R9bn Komati repurposing project ‘will need to be replicated hundreds of times’, says World Bank executive

The World Bank last week announced that it had approved South Africa’s request for a R9-billion concessional loan for the repurposing and repowering of Eskom’s Komati Power Station.

The Komati project is Eskom’s first step towards a just energy transition (JET), the transition to using lower-carbon technologies while ensuring workers and communities most affected by the transition aren’t left behind.

Operating since the 1960s as a coal-fired power plant in the coal hub of Mpumalanga, Komati is set to become the first major coal power station in South Africa to be converted into a renewable energy generation site.

The project entails repowering the decades-old power station with renewable energy by installing 150 megawatts (MW) of solar power, 70MW of wind power and 150MW of battery storage, and repurposing the plant into a training facility to reskill and upskill Eskom employees and the surrounding community.

Read more in Daily Maverick: “Shut down Komati Power Station first of its kind to be repurposed into renewable energy training facility”

World Bank Group President David Malpass visited the Komati Power Station on Sunday, 6 November, a week after it had shut down its last coal-fired operating unit (which had contributed 125MW of electricity to the national grid).

President of the World Bank David Malpass (right) listens to a presentation about the Komati repurposing and repowering project, of which the World Bank is providing a R9-billion concessional loan. On the left is Eskom Group CEO Andre de Ruyter, at the Komati Power Station, Mpumalanga, on 6 November 2022. (Photo: World Bank)

“Reducing greenhouse gas emissions is a difficult challenge worldwide, and particularly in South Africa, given the high carbon intensity of the energy sector,” said Malpass.

“Closing the Komati plant this week is a good first step toward low carbon development. We are cognisant of the social challenges of the transition, and we are partnering with the government, civil society and unions to create economic opportunities for affected workers and communities.”

The minister of public enterprises, Pravin Gordhan, who welcomed Malpass on Sunday, said: “This project is critical to our understanding of the sustainability of decommissioning, repurposing, and mitigating the socioeconomic impacts for workers and communities before we scale up the move of the power sector into a low-carbon path.”

Funding breakdown

Of the R9-billion ($497-million) concessional (lower than commercial interest rates) loan, $439.5-million is from the World Bank, $47.5-million from the Canadian Clean Energy and Forest Climate Facility and $10-million from the Energy Sector Management Assistance Program.

In a statement, Eskom said the loan would be guaranteed by the National Treasury and would cover: “Decommissioning of the Komati Power Station, repurposing and repowering of the station and other elements of the Just Energy Transition, including provision for the training of Eskom employees, community development and stakeholder initiatives.”

Eskom spokesperson Sikonathi Mantshantsha told Our Burning Planet: “Terms of the facility have been negotiated and agreed; however, these terms will be deemed final upon the conclusion and signing of the actual concessional loan agreement documents by all parties.”

‘Private sector will have to come in’

Axel van Trotsenburg, the managing director of operations at the World Bank, mentioned the Komati project at a panel discussion on Tuesday at the COP27 climate change conference in Sharm el-Sheikh, Egypt. He said that when it came to decarbonising, “In South Africa, with the power interruptions at fairly high levels this year, it will need to have alternatives — and that means a very rapid expansion of the renewable energy sector.

Middelburg resident and Komati workers near Komati Power Station in Mpumalanga. (Photo: World Bank)

“The costs that have been named in doing so are going into tens of billions of dollars … a challenge for any country, but also for South Africa — alone, the public sector cannot do it, so the private sector will have to come in.

“There are good opportunities to do so, but time is not on our side. And that means that actually this will need to go much faster.”

Gordhan said the project is part of implementing the 2019 Integrated Resource Plan (IRP), South Africa’s energy mix plan, which aims to gradually retire 12 gigawatts (GW) of the country’s old and inefficient coal-fired power fleet and scale up private sector-led renewables of 18GW by 2030.

Things are going slowly, with coal still providing 38.7GW (well, on a good day) of the country’s 52.5GW installed capacity, and private-sector renewables contributing only 6.2GW.

The first three projects of Bid Window 5 of the Renewable Energy Independent Power Producer Procurement Programme were only signed in September this year and will contribute just 420MW to the grid in two years’ time once they are built. But all 25 projects, contributing more than 2.5GW, in this bid window were meant to be built and connected to the grid this year, according to the 2019 IRP.

