DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA

 
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DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
JUST TRANSITION AND
CHAPTER

              CLIMATE PATHWAYS STUDY
              FOR SOUTH AFRICA

              DECARBONISING
01

              SOUTH AFRICA’S
              POWER SYSTEM

          IN PARTNERSHIP WITH
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
ACKNOWLEDGEMENTS
RESEARCH SUPPORTED BY

                                         UK PACT South Africa: UK PACT has partnered with South Africa to support action
                                         on Just Transition pathways and a low-carbon economic recovery. As the third largest
                                         economy in Africa, South Africa plays a critical role in economic and policy priority
                                         setting at a continental level and across the Southern Africa region. South Africa’s long-
                                         standing participation in the United Nations Framework Convention on Climate Change
                                         (UNFCCC) processes creates a solid platform for an impactful and transformational UK
                                         PACT partnership. Moreover, UK PACT seeks to support climate action that will contribute
                                         to the realisation of other development imperatives in South Africa, such as job creation
                                         and poverty alleviation. Priority areas of focus for UK PACT in South Africa are aligned with
                                         key national priorities in the just energy transition, renewable energy, energy efficiency,
                                         sustainable transport, and sustainable finance. UK PACT projects can contribute to
                                         addressing industry-wide constraints, common metropolitan challenges, and bringing
                                         city, provincial and national level public and private partners together to address
                                         climate priorities.

                                         We Mean Business: This is a global coalition of nonprofit organisations working with
                                         the world’s most influential businesses to take action on climate change. The coalition
                                         brings together seven organisations: BSR, CDP, Ceres, The B Team, The Climate Group,
                                         The Prince of Wales’s Corporate Leaders Group and the World Business Council for
                                         Sustainable Development. Together we catalyze business action to drive policy ambition
                                         and accelerate the transition to a zero-carbon economy. NBI has been a regional network
                                         partner to WMB since the beginning of 2015.

    Supported by:                        Strategic Partnerships for the Implementation of the Paris Agreement
                                         (SPIPA): Climate change is a global threat that requires a decisive and confident response
                                         from all communities, particularly from major economies that represent roughly 80 % of
                                         global greenhouse gas emissions. The 2015 Paris Agreement complemented by the 2018
                                         Katowice climate package, provides the essential framework governing global action to
                                         deal with climate change and steering the worldwide transition towards climate-neutrality
                                         and climate-resilience. In this context, policy practitioners are keen to use various platforms
                                         to learn from one another and accelerate the dissemination of good practices.
    of the Federal Republic of Germany
                                         To improve a geopolitical landscape that has become more turbulent, the EU set out
                                         in 2017 to redouble its climate diplomacy efforts and policy collaborations with major
                                         emitters outside Europe in order to promote the implementation of the Paris Agreement.
                                         This resulted in the establishment of the SPIPA programme in order to mobilise
                                         European know-how to support peer-to-peer learning. The programme builds upon and
                                         complements climate policy dialogues and cooperation with major EU economies.

                                         This publication was produced with the financial support of the European Union’s Partnership Instrument and the
                                         German Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU) in the context of the
                                         International Climate Initiative (IKI). The contents of this publication are the sole responsibility of National Business
                                         Initiative (NBI) and do not necessarily reflect the views of the funders.

                                         The African Climate Foundation: The ACF is the first African-led strategic climate
                                         change grant-making foundation on the continent. Building on the success of partner
                                         organisations like the European Climate Foundation and ClimateWorks Foundation,
                                         the ACF was established to provide a mechanism through which philanthropies can
                                         contribute to Africa’s efforts to address climate change. As an African-led and African-
                                         based foundation, we are committed to supporting African solutions to the climate
                                         change challenges facing the continent.

2            JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
PARTNERS

           National Business Initiative

           At the National Business Initiative (NBI), we believe in collective action and
           collaboration to effect change; building a South African society and economy
           that is inclusive, resilient, sustainable and based on trust. We are an independent,
           business movement of around 80 of South Africa’s largest companies and
           institutions committed to the vision of a thriving country and society. The NBI works
           with our members to enhance their capacity for change, leverage the power of our
           collective, build trust in the role of business in society, enable action by business to
           transform society and create investment opportunities.

           Business Unity South Africa

           BUSA, formed in October 2003, is the first representative and unified organisation
           for business in South Africa. Through its extensive membership base, BUSA
           represents the private sector, being the largest federation of business
           organisations in terms of GDP and employment contribution. BUSA’s work is largely
           focused around influencing policy and legislative development for an enabling
           environment for inclusive growth and employment.

           Boston Consulting Group

           BCG partners with leaders in business and society to tackle their most important
           challenges and capture their greatest opportunities. BCG, the pioneer in business
           strategy when it was founded in 1963, today works closely with clients to embrace
           a transformational approach aimed at benefitting all stakeholders — empowering
           organisations to grow, build sustainable competitive advantage, and drive positive
           societal impact. Their diverse global teams are passionate about unlocking
           potential and making change happen, and delivering integrated solutions.

                              CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM            3
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
TERMINOLOGIES

      AFOLU Agriculture, Forestry and           Feedstock Raw material to supply or                P2X Power-to-X
              Other Land Use                                 fuel a machine or industrial    Peak-load Maximum of electrical power
    Base load Permanent minimum load                         process                                   demand
              a power supply system is                 GDP Gross Domestic Product                 PGM Platinum Group Metals
              required to deliver                     GHGI Greenhouse Gas National                  PM Particular Matter
           Bn Billion                                        Inventory                             PSP Pumped-storage plant
          C&I Construction & Installation            Green Hydrogen produced from                   PV Photovoltaic solar energy
        CAIA Chemicals & Allied Industries‘      hydrogen renewable energy sources
                                                                                                  QES Quarterly Employment Survey
              Association                                 GJ Gigajoule
                                                                                                 QLFS Quarterly Labour Force
      CAPEX Capital expenditure                           Gt Gigatonne (1 thousand million             Survey
       CCGT Combined Cycle Gas Turbine                       tonnes)
                                                                                                    RE Renewable Energy
       CCUS Carbon Capture Utilisation &                GTP Gas-to-Power
                                                                                              REIPPPP Renewable Energy
              Storage                                   GW Gigawatt                                    Independent Power Producer
         CDP A disclosure platform for                   I-O Input Output model (used in               Procurement Programme
              companies and cities to                        socio-economic modelling)              SA South Africa
              report on their carbon                 IDDRI Institute for Sustainable
              emissions, water usage, forest                                                      SAM Social Accounting Matrix
                                                             Development and
              management and climate-                        International Relations           SAREM South African Renewable
              related financial disclosures                                                            Energy Masterplan
                                                         IEA International Energy Agency
         CGE Computable General                                                                Scope 1 All direct emissions from
                                                      IGUA Industrial Gas Users              emissions activities of an organisation
              Equilibrium (used in socio-                    Association of Southern
              economic modelling)                                                                      under their control. Incl.
                                                             Africa                                    process emissions, fuel
      COP26 United Nations Conference of            IRENA International Renewable
              the Parties                                                                              combustion on site, such as
                                                             Energy Agency                             gas boilers, fleet vehicles and
        CO2e Carbon dioxide equivalent                 IPCC Intergovernmental Panel on                 air-conditioning leaks
        CSIR Council for Scientific and                      Climate Change                    Scope 2 Indirect emissions from
              Industrial Research                        IPP Independent Power Producer      emissions electricity purchased and
          CTL Coal-to-liquid                             IRP Integrated Resource Plan                  used by the organisation.
      DACCS Direct Air Carbon Capture                     kg Kilogram                                  Emissions are created
              and Storage                                                                              during the production of the
                                                     LCOE Levelised cost of energy                     electricity that is used by the
        DFFE Department of Forestry,
              Fisheries and the                      LCOH Levelised cost of H2                         organisation
              Environment                               Mha Million hectares                      SMR Small Modular Reactors
          DG Distributed Generation is                MQA Mining Qualifications                    SSA Sub-Saharan Africa
              an approach that employs                       Authority                             SSP Sector Skills Plan
              small-scale technologies to                 Mt Megatonne (1 million tonnes)     Synfuels Synthetic Fuel
              produce electricity close to             NDC Nationally Determined
              the end-users of power                                                             TCFD Task-Force on Climate-
                                                             Contribution                              Related Financial Disclosures
       DMRE Department of Mineral                        NG Natural Gas
              Resources & Energy                                                                  TWh Terawatt-hour
                                                   Nedlac National Economic                       UCT University of Cape Town
           EG Embedded Generation is                         Development and Labour
              electricity generation which is                Council                                UN United Nations
              connected to the distribution                                                   UNFCCC United Nations Framework
                                                        NPV Net Present Value
              network rather than to the                                                               Convention on Climate
              high voltage National Grid                 n/a Not applicable                            Change
         EPRI Electronic Power Research               O&M Operation & Maintenance               WACC Weighted Average Cost of
              Institute                              OCGT Open Cycle Gas Turbine                       Capital
           EU European Union                              OE Oxford Economics                     WS# Workshop(#)
           EV Electric vehicle                      OECD Organisation for Economic
         FAO Food and Agriculture                            Co-operation and
              Organisation of the UN                         Development
                                                     OPEX Operating expenditure

