In poorer nations, coal persists despite energy transition efforts

Senior Global Correspondent
Illustration showing one hand making a
Illustration by Samson Awosan.

Wealthy countries pursuing financial partnerships to help wean lower income countries off coal, the dirtiest of fossil fuels, are running into a host of hurdles despite their general popularity.

The effort grew out of the United Nations climate conference in Glasgow, Scotland in 2021, where industrialized countries calling for the end of coal faced criticism for failing to help poorer countries quit what was often their main source of energy and economic livelihood.

Thus, partnerships whereby richer nations help fund the energy transitions of poorer nations were born and given the name Just Energy Transition Partnerships — JET-Ps for short. South Africa, whose energy consumption is roughly 70% coal, is the first and has become a cautionary tale for future JET-P’s.

The partnership included an $8.5 billion offer: the United Kingdom, the United States, France, Germany and the wider European Union would help pay to close coal-fired power plants in South Africa and to build renewable energy as a replacement while addressing wider social costs such as lost jobs and disappearing tax revenues.

Two years on, this JET-P has been a tough slog for all sides. Little money has flowed so far, and coal use hasn’t lessened. Among other sticking points, the country’s powerful Minister of Mineral Resources and Energy, Gwede Mantashe, openly opposes phasing out coal and is accused of hamstringing renewable energy development.

“They call me a coal fundamentalist. I don’t have a problem with that,” Mantashe, a former coal miner and one-time head of the national mining labor union, told reporters earlier this year.

Despite the headwinds in South Africa, JET-Ps have become one of the primary ways wealthy countries are attempting to help finance energy transitions in low- and middle-income countries.

This is the third in a series of stories Cipher is running ahead of the United Nations climate conference in December about clean energy investment gaps between rich and poor countries.

Other JET-Ps in the works but in earlier stages than South Africa’s include:

  • A $20.5 billion deal with Indonesia led by the U.S. and Japan, with contributions from other Group of 7 industrialized countries.
  • A potential $15 billion deal with Vietnam.
  • A tentative $2.7 billion deal with Senegal, an emerging oil and gas producer.
  • India, the world’s second-largest user of coal, is often floated as a candidate for a future partnership (though no formal process has begun).

“One of the really valuable parts of the JET-P model is that it recognizes this isn’t something we can roll out instantly across the world. It has to be a country specific package of assistance,” said Katie Auth, policy director for the Energy for Growth Hub, a Washington D.C.-based group that advocates for energy access in the developing world. “That’s the only way to do this.”

South Africa’s JET-P and the prospective partnerships include a mix of below market-rate loans from multilateral development banks (such as the World Bank and Asian Development Bank), loans from private banks and a controversially small sum of government-to-government grants that do not need to be repaid.

Backers see the partnerships as critical in countries where coal mining and use are deeply entrenched in the economy and political systems. Indonesia, for example, has a young fleet of coal-fired generation plants that are locked into contracts with decades of payment obligations that must be paid whether the plants close or not. Meanwhile, the government caps coal prices, protecting generators from market swings and competition from renewables.

“What are the alternatives in a country like Indonesia, where the market basically does not function?” said Putra Adhiguna, a Jakarta-based energy analyst.

South Africa has drafted a national energy strategy and investment plan as part of its JET-P deal. Many on both sides say that sort of planning — which has focused the government on the country’s energy transition — is critical and may not have happened as quickly without the deal.

Hurdles abound. In August, Indonesia delayed the release of its national energy transition plan, delaying implementation of the JET-P. Vietnam has announced plans to build new coal-fired power plants and recently jailed a climate activist on tax evasion charges, even as it discusses ways to phase down coal with funders. Although India would welcome assistance for it to build renewable energy, it refuses to commit to phasing down coal, which has stymied a partnership deal so far, according to people familiar with India’s discussions with the G7 countries.

The one-two punch of the Covid pandemic and Russia’s invasion of Ukraine has slowed progress with all the JET-P efforts, with South Africa as a particularly acute example. Higher global coal prices earned South Africa more for its exports of the fuel, boosting its appeal. Meanwhile, expanding electricity demand at home combined with long standing problems at the country’s dominant power utility, the government-owned Eskom Holdings produced chronic blackouts over the past two years.

Suddenly, more coal seemed like a potential solution and phasing it out in the country lost appeal in many quarters, especially for the National Union of Mineworkers, a key supporter of the ruling National African Congress.

To move the partnership ahead, South Africa’s president Cyril Ramaphosa, a former miners’ union leader who backs the JET-P, appointed a commission to develop recommendations for retraining workers with the partnership funds and provide local communities more say in how the money is used.

“You can’t just pour money in and expect things to change,” said Makoma Lekalakala, an environmental and community activist in South Africa who serves on the commission. “This transition needs to happen. But it cannot happen without everyone’s participation. If workers don’t own the process at a grassroots level, then it’s a problem.”

So far, only about $650 million of funding has been allocated as part of the $8.5 billion JET-P. The government estimates the total cost of South Africa’s energy transition could amount to $80 billion, almost ten times as much as the JET-P will potentially provide.