Financing South Africa’s energy transition

In line with the Paris Agreement, South Africa has committed in its Nationally Determined Contribution (NDC) to achieve a 31% reduction of emissions by 2030, while also committing to a net-zero target by 2050. These targets, together with plans such as the National Development Plan (NDP) 2030 and the country’s Just Energy Transition (JET) strategy require significant investment in clean energy projects.

To achieve these goals, South Africa needs to increase annual climate finance likely to at least three times recent annual spending. While tracked climate finance has increased over the last few years, governments across the world, and so too in South Africa, are not able to self-fund the energy transition. Mobilising and scaling private finance is key for emerging markets like South Africa, with concessional funds and public sources intended to help unlock private funding for, inter alia, renewable energy projects, infrastructure upgrades (such as transmission infrastructure), social initiatives and technical programmes, while addressing the risks of climate change, creating energy security, boosting economic growth and creating jobs.

This however requires reducing various risks while rethinking how to finance the transition especially in markets where risk premiums are elevated. 

To unlock private sector investment, South Africa must address key barriers that include:

1. Political barriers
2. Market barriers
3. Transformation barriers

Instruments to de-risk projects and unlock private funding and their relevance to South Africa include:

1. Information and regulatory instruments
2. Financial instruments and 
3. Economic instruments

And key shifts for unlocking greater private funding in South Africa should include:

1. Developing a pipeline of green, bankable and investment-ready projects
2. More early-stage funding for derisking projects
3. Shifting capital from more mature to less mature sectors
4. Bringing in new, long-term investors through innovative approaches
5. Creating an ecosystem approach through greater partnership mechanisms

Download the report for more information.