4          JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
CONTENTS
                                              Acknowledgements                                                  2
JUST TRANSITION
AND CLIMATE                                   Terminologies                                                     4
PATHWAYS STUDY
FOR SOUTH AFRICA                              Overview of CEO Champions                                         6

                                         1.   FOREWORD                                                          8

SERIES INCLUDES:                         2.   INTRODUCTION                                                      10

 01 Decarbonising South Africa’s power
    system                                    2.1 The purpose of this report                                    10

 02 Decarbonising the South African           2.2 The case for change                                           10
    petrochemicals and chemicals
    sector
                                              2.3 Objective and approach                                        14
 03 The role of gas in South Africa’s
    transition
                                         3.   DECARBONISING POWER IN SOUTH AFRICA                               19
 04 Decarbonising mining in
    South Africa
                                              3.1 Scope and approach of the power sector analysis               20
 05 Decarbonising the agriculture,
    forestry and land use sector in           3.2 Key findings of the power sector analysis                     22
    South Africa

 06 Decarbonising the South African           3.3 How to enable the transition of South Africa’s power sector   37
    transport sector

 07 South Africa’s green hydrogen        4.   OUTLOOK                                                           42
    opportunity

 08 Challenges and opportunities for
    a Just Transition

                                                      CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM      5
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
OVERVIEW
    OF CEO
    CHAMPIONS                                                          Joanne Yawitch
                                                                          NBI CEO
                                                                                                                                                                                                    Cas Coovadia
                                                                                                                                                                                                     BUSA CEO
    Onboarding of additional
    CEOs ongoing

                           It is with great sadness            Avenir
                                                               Fugitiae volo torecta quiducius, que name
                                                               doluptias ut aut prempor site voluptassum
                                                                                                                Calibri
                                                                                                                Fugitiae volo torecta quiducius, que name doluptias ut aut prempor site volup-
                                                                                                                tassum que platur?

                           that we heard of
                                                               que platur?                                      Itas excesent quae volupta inctatu sandest rumque simpossi deliqui ssimilignit
                                                                                                                ommo qui ad quiberuptat quis recae. In porum quis sandae res evelentiost
                                                               Itas excesent quae volupta inctatu sandest       esseque modi ne iur sum cuptint molum fuga. Et ommo magnis samus idipidu
                                                               rumque simpossi deliqui ssimilignit ommo qui     cipsam etur sunt.
                                                               ad quiberuptat quis recae. In porum quis
                                                               sandae res evelentiost esseque modi ne iur       Il ipis aut ipsum harum is illigentio conecatiamus siminientiam earum rectore
                                                               sum cuptint molum fuga. Et ommo magnis           ndaecta tiorpor errorro odis rempor sae cuptatur autam ut venducium

                           the passing of Dr. Johan
                                                               samus idipidu cipsam etur sunt.                  conseris quates utendi bla num sim volorum as verferupta plis reiuntem.
                                                                                                                Sapient lab ium que con pe plis auta sum, esseruptatem harumquo que eum
                                                               Il ipis aut ipsum harum is illigentio coneca-    facidelique sero modit re et la sant faceperum ipsus ut resequis ut odis dolum
                                                               tiamus siminientiam earum rectore ndaecta        eaquis et aut harit, quam aut et eatem ut quae velentur sectia nimolor seque
                                                               tiorpor errorro odis rempor sae cuptatur         si ad excerempor aut ende ommo dem que sae rerferum dolupti dolectam,
                                                               autam ut venducium conseris quates utendi        nimpore storumq uaturibus ipsapiet et facia pereicabo. Percill orumque magni
                                                               bla num sim volorum as verferupta plis reiun-    re qui omnihil ex et ut etur molent paribus soluptatem idus auditia et as

                           van Zyl. We wish to extend
                                                               tem. Sapient lab ium que con pe plis auta        repudig entiorum aut ab in consequam qui omnimin ne et untur aut ene pe lis
                                                               sum, esseruptatem harumquo que eum               quatemporum fuga. Nequi apitis volupta tempera deniet faccae providu stibus
                                                               facidelique sero modit re et la sant faceperum   re, archita aut enisquia ducim et doluptati beriatempe perspe plit harchillabo.
                                                               ipsus ut resequis ut odis dolum eaquis et aut    Labo. Itaqui tectia corestio. Ut magniminto con remquibusant debis molupti-
                                                               harit, quam aut et eatem ut quae velentur        bus, quia volupti busdae cum aruptatist etus et aut duciatem que dellest,
                                                               sectia nimolor seque si ad excerempor aut        ommolecabor aut iumquae doluptaecus dunt imus rem veliquod que lab
                                                               ende ommo dem que sae rerferum dolupti           ipienderum quam quaspit as nest, ut mos nostis maximil laborerum escia
                                                               dolectam, nimpore storumq uaturibus ipsapi-

