.

Eskom has applied for a 32% hike from April 1; an increase that includes 10.67% to “correct” the depreciation figure that was affected by the cut of the RAB, as well as a further 2.85% to “correct” the return on assets amount.

The actual outcome will depend on what Nersa determines the RAB to be, however.

The High Court order also outlines the specific steps that the regulator needs to take to re-determine the 2022/23 RAB, including that:

only commissioned assets be included in the replacement cost determination and that assets under construction be valued at book value, excluding capitalised interest during construction until they can be transferred to the commission-asset category;

the regulator reverses a flue gas desulphurisation adjustment incorrectly made in its earlier decision;

the accumulated depreciation adjustment be made to reflect the correct remaining useful lives of the power stations to ensure that they do not have negative RAB values;

the correct remaining useful life of each power station is used when the roll-forward depreciation is calculated;

Nersa comply with the multiyear price determination methodology with regards to energy availability factor adjustments for Eskom generators;

the completed generation, transmission and distribution asset value not included in the RAB of 2022/23 be included; and

the book value, excluding capitalised interest during construction, of all assets under construction be used in the RAB determination.

Once the RAB value is determined, the completed assets will need to be depreciated.

In the disputed RAB of 2022/23, depreciation of R42-billion was approved against Eskom’s request for more than R60-billion.

The Department of Mineral Resources and Energy (DMRE) has confirmed that the deadline for outstanding projects named as preferred bids under both the risk mitigation and bid window five (BW5) of the renewables programme has yet again been extended, beyond the October 31 deadline communicated previously.

In response to questions posed by Engineering News regarding the status of the projects and whether the bid bonds had been called, the department said it had received representations from the remaining 22 preferred bidders under BW5, as well as the eight preferred bidders selected under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) regarding their readiness to sign the necessary agreements.

“The department and respective stakeholders, including the IPP Office and Eskom, are consolidating the various proposals and will make announcements regarding signing arrangements over the coming weeks,” the DMRE said in a written response, adding that no bid bonds had been cancelled.

“The department is engaging with each preferred bidder with regard to project readiness and timelines provided towards legal closure.

“It is anticipated that the signing of the next projects will take place during November 2022.

“Obviously, we are still in a procurement process and project-specific information including details around the signing can only be announced once all governance processes have been concluded.”

Confirmation of the further extension came as the National Energy Crisis Committee (Necom) released an update on the Energy Action Plan announced by President Cyril Ramaphosa on July 25. The report indicated that the signing of agreements for additional projects from BW5 and the RMIPPPP was being prioritised.

The other priorities outlined in the Necom progress report, dated November 2, included:

publication of the final amendment to Schedule 2 of the Electricity Regulation Act to remove the licensing threshold for embedded generation projects, which currently stands at 100 MW;

the further streamlining of regulatory processes to reduce timeframes and run processes in parallel where possible;

the release of the request for proposals (RFP) for battery storage;

a launching of the standard offer and emergency generation programmes, through which Eskom believes 1 000 MW could be immediately secured;

the launch of the Enhanced Demand Response Programme and national campaign to encourage energy efficiency;

the submission of the Electricity Regulation Amendment Bill to Cabinet for tabling in Parliament; and

the finalisation of the Omnibus Bill to remove impediments to energy projects, including the enabling of access to servitudes for transmission infrastructure.

The DMRE said the battery storage RFP was awaiting final governance approvals after which it would be released to the market.

The latest deadline extension also meant that only the three Scatec projects, signed under the RMIPPPP on June 2, had reached financial close and had entered construction following the restart of procurement in 2021 after a seven-year disruption, precipitated by a refusal by the previous leadership at Eskom to enter into new power purchase agreements on the basis that the utility had surplus capacity.

Subsequently, South Africa entered into an intensive and sustained period of loadshedding and Eskom has indicated that the country has a supply shortfall of between 4 000 MW and 6 000 MW, which would have been significantly larger had the economy started growing strongly after the Covid contraction.

The DMRE said that the three EDF wind projects signed on September 22 under BW5 were “scheduled to reach commercial close within the next week and financial close soon thereafter”.

Together the six projects that have signed to date have a combined investment value of R27-billion, a combined capacity of 570 MW and are obliged to enter into commercial operation within 18 to 24 months from financial close.

The DMRE said the delays would not affect ...

Certain Volvo models will feature bidirectional charging – meaning they can be used to power a home.

The first of these models is the soon to be revealed fully electric EX90.

Volvo Car South Africa MD Greg Maruszewski says bidirectional charging is especially significant to South Africans because of loadshedding.

“This South African challenge means that our customers will be especially receptive to a feature such as this.”

With bidirectional charging, electric cars have the potential to contribute to easing energy demand while plugged in, and, together with many other electric cars, they can even form a virtual powerplant.

