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A new dawn for South Africa’s energy sector

Empowering municipalities to finance embedded generation projects with ICLEI Africa’s UK PACT South Africa project.

South Africa is one of the top 20 global emitters of greenhouse gasses (GHGs), with the energy sector accounting for around 80% of national GHGs from 2000 -2015[1]. Coal remains the backbone of the country’s energy supply and the economy at large. Local governments in South Africa are looking to leverage the potential of renewable energy initiatives and recent policy and regulatory changes now allow certain municipalities to install renewable embedded generation projects.

The Development Bank of Southern Africa (DBSA), in partnership with the Green Climate Fund (GCF), has set up a R4bn Embedded Generation Investment Programme (EGIP) to stimulate growth of embedded generation initiatives in the country. Yet, small and intermediary municipalities struggle to participate in the investment programme, due to lack of capacity and resources to meet the application requirements.

 

Introducing Alternative Financing for Municipal Embedded Generation

With a ‘new dawn’ in the energy sector, ICLEI Africa is proud to announce the launch of a one-year project under the UK PACT (Partnering for Accelerated Climate Transitions): Alternative Financing for Municipal Embedded Generation (AFMEG). The AFMEG project will work with municipalities to develop policies, financial models, pre-feasibility studies and build municipal capacity – all required in order to access finance for embedded generation projects (solar and wind power technology).

“The UKPACT opportunity came at the right point, and it made perfect sense to partner [with ICLEI] to take advantage of the opportunity. We are pleased we are successful and at a point where we can look at implementation.’’ – Olympus Manthata: Head of Climate Finance at DBSA said at launch of the AFMEG project on 11 May 2021.

 

Project Overview

The UK PACT programme is funded by the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS) through the UK’s International Climate Finance. ICLEI Africa is the lead and project manager of the project and will work with the consortium members, 3E and Rebel Group and the DBSA as a project partner.

The aim of the project is to address the resource and capacity gap of intermediary cities in applying to the project preparation facility of the EGIP. The project will allow for the development of a financial model and pre-feasibility studies in order to leverage investment by the EGIP for municipal embedded generation initiatives. The project will be implemented in four intermediary municipalities:

 

“Looking at our funding models and revenue cash flows, with the assistance and support from your side, we know the municipality can do better and communities can get what they deserve” remarked Honourable Councilor Bulelwa Kweyiya: Executive Mayor of Walter Sisulu Municipality at the project launch. Convened virtually, the project launch was attended by Mayors, Municipal Mangers, Chief Executive Officers (CFOs), Heads of Technical services, Electricity departments and Planning from the project municipalities.

 

Project outputs: Practical support and training

ICLEI Africa, 3E and the Rebel Group will work with these municipalities to develop:

  1. Policy recommendations to enable embedded generation
  2. Pre-feasibility studies
  3. A financial model
  4. Final report and resource pack of lessons learnt

Furthermore, there will be a training programme over the duration of the project which will cover the following topics:

    • The impacts of climate change
    • Just energy transition considerations for urban planning
    • Gender mainstreaming in the energy sector
    • Embedded energy generation projects for cities
    • Introduction to climate finance
    • Key requirements for project pre-feasibility studies

The learnings from the project will further help financiers, municipalities and national entities understand the requirements for intermediary cities to apply for embedded generation funding.

 

Looking to the Future

As signatories of the Paris Agreement, South Africa has pledged to reduce its carbon emissions to net-zero by 2050. However, an aging, unreliable coal-powered fleet delivering expensive electricity is forcing a transition toward alternative power sources. With the country’s climate ideal for wind and solar resources, South Africa can use this opportunity provide sustainable, affordable access for all its citizens (SDG 7) whilst promoting social and economic development through industry creation.

Traditionally, infrastructure projects are funded by grants or off a municipality’s balance sheet. These financing methods do not fully utilise the power of project financing, and do not align with the project revenue flows of renewable energy projects – making them not ideal for uptake of embedded generation. Projects such as the ones that will emanate (in the long-term) from the groundwork of the AFMEG project, can assist in reaching climate change mitigation targets, provide affordable electricity, reduce power outages and stimulate local job creation – all desperately needed within the country.

 

[1]GHG National Inventory Report South Africa:

https://www4.unfccc.int/sites/SubmissionsStaging/NationalReports/Documents/32895176_South%20Africa-BUR3-1-Final%202000%20-%202015%20GHG%20Inventory%20v2.pdf