On the road to Glasgow: South Africa’s green capitalism

As COP26 takes place in Scotland, this blogpost concentrates on South Africa’s interpretation of the green economy. Franziska Müller and Simone Claar scrutinize what South Africa has really achieved, whether this matches with its green ambitions, and how this translates to green capitalism’s wishful thinking.

By Franziska Müller and Simone Claar

Aspiring as a frontrunner in climate diplomacy has been one of South Africa’s global ambitions. Hosting international climate conferences and domestic ‘energy indabas’ seemed a popular strategy to demonstrate both responsibility for Pan-African interests and readiness for clean energy. While the gap between global climate governance, and a largely coal-powered energy mix has been frowned upon, recent political developments paint a slightly different picture. With carbon capitalism still alive and kicking, South Africa’s version of a green economy is materializing, yet at the price of downplaying questions of socio-ecological justice.

As COP26 takes place in Scotland, this blogpost first concentrates on South Africa’s interpretation of the green economy, by taking its energy auction instrument as an example for the arguments over green capitalism’s shape and structure. As COP 26 is dedicated to a stocktaking of domestic carbon reduction policies, we also scrutinize what South Africa has achieved, whether this matches with its green frontrunner ambitions, and how this translates to green capitalism’s wishful thinking.

South African Carbon Capitalism

South Africa has had its fair share of fossilist path dependencies. Pointedly labelled as the “minerals-energy complex” by Ben Fine and Zavareh Rustomjee, the settler-colonial amalgamation of the mining sector, heavy industry and national banking had developed already in the late 19th century. Under the Apartheid regime the minerals-energy complex became a bulwark that granted energy autarky despite the global boycott and the divestment campaigns.

Ironically, after liberation, the moth-balled surplus coal power stations guaranteed nationwide access to energy and ended racialized segregation in the energy sector. With energy monopolist ESKOM in full (but next to bankrupt) control over grid infrastructure, any attempt to defossilize the energy mix was limited to baby-steps. Yet, South Africa’s carbon emissions are about as high as the emissions of all other sub-Saharan African countries put together, with the Kriel area in Mpumalanga identified as a worldwide hotspot for fine dust pollution. Indeed, energy justice has for most of the time mainly been understood as security of supply, whereas environmental or health concerns have only lately found wider attention.

Social movements such as Earth Life South Africa or Mfolozi Community Environmental Justice Organisation protest against coal power stations face much opposition as the symbolic and material power of coal as the root to progress and social security remains unbroken. Anti-coal activists have been facing death threats, and in 2020, Fikile Ntshangas, a long-time activist against open-pit mining at Tendele Coal Mine was murdered. International environmental NGOs have only loosely been connected to these grassroots movements and the opportunity to join forces with trade unionists such as NUMSA has proven unsuccessful.

In this context, – a ‘policy innovation’, that is, the implementation of a carefully curated energy auction instrument, was regarded as a chance to change South Africa’s political economy of energy and to pave the way towards South Africa’s version of green capitalism: transnationalized, socio-economically conditionalized and non-unionized.

Auctioning a just transition? Renewable Energy Auctions and Investment Patterns

The first substantial steps towards adopting the green economy paradigm were taken when South Africa introduced an energy auction instrument – the Renewable Energy Independent Power Producers Procurement Programme (REI4P) – in 2011 (for a broader discussion of REI4P see our article in ROAPE here). REI4P has added 5 GW renewable energy to the national grid, which is why the instrument, and its investment patterns, deserve a closer look. Indeed, REI4P stands for something bigger than just a policy innovation: it represents a shift towards a different political economy of energy, largely driven by transnational energy companies and green finance flows.

REI4P differs from other energy auctions by adding a socio-economic component to the cost-efficiency scoring. Bidders must fulfil both local content requirements and socio-economic requirements such as employment of Black personnel and there is a threshold for local ownership (minimum 2.5%, with a target of 5%). The target was overachieved to a significant degree, with local ownership of up to 40%. In addition, a minimum of 45% for solar and 40% for other technology project costs had to be spent in South Africa. As of June 2021, REI4P has so far awarded tenders to 112 renewable energy projects, of which 92 have reached financial closure. In terms of job creation this has resulted in 40,134 direct, full-time equivalent job years.