                           our deepest condolences
                                                                                                                eriatquidit quamust, to moluptis minvento cusciamus eos ex eos natem inusci-
                                                               et et facia pereicabo. Percill orumque magni     et quiatet iunt eos moluptat pra qui di omnimo temolor estrum se plibus et qui
                                                               re qui omnihil ex et ut etur molent paribus      dolorrum eatusdanis corion rem ipsae nonsequo doloribus ut liquia que dolup-
                                                               soluptatem idus auditia et as repudig entio-     tatio doluptaepero derum, tecti beriore, non cusam earumqu atiamet aut
                                                               rum aut ab in consequam qui omnimin ne et        quasped mi, conem ut mil ipsum est, essum adis dolore molore laborpo
                                                               untur aut ene pe lis quatemporum fuga.           repelenis molest quiate con nonserum adisi sam, cus sinctas ulparib ustius
                                                               Nequi apitis volupta tempera deniet faccae       eariandis asit, si quas ea voluptat maxime pro dolor alia doluptam eumenis
                                                               providu stibus re, archita aut enisquia ducim    sequaec uptatur, sumque duciusam facerchic temolor rovidunt quam et et et

                           to his family, his friends,
                                                               et doluptati beriatempe perspe plit harchilla-   voluptas nonseris magnatiunt voloremque ne si dolum expelibea ne sit que
                                                               bo. Labo. Itaqui tectia corestio. Ut magnimin-   perro in con corit ex eribus et, abore et vendi ommod quiam, quianto illest,
                                                               to con remquibusant debis moluptibus, quia       temqui beat.
                                                               volupti busdae cum aruptatist etus et aut
                                                               duciatem que dellest, ommolecabor aut            Occullum voluptat que num nonsectemque assitat.
                                                               iumquae doluptaecus dunt imus rem veliquod
                                                               que lab ipienderum quam quaspit as nest, ut      Ipsae dentis nonsenis et volore, ea cor sandunt quistrum nes acimusa piende

                           and to his team at Toyota.
                                                               mos nostis maximil laborerum escia eriatquid-    eaquasped et volecabo. Nem vere voluptu rehendusae nonsed que dem quo
                                                               it quamust, to moluptis minvento cusciamus       et omnis eum fuga. Genihit quatibus mil ipsapel eceptatusam hitas sum, nam,

                           We will always be grateful
      Johan van Zyl        for Dr. van Zyl’s support as              André de Ruyter                                                                                                              Fleetwood Grobler
Executive Chairman: Toyota a CEO Champion and for                      Eskom CEO                                                                                                                      Sasol CEO
       South Africa        the valuable contribution
                           he made to this work.

       Leila Fourie                 Mxolisi Mgojo                        Alan Pullinger                                                                                                           Hloniphizwe Mtolo
     JSE Group CEO                   Exxaro CEO                          First Rand CEO                                                                                                              Shell SA CEO

      Lungisa Fuzile                John Purchase                             Paul Hanratty                                                                                                        Deidré Penfold
Standard Bank South Africa            AgBiz CEO                               Sanlam CEO                                                                                                          CAIA Exec Director
          CEO

6      JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
Vivien McMenamin         Taelo Mojapelo               Roland van Wijnen               Njombo Lekula
  Mondi SA CEO       BP Southern Africa CEO            PPC Africa CEO             PPC MD SA Cement and
                                                                                         Materials

  Gavin Hudson         Vikesh Ramsunder               Nyimpini Mabunda                Nolitha Fakude
Tongaat Hulett CEO     Clicks Group CEO                  GE SA CEO             Anglo American SA Chairperson

   Portia Derby           Mark Dytor                    Yusa Hassan                Tshokolo TP Nchocho
  Transnet CEO            AECI CEO                   Engen MD and CEO                   IDC CEO

    Alex Thiel          Stuart Mckensie          Marelise van der Westhuizen          Ishmael Poolo
    SAPPI CEO              Ethos CEO             Norton Rose Fulbright CEO       Central Energy Fund CEO

                                              CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM    7
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
1.
     FOREWORD
     JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA

South Africa is a signatory to the United Nations              The work done by the business community has
Framework Convention on Climate Change (UNFCCC)                interrogated the energy, liquid fuels, mining, chemicals,
and to the Paris Agreement. As an energy and emissions         agriculture, forestry and other land use, transport and
intensive middle-income developing country, it recognises      heavy industrial sectors. The results of the modelling
the need for it to contribute its fair share to the global     and analytical work have been informed by numerous
effort to move towards net-zero carbon emissions by            industry experts, academics and scientists. The results
2050, taking into account the principle of common but          demonstrate that these pathways do exist and that even a
differentiated responsibilities and the need for recognition   country with an economy that is structurally embedded in
of its capabilities and national circumstances.                an energy intensive production system can shift.

South Africa is highly vulnerable to the impacts of climate    The results of this work to date have shown that this can
change and will need significant international support to      be done, and that to realise these pathways, efforts must
transition its economy and to decarbonise. Furthermore,        begin now. Timing is of the essence and the business
given the country’s high rate of inequality, poverty and       community is of the view that there is no time like the
unemployment and the extent of dependence on a fossil          present to create the regulatory and policy environment
fuel-based energy system and economy, this transition          that would support transitioning the economy.
must take place in a way that is just, that leaves no-one      Accordingly, business can commit unequivocally to
behind and that sets the country onto a new, more              supporting South Africa’s commitment to find ways to
equitable and sustainable development path; one which          transition to a net-zero emission economy by 2050.
builds new local industries and value chains.
                                                               Furthermore, in November, South Africa will table its
In response to the above imperatives, the National             revised Nationally Determined Contribution (NDC)
Business Initiative, together with Business Unity South        to the UNFCCC. Business recognises the need for
Africa and the Boston Consulting Group has worked with         greater ambition to position the country as an attractive
corporate leaders to assess whether the pathways exist for     investment destination and increase the chances of
the country’s economic sectors to decarbonise by 2050          accessing green economic stimulus and funding packages.
and whether this can be done in such a way as to build         Specifically, business would support a level of ambition
resilience to the impacts of climate change and to put the     that would see the country committing to a range of
country onto a new, low emissions development path.            440 to 350–370 Mt CO2e by 2030. This is significantly

8       JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
Upington, Northern Cape. Photo: scatec.com/locations/south-africa

more ambitious than the NDC put out for public comment                   Business sees the support of the international community
and would require greater levels of support with regard                  as essential for the country to achieve its climate
to means of implementation from the international                        objectives. For this reason, business believes that a more
community than is currently the case. It is also consistent              ambitious NDC, and one that would place the country
with international assessments of South Africa’s fair share              firmly on a net-zero emissions by 2050 trajectory, would
contribution to the global effort, and it would also ensure              have to be conditional on the provision of the requisite
that the no-regret decisions, that would put South Africa                means of support by the international community. In
onto a net-zero 2050 emissions trajectory, would be                      this light the business community will play its part to
implemented sooner.                                                      develop a portfolio of fundable adaptation and mitigation
                                                                         projects that would build resilience and achieve deep
While South Africa has leveraged a degree of climate                     decarbonisation.
finance from the international community, the scale and
depth of the transition envisaged will require substantial               Despite the depth of the challenge, South African business
investments over an extended period of time. Critically,                 stands ready to play its part in this historical endeavour.
social costs and Just Transition costs must be factored in.              Business is committed to work with government and other
Significant financial, technological, and capacity support               social partners, with our employees, our stakeholders,
will be required to support the decarbonisation of hard                  and the international community, to embark on a deep
to abate sectors. Early interventions in these sectors will              decarbonisation path towards net-zero and to build the
be critical.                                                             resilience to the impacts of climate change that will ensure
                                                                         that our country contributes its fair share to the global
                                                                         climate effort.