“Paired with smart-charging capabilities coming to the Volvo Cars smartphone app, the Volvo EX90 will allow motorists to charge their cars when demand from the grid is low and save that stored energy to be used later. ‘Later’ could obviously mean the point when loadshedding kicks in,” explains Maruszewski.

In practice, during loadshedding, the Volvo EX90 could power a number of appliances in a home – from power tools to a music system, he says.

“With the Volvo EX90 you can power your life,” adds Volvo Cars electrification ecosystem head Olivier Loedel.

Along with being able to charge appliances and other devices, the car will ultimately also have the capability to lend a helping hand and give some of its charge to other compatible Volvos.

On the flip side, if you, as the driver, are about to run out of juice, don’t worry. You can accept the same help from other Volvo cars.

Where available, the entire charging process will be automatic and managed by the charging functionality in the Volvo Cars app.

The underlying algorithm also makes sure that you charge and discharge the battery in a limited way, reducing the risk of battery degradation.

Depending on rules specific to each energy market, bidirectional charging could also allow customers to support the grid in different ways.

This could include taking in more energy during times when there is a surplus of renewable energy, or selling energy back during peak hours when there is more demand.

Maruszewski says Volvo plans to offer the hardware needed to start using bidirectional charging features, including an advanced wall box and home energy management system.

“Other accessories such as adapter plugs for appliances and cables for charging other cars will also be available.

“The bidirectional charging offer will initially be launched in selected markets. When South Africa [becomes] one of those markets, this will be communicated to local customers.”

Engineering News editor Terence Creamer discusses the $497-million loan extended to South Africa for the repowering and repurposing of the Komati power station; the main elements of the repowering and repurposing project; and whether this is the start of a funding trend for South Africa's energy transition.

South Africa’s request for a $497-million (about R9-billion) to decommission and repower the Komati coal-fired power plant using renewables and batteries has been approved by the World Bank Group board of executive directors.

The last Komati unit was shut at midday on October 31, signalling what Eskom said would be the start of a repowering and repurposing of the site into a renewables, storage, manufacturing and training hub.

In a statement the bank said that the ‘Komati Just Energy Transition Project’ would be financed jointly through a $439.5-million World Bank loan, a $47.5-million concessional loan from the Canadian Clean Energy and Forest Climate Facility, and a $10-million grant from the Energy Sector Management Assistance Program.

The repowering of the plant will involve the installation of 220 MW of clean energy solutions, including 150 MW of solar photovoltaic and 70 MW of wind, supported by 150 MW of batteries.

The World Bank said the project would also create opportunities for affected workers and communities, with Eskom having already established a containerised micro-grid assembly factory at Komati and having recently signed a partnership agreement with the South African Renewable Energy Technology Centre of the Cape Peninsula University of Technology, and the Global Energy Alliance for People and Planet to develop a Komati Training Facility.

The financing announcement follows closely on the release of the ‘South Africa Country Climate and Development Report' by the World Bank, which estimates that South Africa’s transition to net-zero will require total incremental financing of R8.5-trillion to 2050 and that the funding gap could be closed only with the support of external resources.

The report also reiterated that renewable energy represented the quickest and cheapest pathway out of South Africa’s long-running electricity crisis and that two to three more jobs would be created by pursuing such a pathway when compared with the 300 000 jobs that are likely to be shed in high-emitting sectors. It did warn of a timing and spatial mismatch in the labour market, however, and indicated that government interventions would be required to assist vulnerable workers.

The financing package also follows a statement by Finance Minister Enoch Godongwana reaffirming his commitment to the government’s Just Energy Transition framework, after having made comments earlier in the week that were interpreted as being pro-coal, gas and nuclear.

He denied that the National Treasury's plan to take over a portion of Eskom's debt would be conditional on the utility investing in such technologies. Details of the debt transfer, which will involve between one-third and two-thirds of Eskom’s R400-billion debt, would be announced in the February Budget.

The finance package was also announced only days ahead of the start of the COP27 climate talks scheduled to take place in Egypt and where South Africa is expecting to unveil a Just Energy Transition Investment Plan, or JET-IP, which could help unlock $8.5-billion in climate financing, primarily in the form of concessional loans as well as some grants, from France, Germany, the US, the UK and the European Union.

The World Bank stressed that the Komati project was aligned with the country’s Just Transition Framework, which aimed to minimise the socioeconomic impacts of the climate transition, improve the livelihoods of those most vulnerable, and embrace the opportunities stemming from the transition.

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It added that the repowering and repurposing of the Komati coal-fired plant was a demonstration project that could serve as a reference on how to transition fossil-fuel assets for future projects in South Africa and around the world.

The project, the bank said, would provide learning experiences through a cycle of piloting, monitoring, assessing, documenting, and information sharing.

“Reducing greenhouse gas emissions is a difficult challenge worldwide, and particularly in South Af...