Green Economy Journal Issue 62

NEWS & SNIPPETS
ROLLING BLACKOUTS WILL BE WITH SA FOR YEARS
By Georgina Crouth
The latest Integrated Resource Plan (IRP), gazetted on 4 January by Minister Gwede
Mantashe reveals that power supply will be constrained for the next six years due to an
“electricity supply gap”, despite efforts to add new supply to the grid.
Nuclear power, the plan acknowledges, is an important clean energy source of electricity
generation because it can complement other clean energy technologies in reducing
power sector emissions, while also contributing to electricity security as a dispatchable
power source.
“There is growing global interest in the deployment of small modular reactors (SMRs).
Given their smaller footprint, SMRs can be sited in locations not suitable for larger nuclear
power plants, such as inland regions, along the coast and in remote areas.
“The flexibility of SMRs enables potential for hybrid energy systems that combine
nuclear and alternative energy sources, including renewables. SMRs can be deployed
incrementally… to match increasing nuclear demand.”
Extending the life of the Koeberg nuclear power station beyond 2024 is critical to retaining 1 860MW of power, which is about 5% of
Eskom’s total generation capacity.
In November, Koeberg synchronised Unit 1 to the grid, which it described as “a huge milestone in the generation and operational recovery
plan”, although Minister Ramokgopa has called outages at six other power stations a “major disappointment”. The government expects more
solar PV and wind to be added by the private sector after 2027, which is not included in the “emerging” plan.
The IRP 2023 is up in the air about the energy mix after 2030, saying the system will require a massive new build programme as
significant capacity will be required in just over a decade from now. It says other than delayed shutdown, these technologies include a
mix of nuclear, renewables, clean coal and gas, in support of coal reduction commitments.
Daily Maverick
SA TO BENEFIT FROM FUND FOR CLEAN ENERGY TRANSITION
By Siphelele Dludla
South Africa could get a cash injection to deal with its crippling
energy crisis, with the country set to be one of the beneficiaries of
an initiative by global leaders to raise trillions of dollars to
At the World Economic Forum (WEF) 2024 Annual Meetings
in Davos in January, more than 20 ministers and CEOs joined
an alliance to unlock the funding needed for the Global South’s
clean energy transition. The “Network to Mobilise Clean Energy
Investment for the Global South” is made up of CEOs and
government ministers, including from Colombia, Egypt, India,
Japan, Malaysia, Morocco, Namibia, Nigeria, Norway, Kenya and
South Africa. Head of the WEF’s Centre for Energy and Materials,
Roberto Bocca, said accelerating the clean energy transition was
imperative to address climate emergency, but current investment
levels remained far below the scale.
“Unlocking this financing today is not only a key first step towards
a secure and equitable energy system tomorrow, but represents a
clear opportunity for businesses, as emerging economies account
for the lion’s share of the global population,” Bocca said.
This comes as energy supply shortage was identified as one of
the top five risks facing South Africa by the latest Executive Opinion
Survey (EOS) of the WEF.
The Global Risks Report 2024 also named economic downturn,
unemployment, state fragility and water-supply shortages as
challenges as the most likely to pose the biggest threat to South
Africa in the next two years.
The long-standing energy deficit in South Africa has forced
Eskom to implement up to 10 hours a day of rotational power cuts,
which has crippled business and economic activity as the stateowned
electricity utility doesn’t have the balance sheet to fund new
generation projects.
The WEF also released a report that outlined a framework to
guide policymakers and business leaders from the energy sector
towards a just, equitable and inclusive energy transition, particularly
in developing economies which account for less than one-fifth of
global clean energy investments.
Business Report
Egypt’s Minister of International Co-operation, Rania A Al-Mashat,
who will co-chair the network that will oversee this, said the overall
annual investment in clean energy in the Global South needed to
triple from $770-billion (R14.6-trillion) currently to $2.2-trillion to
$2.8-trillion by the early 2030s.
Al-Mashat said that while recent spending had increased, it
remained concentrated in a few countries and sectors, with over
90% of investment growth having occurred in advanced economies
and China since 2021.
“The network will play a crucial role in bringing together public
and private players to pinpoint investment needs, breaking down
barriers, and unlocking practical solutions for a just, equitable and
sustainable energy transition in the Global South,” Al-Mashat said.
“This will be a new space for emerging economies to exchange best
practices and lessons learned, and foster collaboration around value
chain strategies, regulatory policies and investment mechanisms.”
Minister of Electricity, Dr Ramokgopa, prior to the WEF, said they
were working on presenting a compelling case to attract foreign
investors to plough money into expanding South Africa’s electricity
transmission network in a bid to deal with the energy crisis.
South Africa needs about R390-billion to aggressively expand and
strengthen its transmission grid with about 14 000km of new power
lines to accommodate renewable energy that is coming online.
Standard Bank Group CEO Sim Tshabalala, in an interview with
CNBC Africa on the sidelines of the WEF meetings, pleaded with
leaders in South Africa and across the continent to make it easier to
do business in their countries by reducing red tape and liberalising
their economies. He also urged African countries to reduce the risk
premium associated with investing on the continent by making
it easier for goods, people and ideas to flow across the continent,
implementing fiscal discipline and making it easier to do business.
The WEF gathering took place against a backdrop of increased
geopolitical tension, especially in the Middle East, and in a record
election year with more people than ever being able to head to the
polls in 2024.
