What is JET?
The concept of the Just Energy Transition describes an equitable, inclusive transition process within which a country's energy system would progress from being carbon-intensive to becoming low-carbon and sustainable. This process ought to be ensured with minimal socio-economic disruption and an ultimate view toward sharing any arising benefits equitably by ensuring no vulnerable communities or workers in the transition journey are left behind. At the larger global level, these are due to emerging requirements for climate change mitigation, reduction in greenhouse gas emissions, and sustainable development goals.
In South Africa, about 70% to 80% of the energy mix is fulfilled by coal.
[i] Coal mining is also an industry and an employer: direct employment in coal mining is estimated at more than 90,000 employees, with an estimated 500,000 indirect jobs, especially in Mpumalanga province, which hosts most of South Africa's coal mines.
[ii] However, the environmental and health effects of coal combustion, plus growing global pressure to reduce carbon emissions due to climate change, have made it imperative that renewable energy takes over.
Key Drivers of JET in South Africa
- Climate Commitments: Through the Paris Agreement, South Africa committed itself to reducing its carbon emissions. The country's Nationally Determined Contributions detail targets for reducing emissions that need to move away from coal.
- Economic Issues: To improve supply security, the country wants to reduce dependency on Eskom's aged fleet of coal generators. Due to falling international demand for coal and constantly improving affordability for renewables, financial pressures have ramped up significantly for South Africa's coal industries.
- Social Justice: The JET in South Africa is also defined by social and political imperatives. High levels of unemployment, inequality, and poverty imply that this transition needs to be just and inclusive. Government, labour unions, and civil society organisations clamour for a transition that does not harm workers' rights, creates new job opportunities and supports affected communities.
- Global Investment Trends: Increased funding for sustainable projects, including the JETP with the US, UK, and EU that mobilises international climate finance.[iii]
Implications for Businesses:
- Increased compliance requirements, including emissions reporting and energy efficiency mandates.
- Incentives for renewable energy adoption, such as tax breaks and subsidies.
- Potential for job creation in renewable energy projects.
- Potential risks for sectors heavily reliant on coal.
Sectoral Impacts of JET
- Energy-Intensive Industries: Enterprises in mining, manufacturing, heavy industries, etc., would have to change because of the shift in energy costs brought about by decarbonisation. Options would be to invest in energy-efficient technologies, change to renewable sources, and find means of carbon capture and storage.
- Renewable Energy Sector: One of the most promising aspects of the Just Energy Transition (JET) is the potential for job creation within the renewable energy sector. As South Africa shifts towards a low-carbon economy, businesses dealing with manufacturing, installing, and maintaining solar and wind energy technologies, among other forms of renewable energy, will experience significant growth. This growth is further bolstered by increased private involvement in generation through IPP programs.
- Green Hydrogen Industry: The country is in a perfect position to be one of the global leaders in producing green hydrogen, a clean energy carrier with enormous export potential. Similarly, companies producing, storing, and transporting hydrogen and its associated industries, including fuel cells and electrolysers, will experience tremendous growth.
- Electric Vehicle Industry: While the policy aimed to achieve the objective of substituting fossil fuels with electric vehicles, this would, in turn, certainly create an incentivised domestic manufacturing industry for electric vehicles, thereby creating opportunities for companies manufacturing, distributing, and serving electric vehicles, along with those providing charging infrastructure.
- Financial Services: Financial institutions would be relevant for financing JET through project finance in renewable energies and developing new financial services and products that support transitions. More comprehensive due diligence regarding corporate sustainability performance is done well ahead of the credit and investment decisions.
Key Risks
From a business point of view, there are challenges and risks that are presented by the JET:
- Investment Costs: Low-carbon economic transition requires massive investment in introducing new technologies and infrastructures.
- Technological Uncertainty: Fast changes in the technologies of the energy industry make the sector unpredictable for business.
- Skills Shortages: The transition to a low-carbon economy will depend on skills in renewable energy technologies, energy efficiency, and green hydrogen production.
- Market Volatility: Global energy markets can be volatile, affecting business profitability.
- Regulatory Uncertainty: Energy policy and regulation changes may add to uncertainty.
- Stranded Assets: Investment in Coal-Dependent Infrastructure might become redundant due to altered policies and reduced demand.
- Workforce Disruption: Transition sometimes results in job losses in coal-dependent regions and mandating reskilling programs.
- Energy Security Concerns: Loadshedding and infrastructure bottlenecks may impact transition and operations timelines.
Opportunities
- Green Financing: Availability of sustainability-linked loans, green bonds, and foreign investment in renewable projects.
- Renewables Adoption: Companies can invest in solar, wind, and energy efficiency to reduce costs.
- New Markets: Developing markets include battery storage, electric vehicles, and clean manufacturing.
- Brand and ESG Premiums: Consumers and institutional investors increasingly expect goods and services from companies acting on sustainability.
- Innovation: The JET will accelerate energy storage, grid modernisation, and carbon capture and storage innovations.
- Job Creation: The low-carbon economy will create jobs in renewable energy, efficiency, and green hydrogen.
Actionable Takeaways for Businesses
- Assess carbon footprints and identify reduction strategies.
- Explore renewable energy solutions and financing options.
- Workforce transition to upskill and reskill through plans.
- Enhancement of ESG reporting in line with investor expectations.
- Investing in innovation, research and development.
- Partnerships with industries would help advocate for pragmatic policy consideration.
- Monitoring of regulatory changes.
Conclusion
The JET in South Africa has been quite an evolutionary process for the nation; it promises huge dividends and impetus in socio-economic respects. While highly demanding, the transition creates considerable avenues for businesses willing to show dynamism and imagination. It allows such businesses to take leading positions as catalysts in developing sustainable business approaches that generate significant economic prosperity and equity in general society.
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