A complex web of financing structures, insufficient engagement and unclear social equity measures threaten the ‘JETP’ climate finance deals, which aim to support an equitable clean energy transition in the Global South. Thankfully, there are ways forward, as this process realizes new iterations in both existing and future cases.
“Anticipate blackouts for up to nine times a day!”[i] This was the shortened message circulating after Eskom (South Africa’s state-owned power utility) announced the resumption of power cuts in January of this year.
This update added to a larger series of rolling blackouts (known as load shedding) across the country in recent times. It reflects the ongoing challenges in implementing sufficient electricity infrastructure and fostering the enabling environment for a clean energy transition. With record levels of unemployment, wide-reaching energy poverty and heightened austerity measures, international cooperation through initiatives like Just Energy Transition Partnership (JETP) hopes to catalyze the country’s energy transformation.
It is, however, crucial that the JETP can sustain the level of ambition and political will that introduced it to the climate finance world in 2021, while maintaining its founding principle of a country-led approach. Through ongoing research and an upcoming interview series, LEAVIT intends to identify the persistent challenges and concerns within the initial JETP deals, thereby enabling policymakers and stakeholders to better address them.
What are JETPs ?
JETPs are a nascent cooperative financing mechanism. They aim to help a selection of fossil-fuel-dependent emerging economies make a just energy transition – one which would also seek to address the social consequences of a clean transition. This could mean training and alternative job creation for affected workers, as well as new and inclusive economic opportunities for affected communities.
Some examples of funded initiatives include:
The Northern Cape Sustainable Energy Sector Support (Northern Cape SESS) project was established to pilot social ownership models and to build a foundation for a sustainable energy transition within the Northern Cape.
The SA Medical Research Council was tasked with estimating mortality (and possibly morbidity) risks in the districts where the coal-fired power stations are located compared to districts where no coal-fired power stations are located.
The Women-Led Coal Transition Mechanism (WOLCOT) aims to enhance women’s climate leadership and effective participation in the design and decision-making of coal-to-clean transition strategies and implementation.
The JETP process is currently focused on South Africa, Vietnam, Indonesia and Senegal. Initially considered a mechanism to facilitate the transition away from coal specifically, the inclusion of Senegal creates a wider opportunity. Senegal is not a significant coal user compared to the other JETP countries, with oil representing 76.5% of total electricity generation compared to 6.3% for coal[i].
This new “deal” broadens the scope of the JETPs and ensures they now have the potential to apply to all fossil fuel-dependent countries.[ii]
South Africa as the first partnership
The inaugural JETP partnership was announced in 2021 at the 26th United Nations Climate Conference (COP 26) in Glasgow. With coal representing 70.3% of the energy supply and responsible for 323 million metric tons of CO2 emissions annually, South Africa became the first recipient. The country received a substantial $8.5 billion in pledged financing from the governments of the UK, the US, France, Germany, and the EU (known collectively as the International Partners Group or IPG).
Total Energy Supply, South Africa
Source: IEA, 2021
A year later, South Africa’s President, Cyril Ramaphosa, unveiled the JET Implementation Plan (JET IP). The JET IP puts forward six defined JET portfolios for investment:
· Electricity
· Mpumalanga just transition
· New energy vehicles
· Green hydrogen
· Skills
· Municipalities
With Denmark and the Netherlands joining the IPG, the amount mobilized for these portfolios has since grown to $9.3 billion. Despite this, the JET IP estimates $98 billion in financing requirements over the initial period (2023-2027). From the very outset, this funding gap has loomed large and puts JETP in a vulnerable position. The intention is to catalyze (or crowd-in) private investment, but Sean O’Malley (Director of the International Program on Labor, Climate & Environment, City University of New York) questions the ability to achieve this at the required scale. O’Malley points out the reality that “on a project-by-project basis, the levels of profit must be comparable to returns on investments that they make in the Global North” and that potential investors are left wondering “why incur more project risk when there are less risky investment opportunities in the rich countries?”[i] It appears then that it is a question of fostering an enabling environment and developing bankable projects for these private investors.
But how? And when?
Financing package
There have been several publications inspecting blended financing packages, which seek to combine public and private capital to lower overall cost (see IEEFA, The Rockefeller Foundation, E3G). The initial funding structure for South Africa’s JETP, with roughly 4% in grants and the majority in loans, has raised concerns about exacerbating the debt of recipient countries.
Some of the initial loans include concessional finance (typically meaning below-market rates and/or grace periods). For example, the $298 million 20-year loan from Agence Francaise de Developpement, France’s development bank, was provided with a 3.6% interest rate and a 5-year grace period. These terms are significantly more generous than the 8.9% market rate at the time, but repayments could be even more challenging when considering currency fluctuations. Additionally, Eskom is currently engaged in the Debt Relief Programme and may be unable/reluctant to take on additional debt – even if it is concessional . After the February 2023 government bailout of the utility company, it was prevented from further borrowing and use as a channel for JETP donor funding[i]. Given this, the low level of subsidies certainly questions the "just" aspect of the transition.
Seeking to bring further clarity to funding, a JET IP Grant Mapping Register was established. While it seems to indicate a higher proportion than 4% in grants, there are some concerns over the additionality attributed to certain funding – a potential grey area across other JETPs. Researchers within the Southern Centre for Inequality Studies at the University of the Witwatersrand have questioned the efficacy of the Grant Mapping Register, detailing the high portion of international implementing entities. Acknowledging that these are just implementers and not final beneficiaries, the group argues that this “acts as a mask for where this money really goes, defeating the transparency goal of the register”. [ii]
Recipients of South Africa JETP grant funding
Source: Lehmann-Grube et al, 2024
Moreover, the funding process itself poses a challenge for South Africa and other host countries. They are effectively required to navigate many disaggregated offers from the individual IPG members, each with its own unique structuring and conditions[i]. Following this, there have been calls for better organized and consolidated (or ‘syndicated’) financing proposals.