                                                                    CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM         9
DECARBONISING SOUTH AFRICA'S POWER SYSTEM - JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
2.
      INTRODUCTION

2.1        THE PURPOSE OF THIS REPORT

This report, focussing on the decarbonisation of South Africa’s power sector, is the first in a series
being released to illustrate the findings of this project. These reports are intended to leverage
further engagement with sector experts and key stakeholders, beyond the extensive stakeholder
engagement that has been undertaken from August 2020 to June 2021 within the respective
technical working groups of this project. We hope this will foster continued dialogue during the
project as we work towards a final report that will collate the individual sector findings and provide
collective insight.

2.2        THE CASE FOR CHANGE

2.2.1 CLIMATE CHANGE AND THE RACE TO GLOBAL                                        Hence, mitigating the worst impacts of climate change
NET-ZERO EMISSIONS BY 2050                                                         requires all countries to decarbonise their economies.
                                                                                   In the 2019 World Meteorological Organization report,
Climate change is the defining challenge of our time.                              ‘Statement on the State of the Global Climate‘, the United
Anthropogenic climate change poses an existential threat                           Nations (UN) Secretary-General urged: “Time is fast
to humanity. To avoid catastrophic climate change and                              running out for us to avert the worst impacts of climate
irreversible ‘tipping points’, the Intergovernmental Panel                         disruption and protect our societies from the inevitable
on Climate Change (IPCC) stresses the need to stabilise                            impacts to come.”
global warming at 1.5ºC above pre-industrial levels.
For a 66% chance of limiting                                                       South Africa, in order to contribute its fair share to
warming by 2100 to 1.5°C,                                                          the global decarbonisation drive, bearing in mind the
this would require the world                                                       principle of ‘common but differentiated responsibilities
to stay within a total carbon                                                      and respective capabilities’, should similarly set a target
budget estimated by the                                                            of reaching net-zero emissions by 2050, and also keep it
IPCC to be between 420 to                                                          within a fair share of the global carbon budget allocated,
570 gigatonnes (Gt) of CO2,                                                        estimated to be between 7 and 9 Gt CO2e.2
to reduce net anthropogenic
emission of CO2 by ~45%                                                            Even if global warming is limited to 1.5°C, the world will
of 2010 levels by 2030,                                                            face significantly increased risks to natural and human
and to then reach net-zero                                                         systems. For example, 2019 was already 1.1°C warmer than
around 2050.1                                                                      pre-industrial temperatures, and with extreme weather
                                                                                   events that have increased in frequency over the past

1   IPCC. 2018. ‘Special Report on Global Warming of 1.5°C’.
2   Extrapolation of the medians of various methodologies described by Climate Action Tracker. The full range is 4–11 Gt CO2e.

10         JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
“Time is fast running out for us
        to avert the worst impacts of
        climate disruption and protect
        our societies from the inevitable
        impacts to come.”
        Mr Antonio Guterres,
        United Nations Secretary-General

    Photo: UN Climate Action Summit

decades, the consequences are already apparent.3 More                              country experiencing greater variability in rainfall as well as
severe and frequent floods, droughts and tropical storms,                          an increased risk of extreme weather events.
dangerous heatwaves, runaway fires, and rising sea
levels are already threatening lives and livelihoods across                        Rising temperatures and increased aridity and rainfall
the planet.                                                                        variability may have severe consequences for South
                                                                                   Africa’s agricultural systems, particularly on the country’s
South Africa will be among the countries at greatest                               ability to irrigate, grow and ensure the quality of fruit
physical risk from climate change. South Africa is already                         and grain crops; and on the health of livestock, such as
a semi-arid country and a global average temperature                               sheep and cattle which will see decreased productivity
increase of 1.5°C above pre-industrial levels translates                           and declining health at temperature thresholds. Parasites
to an average 3°C increase for Southern Africa, with the                           tend to flourish in warmer conditions, threatening people
central interior and north-eastern periphery regions of                            as well as livestock and crops. Increasing temperatures
South Africa likely to experience some of the highest                              and rainfall variability threaten South Africa’s status as
increases.4 Research shows that a regional average                                 a megabiodiverse country. Severe climate change and
temperature increase of over 1.5°C for South Africa                                temperature increases could shift biome distribution,
translates to a greater variability in rainfall patterns.                          resulting in land degradation and erosion. The most
Models show the central and western interiors of the                               notable risk is the impact on the grassland biome,
country trending towards warmer and dryer conditions,                              essential for the health of South Africa’s water catchments,
and the eastern coastal and escarpment regions of the                              combined with the risk of prolonged drought.

3   World Meteorological Organization. 2019. ‘Statement on the State of the Global Climate’.
4   Department of Environmental Affairs, Republic of South Africa. 2018. ‘South Africa’s Third National Communication Under the United Nations Framework
    Convention on Climate Change’.

                                                                           CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM                     11
Finally, rising ambient temperatures due to climate change                             South Africa has predominantly coal-based power
and the urban heat effect threaten the health of people,                               generation, the coal-to-liquid process in the liquid fuels
particularly those living in cramped urban conditions and                              sector, and a coal-reliant industrial sector. In the mining
engaging in hard manual labour, as higher temperatures                                 sector, three of the four most significant minerals in South
result in increased risk of heat stress and a reduction in                             Africa’s commodity footprint are at risk given the global
productivity. Therefore, limiting global climate change and                            efforts to curb emissions: thermal coal, Platinum Group
adapting to inevitable changes in the local climate will be                            Metals (PGMs) with mainly palladium, and iron ore. The
critical to limit the direct, physical risks to South Africa. Like                     fourth mineral is gold.
many developing countries, South Africa has the task of
balancing the urgent need for a just economic transition                               The bulk of South Africa’s exports comprise carbon
and growth, while ensuring environmental resources are                                 intensive commodities from the mining, manufacturing,
sustainably used and consumed, and responding to the                                   and agricultural sectors which will become less
local physical impacts of climate change.5 While South                                 competitive in markets in a future decarbonised world.
Africa is highly vulnerable to the physical impacts of                                 These sectors also provide the majority of employment
climate change, its economy is also vulnerable to a range                              of unskilled labour at a regional level.
of transition risks posed by the global economic trend
toward a low-carbon future.                                                            The carbon intensity of the South African economy, key
                                                                                       sectors, and export commodities must be seen against the
South Africa is also facing a significant trade risk. South                            backdrop of the country’s key trading partners committing
Africa ranks in the top 20 most carbon intensive global                                to ambitious decarbonisation goals. By early 2021,
economies on an emissions per Gross Domestic Product                                   countries representing more than 65% of global carbon
(GDP) basis, and in the top five amongst countries with                                dioxide emissions and more than 70% of the world’s
GDP in excess of USD 100 billion per annum. The South                                  economy have made ambitious commitments to carbon
African economy will face mounting trade pressure, as                                  neutrality. Seven of South Africa’s key export markets have
trade partners implement their low-carbon commitments.                                 all set net-zero targets, including the European Union (EU),

