Asset management firm Schroders has warned that policy uncertainty around the future of South Africa’s Just Energy Transition Programme (JETP) was worrying for investors within the renewable energy sector.
This comes as the government recently published an updated energy blueprint, the draft Integrated Resource Plan 2023 (IRP 2023), for public comments
The IRP 2023 has proposed increased fossil fuel usage compared to the IRP 2019 and reduced renewable energy usage, as part of the energy mix to retain dispatchable capacity on the back of electricity supply deficit.
Some of the proposals in the IRP 2023 include the delayed shutdown by 10 years of Eskom’s coal-fired power stations earmarked for decommissioning post 2035, where technically and commercially feasible.
Schroders supports companies’ transition to more sustainable business models and is taking action to achieve net zero green-house gas emissions by 2050 across the investments it manages and its own operations.
Schroders country head of South Africa Kondi Nkosi on Friday said they considered South Africa a “growth market” and had more than $1 billion (R19bn) in assets under management from clients in South Africa, Botswana and Namibia.
Asked what was the impact of the IRP on investors so far, Nkosi said the battle to just keep the lights on despite a reprieve in load shedding severity was taking priority and resulting in a shift in investor behaviour.
“It will affect the investment decisions in that if that portfolio manager says they want to do business in South Africa and there's a company they are looking at, their analysis will include things like: Where does this company generate or get its power from? Do they have their own solar? So it's from an investment decision perspective,” Nkosi said.
“The portfolio managers [who] are making the investment decisions have a process that they go through, and some of the questions do include things like the Integrated Resource Plan of the country, or how the company [and the] management look at sustainable living.”
Though some economists have suggested that the IRP2023 needed to be urgently relooked, civil nuclear engineer Hügo Krüger said the document marked a positive step forward in contrast to the IRP2019.
Krüger said the IRP2019 had significantly overestimated South Africa’s capacity to integrate renewable electricity sources on a large scale, particularly in light of grid constraints.
“Incidentally, to meet the newer, but lower, targets of the IRP2023 for renewables, South Africa would need to construct about 14 000km of transmission lines in 10 years – a distance equivalent to around 40% of the Earth’s circumference. Transmission is an inhibitor for the rapid uptake of renewables,” Krüger said.
“Unfortunately, this extensive infrastructure development is not feasible in the immediate future, which is why I argue that South Africa is pivoting back to energy realism – that means burning ‘dirty’ king coal.
“South Africa’s electricity mix is more comparable to Asia’s. Like them we should also do life extensions on their coal fleet, even if that means a lower utilisation rate like in China.”
Meanwhile, in its latest World Energy Outlook the International Energy Agency recently declared that the global shift to renewable energy was now “unstoppable”.
Nkosi said they were also very cognisant of the just transition, but the pace of the transition in every economy should be treated on its own merits.
“Maybe there should be a little bit more pressure on the transition agenda in the developed markets regions versus an emerging market. So we take into account those factors around just transition,” Nkosi said.
“So we don't say everyone must meet the same standard. No, because it just doesn't make sense. Developed markets outsource the manufacturing and these dirty industries to certain emerging markets.”