SCARCITY OF FUNDING IN THE MINING INDUSTRY
By Rashaad Carrim and Shirleen Ritchie, partners at Webber Wentzel
Understanding the role of mining companies in the global
economy is crucial in navigating the many legal and economic
hurdles to ensure that these companies continue to operate
responsibly, sustainably and profitably. Accordingly, this sector
operates in a complex legal landscape, characterised by
evolving and increasingly stringent regulations, environmental
considerations and community concerns while at the same time
having to navigate the ever-present need and often scarcity
of funding.
ALTERNATIVE FUNDING OPTIONS
Investors and third-party funders, such as banks and investment
funds, are increasingly facing pressure to disinvest from the
mining industry in favour of “greener” investment options. This is
specifically present in those mining sectors that are perceived as
being inescapably linked to fossil fuels (coal companies and the
like). While there is still a diminishing bucket of investors who
continue to invest in these entities, the equity and debt capital
markets have insufficient will or depth to sustain the capital
expenditure necessary to progress mining operations generally
and for “out of favour” commodities. Furthermore, banks and
funding institutions are similarly limiting their exposure to mining
operations to such an extent that the leveraging options available
to mining companies are presently few and far between.
Newer (and in some cases revived) financing options have
started emerging as viable sources, such as royalty arrangements
and streaming together with blockchain and crowdfunding
(particularly for smaller mining companies or projects with a strong
social impact narrative). These innovative financing mechanisms
offer greater access, flexibility and benefits to mining companies,
including balance sheet optimisation, which in turn increases
the ability to provide investors with real and meaningful returns
using dividends.
Royalty and streaming arrangements offer many unique advantages
to mining companies. Streaming and royalty agreements are contracts
concluded between the streamer (purchaser) and the mining
REACTION TO DRAFT IRP 2023
The draft IRP 2023 makes the case for a fossil-heavy electricity
generation system on the basis of undisclosed and unsupported
assumptions that are not replicable. It also does not consider
the uncompetitive future to which this poorly drafted plan
would bind the South African economy.
“This is not only a step back for the Department of Mineral
Resources and Energy (DMRE) in terms of consultation and clarity
of work, it is a high-risk pitch for special interests at the cost of the
citizens’ futures. We can and must do better,” says James Reeler,
senior manager for Climate Action with WWF South Africa.
Reeler describes the draft IRP as “not only disappointing, but
it also seems to fly in the face of all other electricity generation
models, both national and internationally”.
“It would appear that the IRP’s conclusions are driven by
a foregone conclusion that fossil gas and coal are necessary,
with modelling constraints for different pathways constructed
to support this. The result is a vision that proposes to increase
greenhouse gas emissions and the concomitant health impacts
of our energy system, at massive cost to human health and
wellbeing,” he says.
The IRP’s cost assumptions differ significantly from what has
been seen in the real world, where renewable energy (RE) is
now the cheapest form of energy that has ever been available.
Moreover, the unwarranted assertion that large scale renewable
NEWS & SNIPPETS
company (seller) and can be efficiently
implemented within a short space of time, as
these arrangements usually do not require
complex engagements with equity capital
markets and shareholders. It also often allows
mining companies to optimise the sale
of non-core or secondary commodities
using more competitive pricing. However,
the allure of these avenues should be Shirleen Ritchie.
balanced with an acute understanding
of the regulatory, exchange control and tax
implications as well as the overall cost of
funding for the mining companies.
In addition, many tax jurisdictions will
tax the receipt of funds earned at corporate
income tax rates, which would make royalty
and streaming arrangements prohibitively
expensive. Coupled with income tax are the
often-present value-added taxes that need
to be considered. South African tax laws, for
example, would tax the receipt at corporate Rashaad Carrim.
income tax rates but the application
of certain smoothing provisions that allow the profit associated
with streaming agree-ments to be recognised over the term of the
agreement do offer solutions that make this viable. To this end,
although commercial expediency and ease of implementation may
be the first attraction, it is critically important to consider the legal
and tax landscape of the mining company early in the negotiations or
this will not yield the desired results.
In this ever-changing world, the mining industry will continue
to be tested, however, tapping into the power of these previously
underutilised and novel sources of funding together with the
guidance of strategic and experienced advisors is fast becoming
a necessity for large, mid-tier and junior mining houses alike, to
demonstrate to their stakeholders their continued ability to secure
the ever-present need for capital and resilience in general.
builds will necessarily result in large amounts of unserved energy
is driven more by artificial constraints placed on the model than
real feasibility assessment.
The IRP’s near-term reliance on fossil gas to make up a
shortfall in generation should not be construed to mean that
exploitation of gas reserves is a viable option for the long term.
The Intergovernmental Panel on Climate Change (IPCC) and
International Energy Agency (IEA) are clear that to meet the global
goal of limiting climate change to near 1.5°C the world cannot
afford to make use of any additional fossil fuels.
In addition, a legitimate economic assessment of the impacts
of a high emissions pathway should also consider the additional
effects of being unable to export products to key markets, as well
as the additional climate and human health impacts. Delaying
the shutdown of coal plants will violate any chance of South
Africa meeting its international mitigation commitments; the low
likelihood and very high cost of carbon capture and storage mean
it is not a reasonable fix for continued operation of coal plants.
Overall, WWF is extremely concerned that Cabinet has approved
this document in its current state for public consultation and calls
for better transparency and rigour in the development of such
critical planning documents. It strongly urges that DMRE makes
their assumptions and model workings clear, to enable proper
assessment of their conclusions.
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