    Figure 1: Volumes of South Africa’s exports to leading partners in 2018 (ZAR billion)

                                                    EU plans to implement carbon                                                Trading partners with a
      1 240           206                            border adjustment by 2023.                                                 net-zero target

                                                                                                                                Carbon border
                                     226
                                                                                                                                tax planned

                                                    113
                                                                    84
                                                                             64
                                                                                        59
                                                                                                  59
                                                                                                              25           24          19       361
                                                                                                  INDIA
                                                                              UNITED
                                                                            KINGDOM

                                                                                       JAPAN
                                                    CHINA

                                                                                                                                      HONG
                                                                                                                                      KONG
                                                                                                                          UNITED
                                                                                                                            ARAB
                                                                                                                        EMIRATES
                                    EUROPEAN
                                       UNION
        WORLD

                     COUNTRIES

                                                                   UNITED
                                                                   STATES
                       AFRICAN

                                                                                                                                                 OTHER
                                                                                                            REPUBLIC
                                                                                                            OF KOREA

Source: World Integrated Trade Solution. 2018. ‘Press research’.

5    Department of Environmental Affairs, Republic of South Africa. 2016. ‘South Africa’s 2nd Annual Climate Change Report’.

12              JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
Photo: Shutterstock.com

China, the United States, the United Kingdom, Japan,                               South Africa has a number of significant assets including
and South Korea.6                                                                  plenty of sun and wind. Renewables-dominated
                                                                                   energy systems and local manufacturing are key. South
At the UN Climate Change Conference of the Parties                                 Africa’s coal assets are aged, and decommissioning
(COP26) in November 2021, all countries are expected to                            coal plants can be done within the carbon budget and
set out more ambitious goals, including setting concrete                           with minimal stranded asset risk. South Africa’s motor
mid-term reduction targets. The COP26 Presidency’s                                 vehicle manufacturing expertise could be transitioned
stated priorities include ‘seizing the massive opportunities                       to electric vehicle production. The country’s stable and
of cheaper renewables and storage’, ‘accelerating the                              well-regulated financial services sector, among the most
move to zero-carbon road transport’, and ‘the need to                              competitive in the world, would make a strong base for
unleash the finance which will make all of this possible and                       green finance for the continent. The combination of wind
power the shift to a zero-carbon economy’.                                         and solar enables the right kind of conditions for green
                                                                                   hydrogen, setting the stage for South Africa to be a net
Over and above this, select geographies like the EU are                            exporter. The role of PGMs in hydrogen and fuel cell
also considering carbon border taxes which could impact                            technology and the increased demand for certain mined
future trade. It is therefore essential to consider how South                      commodities, like copper for use in green technology,
Africa’s competitiveness in global markets, and therefore                          could bolster the minerals sector. South Africa’s
the viability of its industries, will be affected should key                       experience with the Fischer–Tropsch process positions it
trading partners start taking steps to protect their net-zero                      to be one of the world leaders in carbon-neutral fuels. And
commitments and enable their net-zero carbon growth                                other innovations are thus waiting to be unlocked.
trajectories. South Africa will need to address the risks and
seize the opportunities presented by climate change.                               The imperative is clear: South Africa must
                                                                                   decarbonise its economy in the next three
South Africa will also have the chance to tap into new                             decades and transform it into a low-carbon,
opportunities. Goldman Sachs estimate that around                                  climate-resilient, and innovative economy.
35% of the decarbonisation of global anthropogenic                                 This transition also needs to take place in
greenhouse gas emissions is reliant on access to clean                             a manner that is just and simultaneously
power generation, and that lower-carbon hydrogen                                   addresses inequality, poverty and
and clean fuels will be required for hard-to-decarbonise                           unemployment to ensure that no-one is left
sectors.7 South Africa has key strategic advantages which                          behind and that our future economy is also
can be leveraged to tap into such emerging opportunities.                          socially resilient and inclusive.

6   United Nations News. 2020. ‘The race to zero emissions, and why the world depends on it’.
7   Goldman Sachs. 2020. ‘Carbonomics: Innovation, Deflation and Affordable De-carbonisation’.

                                                                           CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM           13
2.2.2      THE NEED FOR A JUST TRANSITION                                             debt to GDP ratio, with growth of ~6% for the last ten
                                                                                      years, and the consistently negative balance of trade.13
With a Gini coefficient of 0.63, South Africa is one of the
most unequal societies in the world today.8 A recent study                            These challenges are more severe given further
shows that the top 10% of South Africa’s population owns                              deterioration during the COVID-19 pandemic. It is
86% of aggregate wealth and the top 0.1% close to one-                                therefore critical that South Africa’s transition is designed
third. Since the onset of the COVID-19 pandemic, levels                               and pursued in a way that is just; meaning that it reduces
of poverty have further increased and have likely shifted                             inequality, maintains and strengthens social cohesion,
beyond 55% of the population living in poverty. In July                               eradicates poverty, ensures participation in a new
2020, a record 30.8% of the population was unemployed.9                               economy for all, and creates a socio-economic and
Exacerbating this are levels of youth unemployment that                               environmental context which builds resilience against the
are amongst the highest in the world.10                                               physical impacts of climate change.

As South Africa grapples with the economic recession                                  This transition requires action, coordination, and
accompanying the pandemic, and copes with the need                                    collaboration at all levels. Within sectors, action will need
to rebuild the capacity of the State and its institutions                             to be taken on closures or the repurposing of single
following a decade of state capture, it must start                                    assets. Job losses must also be addressed with initiatives
rebuilding and transforming its economy to make it                                    like early retirement and re-skilling programmes, with the
resilient and relevant in a decarbonised world. However,                              latter having the potential for integration with topics like
while a transition towards a net-zero economy will create                             skills inventories and shared infrastructure planning and
new economic opportunities for South Africa, it is also a                             development. A national, coordinated effort to enble the
transition away from coal, which without careful planning                             Just Transition will also be crucial to address the education
and new investments, will put many jobs and value chains                              system and conduct national workforce planning. In order
at risk in the short-term, and exacerbate current socio-                              to implement its Just Transition, South Africa will need to
economic challenges.                                                                  leverage global support in the form of preferential green
                                                                                      funding, capacity-building, technology-sharing, skills
Today, the coal mining sector provides almost 0.4 million                             development, and trade cooperation.
jobs in the broader economy, with ~80k direct jobs and
~200 to 300k indirect and induced jobs in the broader                                 To move towards this net-zero vision for the
coal value chain and economy. The impact is even broader                              economy by 2050, South Africa must mitigate
when it is taken into account that, on average, each mine                             rather than exacerbate existing socio-economic
worker supports five to ten dependents. This implies                                  challenges and seize emerging economic
a total of ~2 to 4 million livelihoods.11 The low-carbon                              opportunities to support its socio-economic
transition must do more than simply address what is                                   development agenda. How to ensure a Just
directly at risk from decarbonisation. The transition must                            Transition towards net-zero and advancing
also address the broader economic concern of stalled GDP                              South Africa’s socio-economic context is
growth of ~1% for the last five years, rising unemployment                            therefore the key guiding principle of this study.
with ~3% increase over the last five years,12 deteriorating

