While in South Africa, the start of the energy transition is approaching consensus, mobilizing the necessary financing remains difficult due to Eskom's financial problems. Meridian Economics offers a solution that could facilitate fundraising.
South Africa could save $ 6.6 billion by speeding up the shutdown of coal-fired power plants in exchange for cheap loans to finance a clean energy transition. This is what a report from Meridian Economics states. The country must reduce its emissions to meet the commitments of the Paris Agreement.
The national electricity company Eskom, which produces more than 90% of the country’s electricity, mainly from coal, is struggling to finance green energy projects because of its debts. Meridian’s proposal suggests the establishment of a financing mechanism overseen by a multilateral climate finance institution.
The said mechanism would provide South Africa with $ 16 billion in five-year loans at an annual interest rate of 5.5%. If the government meets its commitments to reduce carbon emissions, this rate could be reduced to 1.5%, based on a compensation price of $ 7 per tonne.
The concession could result in savings of $ 6.6 billion over 25 years, calculated on the basis of net present value, Meridian says. The organization estimates that the country needs to build up to 6,000 MW of renewable projects per year to meet its emissions targets.
Achieving this goal would require an investment of approximately $ 29.8 billion over the next decade. An additional $ 13.2 billion is expected to be spent on transmission lines and distribution systems.