- With Eskom’s financial troubles complicating efforts, South Africa faces a $21 billion funding challenge to expand its power grid and integrate renewable energy.
- Officials are exploring private sector solutions and international partnerships to accelerate grid expansion and support the country’s transition to green energy.
South Africa is grappling with a significant obstacle in its plan to replace coal with renewable energy: securing the $21 billion necessary to expand its power grid. This grid expansion is critical for moving renewable energy from remote, sunny, and windy areas to energy-hungry urban centres.
The state’s near-bankrupt power utility, Eskom, is at the heart of the issue. It faces high debt levels and struggles to attract the necessary investment. Since May’s election, which ushered in a coalition government, a notable shift in policy favouring renewable energy has occurred.
This change follows years of bureaucratic delays and inconsistent messages about South Africa’s commitment to reducing its reliance on coal, which currently provides 80% of its power. Despite the enthusiasm from private providers like Mainstream Renewable (owned by Aker Horizons), EDF Renewables, and Acciona SA, there is growing concern about integrating renewable energy into the existing grid.
Energy Minister Kgosientso Ramokgopa emphasised that expanding the grid is vital for South Africa’s decarbonisation efforts. However, raising the required 390 billion rand ($21.3 billion) is beyond the state’s current financial capacity. Donors have pledged a total of $11.6 billion for climate-related projects.
Still, they are reluctant to lend this money to Eskom without sovereign guarantees, which the government is currently unable to provide due to Eskom’s substantial debt, totalling over 400 billion rand. Municipalities also owe Eskom 78 billion rand, exacerbating the utility’s financial troubles.
South Africa’s dependence on coal has made it one of the world’s top greenhouse gas emitters, and the country is seen as a crucial test case for international aid to support developing nations in their transition to green energy.
Despite efforts to mitigate frequent blackouts by ramping up coal production, the grid’s expansion remains inadequate. Eskom managed only 74 kilometres (45 miles) of transmission lines last year, far short of the 1,400 kilometres needed annually for at least the next decade.
To overcome these hurdles, officials are exploring alternative financing options. These include private sector involvement in risk-sharing through mezzanine finance and innovative frameworks such as escrow accounts and offtake agreements. Potential international partners like the US and China are being considered for funding opportunities. Eskom CEO Dan Marokane has also called for regulatory reforms to attract private investment in transmission infrastructure.
While the Treasury has agreed in principle to fund some grid expansion on a case-by-case basis, substantial progress may still be 18 months away. In the meantime, South Africa is focusing on engineering procurement and construction financing methods to expedite the grid’s buildout.