2.3        OBJECTIVE AND APPROACH

Key objectives of this study. Achieving net-zero emissions                            many different views on what defines a Just Transition
in South Africa by 2050, whilst ensuring a Just Transition,                           in South Africa, which decarbonisation ambitions
is a complex and unique challenge. Extensive studies                                  South Africa is able to pursue and commit to, and
examining how a Just Transition towards a lower-carbon                                how a transition towards a lower-carbon economy can
economy can be achieved in South Africa have already                                  be achieved.
been conducted or are currently underway. There are

8   The World Bank. 2021. ‘South Africa Overview’.
9   StatsSA. 2017. ‘Poverty Trends in South Africa. An examination of absolute poverty between 2006 and 2015’.
10 Chatterjee, A., et al. 2020. ‘Estimating the Distribution of Household Wealth in South Africa’.
11 Minerals Council of South Africa. 2020. ‘Facts and Figures’.
12 Department of Statistics, Republic of South Africa. 2021.
13 South African Reserve Bank. 2021.

14         JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
This study is not advocating for a particular position. It is          mining regions and the mining workforce, the mining
not setting ambitions around levels and timelines for South            sector was assessed as part of the project’s first phase.
Africa’s emission reduction. Nor is this study prescribing             The second phase of the study focuses on the transport
sector- or company-specific emission reduction targets.                and AFOLU sectors. Eventually, the study will provide a
                                                                       comprehensive view of the South African economy, its
The study does aim to develop the necessary technical and              potential future net-zero economy and the pathways that
socio-economic pathways research and analysis to support               can lead to this future economy as informed by various key
decision-making and bolster a coordinated and coherent                 stakeholders (see Figure 2).
effort among national and international stakeholders. This
research is anchored around three key questions:                       The study is a collaborative effort, aiming to create a
                                                                       ‘unified voice of South African business’ on the country’s
„ What is the cost of inaction for South Africa, should it fail        needs, opportunities, and challenges in achieving a
  to respond to critical global economic drivers stemming              net-zero economy, involving multiple stakeholders
  from global climate action?                                          from all sectors. The governance arrangement that has
„ What would it take, from a technical perspective, to                 overseen this work is key to enabling this collaborative,
  transition each of South Africa’s economic sectors to                multi-stakeholder approach: across multiple levels, key
  net-zero emissions by 2050?                                          stakeholders are involved in the content development.
„ What are the social and economic implications for South
  Africa in reaching net-zero emissions by 2050?                       The sector assessments are conducted within technical
                                                                       committees which include South African and international
Approach of this study. To understand how a transition                 experts and stakeholders from private and public
of the South African economy towards net-zero emissions                sectors, as well as civil society and academia. An advisory
can be achieved, this study assesses each sector and                   board consisting of high-profile representatives from
intersectoral interdependencies in detail (with this report            various sectors including industry, government, labour,
detailing the initial findings of the electricity sector               civil society, and academia; and a steering committee
analysis). Our analysis of the South African economy is                consisting of selected private and public sector
structured along understanding what the decarbonisation                representatives provided continuous direction on content
pathways could be for key heavy emitting sectors, namely:              development. In addition, a group of 27 Chief Executive
electricity, petrochemicals and chemicals, mining, metals              Officers (CEOs) from across the private sector endorsed
and minerals, manufacturing, transport and AFOLU                       and guided the study development (see Figure 3).
(Agriculture, Forestry and Other Land Use) (Figure 2).
Given this is a multi-year project, a preliminary report will          This report is the first in a series being released to illustrate
be released as each sector is completed. Towards the end               the findings of this study. These reports are intended as
of the study, each sector analysis will be further refined             consultation material to leverage further engagement with
on the basis of understanding interlinkages better. For                sector experts and key stakeholders, beyond the extensive
example, insights gained from the transport sector analysis            stakeholder engagement that was already undertaken
around the impact of electric vehicles on electricity                  from August 2020 to June 2021 within the respective
demand will be leveraged for further refinement of the                 technical working groups of this project. We hope this will
electricity sector analysis.                                           foster continued dialogue during the project as we work
                                                                       towards a final report that will collate the individual sector
The first phase of the study focuses on today’s key                    findings and provide collective insight. The first report is
drivers of South Africa’s emissions: electricity and the               focused on the decarbonisation of the electricity sector in
petrochemicals and chemicals sectors which make up                     South Africa.
more than 60% of the country’s total emissions. Given
the socio-economic implications of decarbonising South
Africa’s energy landscape, particularly impacting coal

                                                                  CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM             15
Figure 2: Approach of this study

     We are driving a collaborative study to create a unified voice of
     SA Business at COP26 and accelerate Green Stimulus.

  Phase 1a                                                       Phase 1b                                                        Finalisation

                     4–5 MONTHS                                                  4–6 MONTHS

  JUL      AUG        SEP      OCT        NOV          DEC    JAN        FEB       MAR         APR       MAY       JUN           JUL         AUG

             PRIORITY SECTORS                                  ALL SECTORS

                              Establish fact base
                              and reference points
                              (emissions baseline and              ELECTRICITY         PETRO-            MINING                 OTHER
           ELECTRICITY                                                               CHEMICALS                                  SECTORS**
                              outlook to 2050)

                              Detail mitigation
                              measures and
                              opportunities per sector
                                                                   TRANSPORT              AFOLU*
                              Assess feasibility and
              PETRO-          impact (including
            CHEMICALS         socio-economic and Just                                     Enhance emissions baseline            Launch
Ramp-
                              Transition implications)                                    with data for remaining               publication
 up to
                                                                                          sectors and fine-tune                 series
Launch                        Define feasible climate                                     previously covered sectors
 Event                        pathways for South Africa                                                                         Continue
                              (including sector couplings)                                Expand impact assessment              preparation
                                                                                          for remaining sectors and
                                                                                                                                for COP26
              MINING                                                                      fine-tune previous findings

                                                                                           Complete mitigation
                                                                                           pathways for South Africa
                                                                                           (including adaptation and
                             Analysis will be                                              resilience impact)
                             completed at a sector
                                                                                          Finalise Just Transition
                             level and follows a
                                                                                          narrative and preparations
                             80/20 approach to                                            for COP26
                             asset-based detailing
                             covering key assets only
                             (excludes adaptation                         ACCELERATING GREEN FINANCE
                             and resilience detailing)                    Develop Green Stimulus vision and strategy,
                                                                          prioritise ‘no regret’ green projects and
                                                                          prepare international funding requests

                                                       STAKEHOLDER ENGAGEMENT
                               with critical South African industries/business leaders, government ministries,
                                               civil society, labour and COP26 representatives

  * AFOLU: Agriculture, Forestry, and Other Land Use
  **Other sectors include Minerals and Metals as well as Manufacturing and Construction                                 Source: NBI-BCG project team.

16       JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
Figure 3: Governance set-up of the study

  To ensure representative, balanced and fact-based content,
   a comprehensive governance structure is in place.