Over the timeframe of the successive bidding windows, pricing has dropped considerably, from 2.52 rand per kWh in the first bidding round to only 0.82 rand per kWh in the fourth round, which means that the affordability of renewable energy increases. This demonstrates that, overall, renewable energy is cost competitive with conventional power sources.

The geographic spread of projects across South Africa is however unequal, with most projects (59 out of 112) located in Northern and Western Cape provinces, but few in Limpopo (3), Mpumalanga (2), KwaZulu-Natal (1) and Gauteng (1). While this is mostly due to favourable resource conditions for wind and solar energy in the Northern, Eastern and Western Cape provinces, it also demonstrates a hesitation on the part of investors to implement projects in the more remote and poorer parts of South Africa and on former homelands. Moreover, the creation of eight Renewable Energy Development Zones (the so-called REDZs), where more favourable investment conditions apply, meets investors’ needs but will increase spatial polarization, as six out of eight are located in the Northern, Western and Eastern Cape. This will concentrate the energy value chain geographically by clustering large manufacturers, smaller enterprises and adjacent energy services. However, the new focus on REDZs also means that REI4P’s potential for job creation in precisely those regions which will be hit most by coal decommissioning has not been considered.

Green Investment Patterns

Zooming in on investors and on investment patterns such as ownership or the role of transnationalized capital reveals that REI4P is by and large a transnationally driven project, though with a considerable amount of energy cooperatives with high communal ownership.

The first pattern, transnational capital, is characterized by complex shareholder consortia and an exceptionally high share of inter- and transnational capital, ranging between 40% and 60%, with private equity playing an important role. This is complemented by a lower share of local capital and low involvement of local communities ranging between 2% and 5%. Overall, 31 out of 82 projects (37.8%) fall under this category. In most cases we find one transnational shareholder with a blocking minority who manages all the operative processes. Often companies with a long-standing history are now seeking to tap the potential of the renewable energy market, for instance Enel or Anisol, a subsidiary of the French oil company Total.

Transnational social entrepreneurship, the second investment pattern, is characterized by a high share of transnational investors, complemented by an almost equally high share of community trusts, ranging between 10% and 40% of community ownership. A typical example is the Prieska Solar Power Plant, involving Spanish company Gestamp (60% share), but also the South African strategic equity investor Mulilo, with a share of 40% divided equally between the company and a community trust. This pattern involves South African project developers, pension funds, life insurances and black equity investors, but also development aid agencies and international finance institutions. Socio-economic responsibility is often outsourced to specialised agencies, such as Sofisa Phillips or the University of Cape Town’s (UCT’s) start-up Knowledge Pele, that aim at business consultancy, socio-economic needs assessments and community development programmes. This pattern was found in 26 out of 82 projects (31.7%). Combining transnational investment, domestic black capital and community trusts, this pattern can also be considered a liberal success story building on the idea of African entrepreneurship, while opening up to transnational investors’ interests.

Localised renewable energy ownership, the third investment pattern applies for 25 out of 82 projects (30.5%). These consortia involve smaller, South Africa-based project developers or joint ventures which hold the controlling minority. In these cases, engineering and construction work is performed by domestic companies, thereby guaranteeing a higher rate of local content. The shareholder amount of community trusts is much higher than the 2.5% required by the REIPPPP directives, ranging between 15 and 40%. In contrast to the first and second models outlined above, projects within this pattern are more likely to be financed through debt from national and developmental banks than through equity. Several projects involve traditional leaders and communities on collectively owned land, for instance Tsitsikamma Community Wind Farm, Cookhouse Wind Farm, and Grassridge Wind Farm. In addition, socio-economic programmes are more likely to be designed according to public consultation, with college courses, entrepreneurial education or agricultural consultation as typical features.