Read more in Daily Maverick: “SA signs agreements with three independent power producers, but is it too little, too late?” 

The World Bank emphasised that as the power sector contributes 41% of South Africa’s CO₂ emissions, its funding for the repurposing of Komati will reduce carbon emissions, improve ambient air quality and enhance energy security, with the installation of 220MW of renewable energy solutions.

While this is a step in the right direction, 220MW is a drop in the ocean out of the 52.5GW we currently use, and only 100MW more than Komati’s last operational unit was contributing before it was shut at the end of October.

Thus, we need to ramp up our renewable energy exponentially.

From left: Minister of Public Enterprises Pravin Gordhan, Eskom Group CEO Andre de Ruyter and World Bank President David Malpass with Eskom employees at Komati Power Station, Mpumalanga, on 9 November, 2022. (Photo: World Bank)

Van Trotsenburg said: “I think that it’s important to keep in mind that this was the very first decommissioning project of the World Bank undertaken. But we have to keep in mind that the challenge is much bigger, not only for South Africa but for the world,” mentioning that China has more than 1,000 coal-fired plants.

“The Komati project cannot be only a prototype that we visit and feel good about, but this will need to be replicated not twice, not five times, it’s hundreds of times.”

The cost and climate benefit of lowering emissions

The World Bank Group — currently the largest multilateral financier of climate action in developing countries, having delivered a record $31.7-billion for climate-related investments in the 2022 fiscal year — recently launched its Country Climate and Development Reports (CCDRs), which are diagnostic reports that consider climate change and development aspects, and identify main pathways to reduce greenhouse gas emissions and climate vulnerabilities.

The World Bank presented the findings from South Africa’s CCDR at COP27 on Wednesday, emphasising that the country’s development and climate goals could be achieved by, “embracing a triple transition that is low-carbon, climate-resilient and just”.

Stéphane Hallegatte, a senior climate change adviser at the World Bank, acknowledged South Africa’s vulnerable economic situation: low economic growth, high inequality (the Gini coefficient ranks SA as the most unequal country in the world) and high unemployment.

“So anything we do on climate has to be designed in that context, and help support solving those economic challenges. But the country also faces climate-related issues,” said Hallegatte.

Hallegatte was referring to mitigation — addressing the sources of the emissions of greenhouse gases into the atmosphere — and adaptation, which is how we deal with the climate impacts, such as floods, heat waves and droughts, that are already locked into place.

Mitigation remains a huge challenge for South Africa, which is one of the world’s most carbon-intensive countries, being highly dependent on coal.

The CCDR found that there are an estimated 20,000 premature deaths in South Africa every year due to air pollution. Despite a spike in coal exports this year in the wake of Russia reducing its gas supply to Europe, the CCDR found that South Africa’s high dependence on coal means, “reduced competitiveness as global consumers and investors are turning away from high-carbon products.

“So, in a world that is decarbonising, the country has a long way to go to catch up. Also, the country is in an energy crisis, with a lot of load shedding at the moment that costs the country, by some estimates, up to $200-million a day,” said Hallegatte.

Visit Daily Maverick’s home page for more news, analysis and investigations

In terms of adaptation, the extreme impact of the drought in the Eastern Cape, the floods in KZN and the recent heat waves in Gauteng show SA is not as prepared as it needs to be.

Considering the rolling blackouts, vulnerability to climate impacts and high inequality, the CCDR has proposed three interconnected transition pathways.

First is the low-carbon pathway, which along with addressing the global climate agenda, the CCDR says will be in SA’s best interest.

“The CCDR found that today, the least costly and quickest option to increase power generation and meet the needs of the growing energy demand in the country is to invest in renewable energy. Doing that would require a lot of things and first, large investments in renewable capacity itself, but also in the grid — transmission and distribution — and in energy efficiency across the economy,” said Hallegatte.

The CCDR found that lowering emissions could boost GDP growth to about 2.3% per year between 2022 and 2050, but: “Climate action in itself cannot replace the growth-enhancing reforms that the country needs, especially to tackle unemployment and inequality,” said Hallegatte. “So it helps, but it’s not the whole story.”

Eskom’s forecast

Eskom’s annual report assesses the electricity supply shortfall risks that may arise based on foreseeable trends in demand and generation capacity for the next five years.