           CEO champions                           Advisory boards                           Steering committee

                 CEOs                         Industry, government and                 Company representatives
                                             civil society representatives

                                                  Core project team

                                                   NBI, BCG, IDDRI

                                   Technical committees and expert meetings

   Energy sector                           Chemicals and                            Mining sector
                                           Petrochemicals sector

   Transport sector                        AFOLU sector                             Other sectors

                                 Socio-economic modelling for a Just Transition

                                   Four key objectives of governance structure

  Enable multi-stakeholder           Create a platform for     Ensure that the final output         Provide a fact-based
 inputs through an inclusive     collaboration and alignment   is fact-based and balanced       business perspective into
    consultation process           on key assumptions and        in its recommendations         national consultations and
                                        methodology                                                planning processes
                                                                                                 hosted by government

                                                          CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM          17
Photo: Shutterstock.com

18          JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
3.
DECARBONISING POWER
IN SOUTH AFRICA
Key findings of the sector analysis

The future of the power sector in South Africa in 10 key findings

       By leveraging its world class renewable energy sources, South Africa can fully
  1    decarbonise its power sector, while unlocking the opportunity to stimulate economic
       growth and job creation.

       South Africa’s complementary wind and solar resources are among the best renewable
  2    energy resources in the world, available on vast amounts of unused land.

       By 2050, a renewables-dominated power system is the most cost-competitive system
  3    for South Africa.

       Transitioning South Africa’s power system to net-zero would require the deployment
  4    of ~150GW wind and solar capacity by 2050 – this is almost four times the total capacity
       of South Africa’s coal power plants today – and an investment of ~ZAR3 trillion within
       the next 30 years, requiring significant expansion and upgrade to the transmission and
       distribution infrastructure.

       To reach net-zero by 2050, South Africa would need to speed up deployment of renewable
  5    energy capacity; at least 4GW of renewables will need to be installed every year – roughly
       ten times the current pace of new-build.

       Natural gas as a transition fuel will be critical in this journey – initially growing as an
  6    enabler to the integration of wind and solar into the power system at scale, gas will then
       be gradually replaced by other technologies to reach net-zero emissions.

       The transformation of South Africa’s power system can result in net-positive job creation,
  7    if South Africa can successfully localise elements of the renewable energy value chain
       and effectively re-skill the workforce.

       South Africa’s world class renewable energy resources also allows a highly competitive
  8    production cost of H2 below 1.60 $/kg by 2030, putting South Africa as potentially one
       of the largest global exporters of green H2 and green fuels.

       To help fund this journey and ensure competitive cost of capital, access to international
  9    green finance will be required to succeed.

       To enable this pathway, cross-sector collaboration and a conducive policy environment
 10    will be critical.

                                                  CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM   19
3.1      SCOPE AND APPROACH OF THE POWER SECTOR ANALYSIS

The aim of the power sector modelling is to identify
potential pathways that could lead to a just, net-zero           Real relative costs versus
transition of South Africa’s power sector by 2050. The           cost reflective tariffs
modelling provides a comprehensive fact-base of what
it would take to decarbonise the sector while improving          The need for cost reflective tariffs is a critical enabler
overall energy security for the country. As such, this fact-     to the implementation of the proposed pathways.
base attempts to quantify the techno-economic and socio-         However, conclusions on cost reflective prices
economic trade-offs between the different electricity            cannot be drawn from this study. This study models
supply system options, each based on a ‘dominant’                the real, relative costs which include:
technology set. These findings are intended to serve as          „ Incremental Capital Expenditure (CAPEX),
inputs for aligning broad, diverse stakeholder views and            Operating Expenses (OPEX), and fuel cost for the
for strategic decision-making in the power sector.                  supply mix (gigawatt [GW] and terawatt-hours
                                                                    [TWh])
The power sector modelling is not intended to:                   „ Grid upgrade costs for increased Renewable
                                                                    Energy (RE) generation (ZAR 3 billion/GW of wind
1. Quantify the exact power sector price path or make a             or solar energy)
   recommendation on what is required to achieve a cost          „ Transmission and distribution costs (20c/kWh)
   reflective tariff (the absolute price that various end        „ Other costs: carbon sequestration costs for
   consumers will pay for electricity over time, see side bar       Direct Air Carbon Capture and Storage (DACCS)
   ‘Real relative costs versus cost reflective tariffs’)            (ZAR 270/tonne for sequestration, over and above
2. Detail the exact power supply mix per year and replace           operational costs of ~ZAR 2000–3000/tonne),
   national power system planning                                   demand-side response costs (ZAR 3000/
3. Provide detailed, system-level solutions for complex             kilowatt [kW]).
   technical challenges like grid stability or system inertia.
                                                                 These real costs exclude:
The power sector modelling is intended to:                       „ Inflation (all costs are real)
                                                                 „ Cost premium of committed Independent Power
1. Quantify the ‘book-end scenarios‘ of real relative costs        Producers (IPPs) for the next 10–15 years (e.g.,
   between different strategic choices around supply               early Renewable Energy Independent Power
   technologies for South Africa’s power system                    Producer Procurement Programme [REIPPPP]
2. Provide sufficient resolution to quantify key metrics that      rounds)
   will influence strategic decision-making, for example:        „ Cost of servicing historical Eskom debt
   „ Supply capacity and generation                              „ Last-mile distribution costs (1–2c/kWh)
   „ Cumulative emissions                                        „ Cost of other grid investments like smart grid
   „ Real relative costs between different supply system           upgrades.
      options.

20       JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
Figure 4: Six-step approach to power sector analysis

    Analytical approach to power sector modelling.

            1                          2                         3                         4                  5                        6
        Assess the               Identify the            Identify optimal       Assess last-mile      Define net-zero               Identify key
      starting point             supply gap                2050 system          decarbonisation         pathways                 trade-offs and
                                                            archetype               options                                          enablers

  Assess the current         Quantify the 2050          Identify the cost      Assess cost-optimal   Develop potential         Identify key trade-
  power sector               supply-demand gap          optimal net-zero       tech options          net-zero pathways         offs of the net-zero
  context globally           for South Africa           power system for       for last-mile         for the power sector      pathways
  and locally                                           the country in 2050    decarbonisation
                             Identify the supply-                                                    Map two book-end          Identify and
  Assess the                 demand gap driven          Quantify the cost      Identify various      pathways to reach         compare trade-
  challenges and             by:                        and emissions of       last-mile             the optimal net-zero      offs along two
  opportunities from                                    three baseline tech    decarbonisation       2050 supply mix           dimensions:
                             ƒ Growth in
  a socio-economic                                      dominant system        options available
                               electricity demand                                                    ƒ Low emissions           ƒ Techno-economic:
  and environmental                                     archetypes:            to reduce residual
                                                                                                       path: accelerated         cost, emissions,
  perspective                ƒ Coal plant                                      emissions in the RE
                                                        ƒ RE dominant                                  decommissioning           new-build CAPEX
                               decommissioning                                 dominant system to
                                                                                                       of coal with all coal     and abatement
                                                        ƒ Coal and CCUS        zero/net-zero
                                                                                                       off by ~2042              cost
                                                          dominant
                                                                                                     ƒ IRP aligned path:       ƒ Socio-economic:
                                                        ƒ Conventional
                                                                                                       coal ramp-down            jobs, GDP
                                                          nuclear dominant
                                                                                                       in line with the IRP
                                                                                                                               Identify critical
                                                        Assess broader                                 with the cost of
                                                                                                                               enablers and no-
                                                        trade-offs                                     higher emissions
                                                                                                                               regret desicions to
                                                        qualitatively (e.g.
                                                                                                                               transition the power
                                                        environmental and
                                                                                                                               sector
                                                        socio-economic
                                                        impacts)

