Identifying the risks and dependencies associated with the implementation of policy reforms to enhance access to clean and affordable energy in South Africa

Background and context

South Africa is at a critical juncture in its energy transition journey. As the country seeks to reduce its reliance on coal, there is a pressing need to ensure that the transition to cleaner energy sources is both equitable and sustainable.

Although nearly 90% of households had electricity access by 2021, many struggle with affordability, which disrupts essential services like education and healthcare, perpetuating poverty. The rapid growth of renewable energy, mainly benefiting wealthier households and industries, risks disadvantaging poorer communities reliant on the grid. If not carefully managed, this shift could reduce municipal revenue, leading to higher tariffs and poorer service quality. To address these challenges, it is crucial to develop tariff structures and policies that support the goals of the Just Energy Transition, ensure affordability, sustain municipal utilities, and enhance support for the most vulnerable populations.

Purpose of the engagement

In recognition of the need to ensure a successful energy transition in South Africa, the Agence Française de Développement (AFD) commissioned Nova Economics to gather information on progress in the implementation of a set of policy reforms that they had identified as being required to support the objective of energy poverty reduction.

The purpose of the study was to provide the AFD with a basis for discussions with the National Treasury of South Africa to develop a Just Energy Transition policy-based loan operation that will aim to enable improved access to affordable and clean energy as part of the JET Investment Plan.

Our approach

We engaged with key stakeholders to gather insights into the identified reforms. These stakeholders included the Intergovernmental Relations Department within the National Treasury, the Just Energy Transition Project Management Unit within the Presidency, the Department of Mineral Resources and Energy (DMRE), Eskom, the Department of Cooperative Governance and Traditional Affairs (CoGTA), and various relevant research institutions. The interviews aimed to assess the status of the policy reforms, determine the logical sequence and interdependencies of these reforms, and identify any risks to their implementation. Additionally, we were tasked with identifying any gaps in the policy reform framework.

Our findings from these interviews were supplemented by thorough desktop research and our team’s extensive knowledge and expertise in the energy sector.

Outcomes of the project

The insights provided by Nova Economics were instrumental in shaping the design of a policy-based loan matrix by AFD for the South African National Treasury. This loan, centred around the identified reforms, aims to support the country’s efforts to achieve a Just Energy Transition while ensuring that the transition does not exacerbate energy poverty. The AFD concluded negotiations for the R7.6 billion loan for the implementation of the country’s Just Energy Transition Plan in November 2024.