The recently released medium-term system adequacy outlook assessment for 2023 to 2027 found the power utility is not yet close to ending the chronic power supply constraints faced over the past decade.

“The current year has been the worst yet, and it is evident from this study that the situation will worsen as the plant performance of Eskom’s fleet continues to trend downwards, power stations shut down, and demand grows,” said the report.

Eskom’s coal and liquid fuel-fired power stations must meet the minimum emission standards (MES), as required by the National Environmental Management: Air Quality Act, 2004. Because of ongoing generation constraints, Eskom has requested multiple postponements of some of the air quality compliance timelines set in legislation for its power stations.

In November 2021, the Department of Forestry, Fisheries and the Environment (DFFE) said that Eskom had to strictly comply with prescribed limits for local pollutants (ie, stop applying for postponements and actually meet the MES).

To meet the MES, Eskom will have to lose a baseload generation capacity of 15.9GW immediately and 29.9GW after April 2025.

“This will have a significant negative impact on Eskom’s mandate to supply stable and reliable electricity for the country’s needs,” said the Eskom report.

Eskom appealed against the decision, and because of SA’s energy crisis, DFFE Minister Barbara Creecy has since tabled the decision and proposed at Parliament to constitute an appeals forum.

The CCDR highlights that poorer communities face a disproportionate impact from the climate crisis. Hallegatte said: “Everybody will be affected in the country by climate change, of course… but like always, poor people will be more affected than the average.”

The report found that the poorest regions face the greatest risk, with the Northern Cape facing the highest projected increase of water stress, North West facing the highest projected increase in temperature and KwaZulu-Natal at risk of floods.

The report recommends that SA prioritises:

• Investing in digital technology to improve weather risk forecasting and early warning systems;


• Investing in resilient infrastructure and social services;


• Developing an insurance market for climate risks; and


• Improving the adaptiveness (shock responsiveness) of the social assistance system.

How much is this going to cost?

The CCDR projects that South Africa’s total climate financing needs will be 4.4% of South Africa’s GDP between 2022 and 2050, which is R8.5-trillion.

These needs are high compared with China, which requires 1% of its GDP, and Ghana, at just over 2%, but are on a par with Egypt, Iraq and Peru, and well below Pakistan and Cameroon, which require 10% and 9% of their GDP, respectively.

https://www.youtube.com/watch?v=REeWvTRUpMk

“It’s not an outlier,” acknowledged Hallegatte. “But compared with China … the country has a saving challenge. So, less resources, it makes it more difficult to meet that bar.”

“Poorer countries, more exposed countries, [have] higher needs,” said John Roome, the regional director for South Asia sustainable development at the World Bank, at the launch of the report on Tuesday.

“Now you can debate the numbers backwards and forwards, but they are huge. In every country, the amount of available finance is way below the amount of investments that will be needed.”

To close that financial gap, the CCDR recommends encouraging private investment, increasing public financing for the just transition and for the enabling environment (like the grid), as well as external resources like multilateral and bilateral development partners and external institutional investors with risk climate bonds.

Reitumetse Molotsoane, the head of Environment & Society at the National Business Initiative in South Africa, said at the launch of the CCDR: “We’ve acknowledged that up to 60% of the finance that we need within this decade, up to 2030, in building those initial steps can come from commercial finance.

“The CCDR makes a very strong case for the role of grants and concessional loans in the country, for affordability reasons because of the lack of savings, but also because climate change is a global public good and the costs, for instance, to exit coal, need to be shared globally,” said Hallegatte.

Roome said: “Across all of the countries we’ve looked at, there is a large amount of decarbonisation that is in the country’s interest — renewable prices are falling, better fuel security, and in South Asia, huge positive impacts on air pollution.

“If one looks forward, there is still an issue of how you phase down your coal. And there, it’s interesting to compare South Africa and India, and as difficult as it is in South Africa, I think you’re well positioned compared to India.”

Roome explained that as South Africa’s coal fleet is coming to the end of its lifespan, unlike India, the country won’t have stranded assets; additionally, SA has a much better established social dialogue with civil society, business and government, as well as societal buy-in to get to net-zero.

Roome added: “When you pull this all together, particularly in the short term … tough trade-offs are going to be needed.” DM/OBP