For example, the IEEFA report identifies proposed IPG financing facilities which “are not directly provided to a JETP beneficiary country at all.” It cites both the Vietnam and Indonesia proposals, where the UK has pledged a $200 million mix of debt, equity and guarantees from a multi-donor entity called the Private Infrastructure Development Group (PIDG).
The ‘J’ in JETP
Hailed as an innovative process rather than a standalone project, success hinges on JETPs’ ability to establish (i) a country-led approach, (ii) inclusive opportunities in the energy transition and (iii) the ongoing development of social impact measures. As it is exported to other emerging economies and the SA JETP learnings are applied to the other existing and future models, it is important that we elevate and protect these ‘just’ objectives.
At the December 2023 UNFCCC ‘Safeguarding the “Just” in Just Energy Transition Partnerships’ panel, there were calls for “balancing partner interests and intentions” while navigating this core element. Other critics have questioned these interests and intentions, following movements like the recent US-China solar tariff announcements or the rollout of CBAM (the EU’s carbon pricing system for imports). Many point to how an increase in domestic clean energy manufacturing within IPG member countries would stand to benefit them as they export to JETP participants like South Africa. In fact, some countries subject to CBAM have been seeking a form of repatriation, which would better support the local energy transition (see South Africa’s working paper on CBAM implications). It is likely that these engagements become increasingly relevant in the near future, as we witness an ever-changing geopolitical environment.
Alex Laferna is the General Secretary and co-founder of the Climate Justice Coalition – a South African coalition of civil society, grassroots, trade union and community-based organisations advancing a transformative climate justice agenda. In a recent paper, Laferna insists it is crucial to consider not only who owns the finished renewable-energy technology, but to also consider who owns and benefits from the production of those technologies – given that this is where much of the job creation and economic opportunity comes from. Specifically, Laferna points to the initial JET IP allocating only R1.6 billion to manufacturing and localising of the clean energy value chain – representing 0.1% of the total investment plan. With this in mind, the development of self-sustaining local value chains in South Africa may be closely monitored.
Finally, to effectively prioritise the J in JETP, the transparent measurement of the just element is needed. The Grant Mapping Register does highlight some very encouraging initiatives, like the Accelerating Women’s Empowerment in Energy (AWEE) project. AWEE includes training and capacity building, as well as policies that promote gender equity in the workforce and job placement. However, more clarity is required. Tracey Davies, Executive Director of Just Share, has cautioned that there is “no public information about how recipients have been identified and selected, nor what their accountability mechanisms are.” Davies also calls for regular public feedback on how these projects are tangibly benefiting the workers and communities concerned.[i] Reflective of the JETP’s adaptive ability, it is hoped that the piloted 2024 JET Funding Platform will “provide the public with transparent data and analysis on the deployment of grant funds” and “be a matchmaker between suppliers of grant funding and potential JET beneficiaries.”
What’s next for South Africa and future JETPs?
The rolling blackouts have triggered a response from Eskom. In 2023, the utility company announced the delayed closure of the Camden, Grootvlei and Hendrina (CGH) coal stations. With the proposal for extension timelines to be made this month, the move could result in thousands of deaths from air pollution and billions of dollars of health-related costs - according to a Helsinki air-quality research group.[i] In recent days, we also witnessed the African National Congress lose its parliamentary majority for the first time in 30 years - with 16,273,102 total votes cast[ii]. As the country enters coalition talks, the energy crisis and future of JETP will undoubtedly be a key consideration.
At a glance, then, it could be said that the JETP initiative is at a crossroads. There are some great examples of JETP already moving the needle and driving a clean energy and just transition, serving as a reminder that it is an iterative process rather than a standalone project. Going forward, the process will need to adopt greater governance and transparency standards, as identified in other versions. Above all, it is wrong to blame developing country governments for the difficulties facing JETPs.
To summarize, it might be useful to revisit the description provided by the The Rockefeller Foundation Report, which is that of “healthy scepticism and continued scrutiny.” This is warranted for a novel and ambitious JETP mechanism, where it is hoped that each new iteration will bring about a more workable model and deliver a truly just transition.
JETPS for Oil & Gas?
We have noted JETP’s potential to extend beyond coal phaseout and cover countries like Senegal, which have a significant dependence on oil and gas.
LEAVIT is pioneering different forms of climate finance incentives, which can compensate resource-cursed oil-producing countries for relinquishing oil development. In relation to JETP, this could mean donors incorporating something like debt-for-climate swaps. Within these swaps, a contractual agreement unfolds wherein creditors, in exchange for debt relief, anticipate a government commitment to initiatives such as decarbonizing the economy, investing in climate-resilient infrastructure, or preserving forests and reefs.
Debt-for-climate swaps can result in...
Released fiscal resources, allowing governments to enhance resilience without triggering fiscal crises or sacrificing spending on other crucial development priorities
Upgraded sovereign credit ratings
Increased versatility for donors
Debt-for-climate swaps are one example of an innovative approach and would need to be carefully implemented – considering the applicable circumstances and potential pitfalls that we have noted. Looking ahead, LEAVIT aims to be a driving force behind increasingly robust and considered financing packages for JETP processes and beyond.
References
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