South Africa’s R130bn concessional climate finance ‘green deal’ secured at COP26 in Glasgow last week with the US, UK, Germany, France and the European Union, could translate into a boost of 500 billion rand to help the country’s ‘just energy transition’ to decarbonize its energy sources.
That’s the word from RMB CEO James Formby commenting on the green deal commitments on Tuesday.
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He says that the initial commitment of $ 8.5 billion (about R130 billion) for the first phase of financing, could ‘accumulate’ up to R390 billion of capital from local and foreign private investors.
“We have yet to see the details behind these financial commitments, such as timing and conditions, but overall we are optimistic about the potential substantial decarbonization benefits for South Africa that will bring us closer to globally accepted emissions targets,” says Formby. .
According to RMB, the funding is intended to help Eskom ultimately withdraw its coal-fired power plants and help the state power company develop the renewable energy sector.
This could prevent up to 1 1.5 gigatons of emissions over the next 20 years.
The banking giant notes that: “Due to fairly predictable cash flows, debt financing can represent up to 70-80% of the total financing required. Assuming 75% of the debt and assuming the R130 billion [25%] comes in as grant money or may be ranked behind commercial lenders, meaning up to R390 billion could be unlocked in the form of debt financing from South Africa’s savings and banking industries.
“It will be important that the terms of this $ 8.5 billion allow it. This also assumes a properly capitalized and separate ‘gridco’ that would give lenders confidence that the energy produced would be paid for, without requiring further government guarantees, ”adds RMB.
Formby notes that infrastructure assets are an ideal combination of long-term assets for the liability profile of pension funds, which need the return to preserve the wealth of pensioners.
“That is why changes are proposed to Regulation 28, which governs where pension funds can invest, to include an explicit infrastructure category to support the allocation to infrastructure assets, subject to the discretion of fiduciary asset managers. of course, ”he says.
Read: Treasury listens to industry on Regulation 28
According to the RMB, the non-bank assets managed by the South African savings industry totaled approximately R11 trillion as of December 31, 2020.
He notes that most of this is invested in stocks, so “SA has the ability to help unlock this transition.”
“Banks play a key role in structuring transactions and assuming risks during the development phase of projects,” RMB highlights.
Formby adds: “Having this financing to anchor projects will create great confidence in private investors to invest in these green transition projects.
“It will allow the government to tap into seed funding many times over, resulting in a much greater impact on the development of green energy sources than the seed funding number suggests.
“While this will not solve Eskom’s debt burden and capital structure, the [green] The agreement was very positive news for South Africa, ”says Formby.
“As we struggle once again with reducing the load, it is clear that Eskom needs urgent help to accelerate the decommissioning of the coal plants and replace them with renewable energy, gas bridging and storage.”
Read: Eskom in desperate situation – maintenance delayed due to utilities spending too much on emergency diesel
“We must also ensure that there is a just transition that supports affected people, as well as benefits and uplifts local communities,” adds Formby in a comment apparently aimed at allaying some of the fears expressed by the Resources minister. Minerals and Energy, Gwede Mantashe, on the potential job losses in coal mining towns.
“Hopefully the headlines can be quickly translated into renewable projects that can pivot South Africa’s energy mix,” he adds.
“In addition, this funding may open up new opportunities for South Africa, for example in green hydrogen and electric vehicles.”
Listen to Ryk van Niekerk’s interview with Eskom CEO André de Ruyter, broadcast by RSG Geldsake (or read the English transcript here):