In addition, the CAPEX profiles arising from the techno-                         1. Assessing the starting point: Assessment of the
economic modelling conducted in this phase of the                                   current power sector context, including challenges and
project will also serve as the basis for a more detailed                            opportunities from a socio-economic, technical, and
socio-economic impact assessment that will quantify                                 environmental perspective.
key socio-economic trade-offs in selecting an optimal                            2. Identifying the supply gap: As a starting point for
pathway. This modelling will include jobs created (indirect,                        the assessment of the least-cost electricity system
direct, and induced), GDP impact, affordability of required                         supply option, the 2050 supply-demand gap was first
CAPEX profiles and resilience of the South African                                  quantified. This supply-demand gap was calculated
economy to specific price shocks arising from the techno-                           using the Integrated Resource Plan (IRP) low-demand
economic modelling of various pathways. Although some                               profile14 as a basis for how electricity demand will
preliminary job numbers are referenced in this report,                              evolve from 2020 to 2050 and mapping this against
these numbers will be updated once more granular socio-                             available supply. Available supply was quantified by
economic modelling has been completed leveraging                                    decommissioning existing infrastructure in line with
Social Accounting Matrices (SAMs) that have been                                    the decommissioning dates outlined in the 2019 IRP.15
developed for this project to test the impact of pathways                           To account for the potential impact of demand-side
for different economic structures of the economy.                                   management on supply requirements, a demand-side
                                                                                    response of 2.5 GW is assumed (ramping-up linearly
The power sector modelling is conducted along six steps                             from 0.3 GW in 2026 to 2.5 GW from 2035–2050). In
(Figure 4).                                                                         subsequent phases, this demand assumption will be
                                                                                    updated to reflect key sector insights and findings

14 See section 3.3.2 for additional information on this projection.
15 Coal plants decommissioned according to IRP schedule (Figure 7 and 26 in IRP report).

                                                                            CHAPTER 1: DECARBONISING SOUTH AFRICA’S POWER SYSTEM                  21
(e.g., electrification in the transport sector) and also                              systems is compared rather than narrowly comparing
   the implications of sector coupling and more granular                                 the technology costs of each generation technology
   demand-side management.                                                               in isolation.
3. Identifying the optimal 2050 system archetype to                                   4. Assessing last-mile decarbonisation options:
   meet future demand: Identification of the cost-optimal                                Identification of technological options that enable last-
   net-zero power system for 2050 is based on three                                      mile decarbonisation towards a (net) zero emissions
   baseline technology-dominant system archetypes:                                       power system. These are technologies that take the
   (i) Renewables dominant; (ii) Coal and Carbon                                         power sector from the emissions reductions achieved
   Capture, Utilisation and Storage (CCUS) dominant;                                     with known technologies implementable today to (net)
   (iii) Conventional nuclear dominant. Each of these                                    zero emissions.
   archetypes comprise a range of supply technologies                                 5. Defining net-zero pathways: Development of potential
   but are characterised by the supply technology                                        pathways that enable the transformation of today’s
   that accounts for the majority of power generation                                    power sector into the identified, optimal 2050 (net) zero
   in the system making it the ‘dominant’ technology.                                    emissions power system archetype (including last-mile
   The archetypes do not reflect where the supply is                                     decarbonisation options).
   generated (i.e., grid versus embedded or distributed                               6. Identification of key trade-offs: Identification of
   generation), but rather cost-optimally ensures supply                                 potential trade-offs that will need to be considered and
   meets demand. To assess the cost-optimal 2050                                         further assessed to identify the optimal pathway for
   net-zero power system, the real relative cost of the                                  the country.

3.2        KEY FINDINGS OF THE POWER SECTOR ANALYSIS

   By leveraging its world class renewable energy                                     The degradation of this coal fleet, coupled with the
   sources, South Africa can fully decarbonise its                                    delayed commissioning and underperformance of Medupi
   power sector, while unlocking the opportunity to                                   and Kusile, has been a significant contributor to load
   stimulate economic growth and job creation.                                        shedding in recent years.16 Energy shed has increased
                                                                                      from ~190 GWh in 2018 to ~1350 GWh in 2019 and ~1800
3.2.1  SECTOR CONTEXT: SOUTH AFRICA’S                                                 GWh in 2020 (approximately 10% of annual hours). Given
ELECTRICITY SECTOR AND THE NEED FOR A JUST                                            the downward trend in the Energy Availability Factor (EAF)
TRANSITION                                                                            from ~72% in 2018 to 65% in 2020, the low reliability of
                                                                                      power supply and the need for load shedding is likely to
South Africa’s power sector is facing challenges along                                persist.
multiple dimensions. Due to its reliance on a largely aged
coal fleet, the sector is unreliable, expensive, accounts                             Despite South Africa’s abundant and complementary wind
for a significant share of the country’s emissions, and                               and solar energy resources, less than 6% of electricity is
negatively impacts the environment – particularly water                               generated via renewables today. Around ~1% of power
availability, air quality, and consequently, health. The                              supply is generated via diesel generators for provision
current single buyer market structure is not conducive to                             of peaking capacity and power supply in times of supply
appropriate risk allocation. Non-discriminatory access and                            shortages.17 As a result of the significant reliance on coal
trading rules, subject to technical constraints, could enable                         for power generation, South Africa’s electricity system has
the market to develop in line with the net-zero pathways.                             a grid emission factor of ~1.0 tCO2e/MWh – among the
                                                                                      most carbon intense in the world. This makes the power
South Africa’s power sector is heavily reliant on abundant                            sector a key contributor to the country’s overall emissions:
local coal resources. Today, more than 80% of electricity                             it accounts for ~40% (~225Mt CO2e) of the overall national
is generated via coal powered plants, which make up a                                 emissions baseline (Figure 5, 2017 data).
total generation capacity of ~38 GW. The existing coal
fleet is aged, and based on the 50-year decommissioning                                   South Africa’s complementary wind and solar
schedule in the IRP, ~10% of coal power generation                                        resources are among the best renewable energy
capacity will reach end-of-life by 2030, and >60% by 2045.                                resources in the world, available on vast amounts
                                                                                          of unused land.

16 Wright, JG., & Calitz, JR. 2020. ‘Systems analysis to support increasingly ambitious CO2 emissions scenarios in the South African electricity system’. CSIR
   ResearchSpace.
17 Wright, JG., & Calitz, JR. 2021. ‘Statistics of utility-scale power generation in South Africa in 2020’. CSIR ResearchSpace.

22         JUST TRANSITION AND CLIMATE PATHWAYS STUDY FOR SOUTH AFRICA
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