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SA could be a global player in $23-trillion green energy market, says US

10 Oct 2022

South Africa is ‘incredibly well’ positioned to be a major force in the production of the world’s green energy resources and should factor this into its financing needs for a just transition, says US deputy energy secretary David Turk

South Africa has ‘incredible’ potential to become a global economic force in renewable energy and should factor in the huge economic opportunities, especially for exports, when it calculates how much it needs to finance its just energy transition, the US believes.

United States deputy energy secretary David Turk suggested this when asked about President Cyril Ramaphosa telling President Joe Biden last month that South Africa needed $38-billion to finance its just energy transition from its heavy dependence on coal for producing electricity.

The US, UK, European Union, Germany and France together pledged $8.5-billion last December towards a Just Energy Transition Partnership (JETP) to help South Africa transit towards renewable energy while preserving the livelihoods of communities dependent on coal.

But Ramaphosa said he had told Biden at the White House that South Africa had calculated it really needed $38-billion to finance such a just transition. Biden had told him he would discuss this with other G7 leaders.

Daily Maverick asked Turk if he thought a $38-billion price tag was realistic and if the US was, in fact, consulting its partners about it. The interview was in Cape Town last week after he had spoken at the Green Energy Africa summit.

Broader perspective

Turk suggested that South Africa needed instead to take a broader perspective on its just energy transition by considering it as an opportunity to create jobs and enterprises from clean energies such as solar photovoltaic (PV) and wind, and to make “an awful lot of money” from exporting renewable energy and technology.

“I’ve had some really interesting conversations here on green hydrogen opportunities both domestically, but also for export purposes,” Turk said.

He had also spoken to South African entrepreneurs about business opportunities not only in developing critical minerals for electric vehicles and energy storage, but also in going up the production value chain, both for domestic use and export.

“I’ve come away incredibly impressed. South Africa is positioned incredibly well to be a global force.” There was “an awful lot of money to be made” from the huge global demand for solar PV, wind turbines, the components of magnets and batteries, electric vehicles and other elements.

$23-trillion market

Turk said Bloomberg had recently valued this global green energy market at $23-trillion just this decade.

He said this huge economic opportunity was sometimes not factored into the calculations of South Africa needing $8.5-billion or $38-billion or “whatever billion” to finance a just energy transition.

“There’s a huge market opportunity, economic opportunity, in addition to the benefits that come from greater affordability, energy security and predictability, with the clean energy technologies as well. But there’s no doubt this is an immense transformation.

“There’s a dynamic situation in energy right now.”

Turk said one part of tapping this economic opportunity was to use public funds as a catalyst to leverage greater amounts of private funding — especially in free market economies where the private sector was key to doing things at scale. This entailed creating the right incentive structure, including the necessary finance, to leverage private sector finance. “And that’s the real prize for anyone.”

Export opportunities

It was also important for South Africa simply to realise the size of the economic opportunity, including for exports. Turk said his meetings in South Africa with companies and the government had shown him that “the country is incredibly well positioned” to become a major producer of renewable energy, not only for export to Africa, but also as a regional hub for export to the world.

“I think SA has a lot of comparative advantages for a variety of different technologies. So I think there are huge opportunities, both near-term but also in the medium and longer term as well.”

“It’s not going to inevitably happen. There’s going to have to be an awful lot of government policy. There’s going to have to be true partnership with countries like the US in a mutually beneficial kind of way. And an awful lot of private sector leadership as well.”

For comparison, Turk noted the US Congress had just passed legislation which would provide more than $500-billion — much of it in tax incentives to business — to accelerate the country’s own clean energy transition.

Global dynamics

He said the global energy market was now very dynamic, in part because of the disruptions by the Covid pandemic and Russia’s invasion of Ukraine, especially of the natural gas market. Conversely, there had been significant reductions in the costs of solar PV and wind.

“We’ve launched a lot of earthshots in the US to try to drive down the cost of key technologies like green hydrogen electrolysis, long duration storage and geothermal and industrial thermal.”

The US was also trying to ensure these technologies benefited communities, including disadvantaged communities. The prize would go to countries that could look furthest into the future to gauge the different renewable energy market opportunities.

A big part of the energy story over the next three to five years would be which countries seized the opportunities and which didn’t. There would be winners and losers.

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Meanwhile, the spokesperson for the US Consulate General in Cape Town, Stacy Barrios, confirmed to Daily Maverick that the US government would contribute another $45-million to the JETP, in addition to the initial pledge (believed to be $1-billion).

“Grant support from the United States government, including this additional $45-million, through our Power Africa partnership initiative, will align with South Africa’s needs and priorities — as outlined in the JET Investment Plan — to determine the best use of funds to support decarbonisation of the energy sector, as well as to support communities and workers impacted by the transition from coal to renewable energy,” Barrios said.

Biden had mentioned the $45-million after meeting Ramaphosa last month.

JETP loans

Daily Maverick also asked Turk to comment on the concerns expressed by International Relations and Cooperation Minister Naledi Pandor in the US last month, that she had heard that too much of the $8.5-billion financing for the JETP would be in the form of loans rather than grants, and that this could therefore overburden South Africa with debt.

Turk said the US and the other JETP partners were contemplating a variety of possible financial instruments and sources. But he also suggested South Africa should look to the advantages of the extensive expertise of his Department of Energy, which it could tap.

“We’ve got 17 national labs, a flotilla of people who know hydrogen inside and out — or renewables inside and out, or storage inside and out.”

The US was ready to learn from South Africa’s experience, but was also eager to offer South Africa the lessons learnt on its own; game-changing, clean energy transition — including the lessons from its recent tax incentive clean energy legislation.

Implementation

Turk shrugged off concerns raised by some JETP partners about the slow pace of the South African government in drafting a Just Energy Transition implementation plan. This is supposed to be ready in time to be presented as a model for similar JETPs with other countries at next month’s COP27 global climate conference in Egypt.

Turk agreed that the JETP with South Africa was a “really powerful test concept” which would be examined to decide how it lent itself to replication with countries such as Indonesia and India.

He said the JETP with South Africa was part of a long-term and bigger partnership between the US and South Africa, and so the important thing was to get it right (rather than meeting deadlines, he implied).

World gas supplies

Globally, Turk said the US believed that despite drastic reductions in the gas supply from Russia, Europe had built up enough reserves of liquid natural gas (LNG) — in part with America’s help — to see it through the coming winter, unless the winter was particularly cold or other disruptions occurred.

But he noted that the Europeans had been able to build up their reserves because Russian gas had been flowing in for most of this year. If that supply stopped, it would be challenging to build up enough reserves for next winter and the one after.

Aggravating the challenge was the fact that LNG terminals took three to four years to construct, so for that period there wasn’t going to be enough LNG for everyone — not only the Europeans, but also the Japanese and the many Asian and other countries dependent on it.

Countries would have to greatly accelerate their clean energy transitions in the meantime.

Turk said African and other countries, which already had the ability to export LNG, were going to make “an awful lot of money” from the current market. But countries with LNG reserves and no export terminals faced difficult decisions on whether to build them because of the three to four-year time lag in construction.

“And who knows what the market will be at that stage in the future.”

Smart governments were trying to predict what the energy markets were going to be in 10, 15 or even 20 years from now, not only to address domestic needs, but also export opportunities. DM

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South Africa

Broader perspective

$23-trillion market

Export opportunities

Global dynamics

JETP loans

Implementation

World gas supplies