Green Capitalism and the run-up to Cop26

This close-up on REI4P provides evidence of the socio-economic and socio-ecological transformations currently happening in South Africa. It shows how two different energy regimes have entered fierce competition: an aging monopolist one representing carbon capitalism, and a diversified, liberal and transnationalized energy regime with a stated aim of green capitalism. Yet this competition faces built-in distortions, some of which we can already pinpoint:

  • Transnational capital and green finance flows gain in importance: Their rising relevance means that renewable energy projects are designed according to criteria such as bankability, scalability, and return on investment, whereas criteria such as energy justice or social welfare may be of minor significance. This trend towards financialization resonates with South African aspirations to become a worldwide hub for green hydrogen, a source of energy which is even more prone to financialization.
  • Green transformation processes face political contestation: Trade unions accurately criticize that green jobs are healthier and argue that they offer lower wages and less social security. Job losses in the Mpumalanga and Limpopo provinces pose a danger to social stability, yet REI4P is not designed in a way that would consider these risks. At the same time, communal entities complain that they do not have enough voice to articulate their interests during the energy auctions.
  • Energy poverty is not yet resolved by renewables while fossilists seek to promote the carbon accumulation model. Indeed, with uneven distribution and supply chains being disrupted due to the pandemic, we can spot sudden energy demands, which are difficult to satisfy. Therefore the recent Karpowership deal – a 20-year contract granted to the Turkish Karadeniz group for placing two fossil powerships in front of Durban’s harbour – is so disturbing: a business model designed for late-stage carbon capitalism, aiming at quick-and-dirty energy solutions, offering overpriced energy and endangering marine ecosystems.

On the road to Glasgow, how do these points correspond with South Africa’s nationally determined contributions (NDC) for COP26? Indeed, South Africa has tightened its commitments and has finally agreed on a shift away from coal. The goal of decoupling of emissions and growth pervades the strategy, and echoes hopes and fears so typical for green capitalism.

On a global level South Africa rightfully demands that western nations enhance their pledges for the Green Climate Funds and sign a “just transition partnership”. This resonated with historic responsibilities and claims for climate justice. Furthermore, the NDC repeatedly refers to the “just transition” narrative, for instance for greening value production chains, decarbonizing heavy industry and for restructuring miners’ jobs.

A focus on climate vulnerability and early warning systems gives evidence that there is deep awareness for climate change-induced dangers in the near future. On the mitigation side policies proposed include a carbon tax, company-level carbon budgets and emission reduction, yet the language is weak and does not underscore a sense of strong commitment. While decommissioning of 35 GW coal power stations is a step towards decarbonisation, coal capacity additions of 7.2 GW are not at all in line with the Paris Agreement. Furthermore, REI4P is not expanded rapidly enough, which means targets such as 45% renewables by 2030 or 85% by 2040, seem beyond reach. Not surprisingly, this pace is still rated “insufficient” by the Climate Action Tracker.

In contrast, the discussion and activities surrounding the so-called Climate Justice Charter call for a more radical transformation. Being a product of intense civil society dialogue, the Climate Justice Charter tackles the connection between sustainability, livelihood, production chains, and global political economy. In the field of energy, the Charter calls for socially owned and community-based renewable energy. In practice, this means a rapid shift from carbon capitalism, including divestment from fossil fuels and a deep transformation of the current energy system. One significant difference to the current renewable energy programme is the focus on technology ownership and Pan-African clean tech. In addition, the call for a decentralization of renewable energy production “supported by participatory budgeting and incentives (such as feed in tariffs) for our workplaces, homes and communities” is remarkable.

Returning to our research findings on the different investment patterns in RE4IP, the consequences are to concentrate on localized structures and decentralized energy production. However, adopting the ideas of the Charter would be an opportunity to strengthen social justice to underpin a truly just transition.

Read Franziska Müller and Simone Claar’s full article in ROAPE until the end of November, ‘Auctioning a ‘just energy transition’? South Africa’s renewable energy procurement programme and its implications for transition strategies.’

Franziska Müller is Assistant Professor for Climate Governance at the University of Hamburg and is active in environmental justice movements for more than 20 years. Her research concentrates on energy justice, energy transitions, postcolonial studies, and international political economy, with a regional focus on South Africa, Zambia, and Ghana. 

Simone Claar leads the research group ‘Glocalpower: Funds, tools, and networks for an African energy transition’ at the University of Kassel, and a long-standing trade unionist in Germany’s education union. Her research interests include international political economy focusing on state and capitalism in Africa, green economy and finance as well as renewable energies.


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