Key takeaways:
South Africa signed the Climate Change Bill into law on July 23rd, showing its commitment to mitigating climate change and boosting renewable energy.
KSG assesses that the South African government is unlikely to fully adhere to the goals of the Climate Change Bill apart from potentially imposing certain carbon emission limits. A powerful coal lobby and commitments to the BRICS economic partnership will likely hinder full implementation.
Despite political resistance to divesting from coal, KSG expects a significant increase in investment opportunities for international firms in the wind energy sector over the coming decade. With electricity prices likely to remain high, demand for wind energy investment is expected to rise. The South African solar energy sector will likely follow the same trend; however, solar panel imports are likely to be limited due to a 10% import duty.
KSG assesses that South Africa’s domestic natural gas market is unlikely to develop significantly over the next five years due to regulatory hurdles and low market demand. However, current market conditions are likely opportune for companies and governments looking to make long-term investments in natural gas import infrastructure.
On Tuesday, July 23, South African President Cyril Ramaphosa signed the Climate Change Bill into law, promoting a greener economy. The law aims to reduce carbon emissions, create low-carbon sector jobs to replace those lost from the fossil fuel transition, and develop a climate-resilient economy and society. Notably, it allows the Minister of Forestry, Fisheries, and the Environment to assign businesses a carbon budget, capping their greenhouse gas emissions over a set period. A statement from Ramaphosa’s spokesperson indicates that the new law will help South Africa meet its climate commitments, or Nationally Determined Contributions, under the 2016 Paris Agreement.
South African Coal
The introduction of climate legislation is especially significant as South Africa tops the International Energy Agency’s list of African greenhouse gas emitters and is also the 14th largest global producer of greenhouse gases, representing 1.23% of carbon emissions in 2022. South Africa’s green transition will require systematically phasing out its enormous coal industry, which accounts for 68.52% of the country’s energy consumption. Fossil fuels dominate the energy sector as a whole, with oil and gas representing 25.9% of energy consumption. The coal sector also represented about 120,000 jobs in 2020, making up 8.57% of South African material exports.
Challenges to Phasing Out South African Coal
KSG expects that even with a new coalition government in place, transitioning away from coal in South Africa will remain politically contentious and face resistance. The South African coal lobby maintains significant influence and will likely keep influencing developments (as it has done in recent years) that conflict with South Africa’s green transition. For example, the lobby likely affected the exemption of five heavily polluting Eskom coal plants from closing and the relatively limited penalties of South Africa’s Carbon Tax. Carbon pricing in South Africa has been accused of lacking accompanying incentives to transition to renewables and not penalising to a level on par with provisions pertaining to carbon taxes in the Paris Agreement. Influential unions such as the National Union of Mineworkers and politicians such as Minister of Minerals and Petroleum Gwede Mantashe have continued to resist Western investment and the pivot away from fossil fuels, citing the industry’s economic necessity and insisting that coal is the future of South Africa. KSG assesses that the influence of the South African coal lobby is unlikely to weaken, and the current government's efforts will be limited. Western-backed initiatives like the Eskom Just Energy Transition Project (EJETP), which seek to ease the growing pains of the green pivot and incentivise climate-friendly practices, will likely remain in place but will need to prove that they can help offset job losses from a move away from coal.
Divestment from coal is also made more difficult by economic ties between South Africa and fellow BRICS member India. Coal Briquettes make up 32.2% of South African exports to India, a country heavily dependent on coal to produce energy. Given South Africa’s growing commitment to trade within the BRICS alliance, this trade relationship may further complicate the potential restructuring of South Africa’s energy market. KSG assesses that for South Africa’s green transition to not contract South African-Indian trade flows, alternate goods may have to replace South African coal exports. Several potential alternate exports that could sustain South African-Indian trade flows include critical minerals such as manganese to fuel India’s growing steel industry and fresh fruit, with India’s fruit imports projected to grow at 2.99% per year between 2024 and 2029. However, as far as KSG is aware, no formal proposals have been made by either government thus far.
South African Renewable Energy
State-owned energy giant Eskom, which dominates the South African energy market, generates 95% of the country’s energy. However, as South Africa seeks to expand its renewable energy and natural gas capacity, there may be potential opportunities for foreign companies to invest in the country’s green projects. European companies like the German Nordex, Italian Enel Green Power, and Danish Vestas have entered the South African wind energy market. A subsidiary of Chinese Energy Investment, Longyuan South Africa Renewables, operates the De Aar Wind Farm, and the American investment giant BlackRock is now considering further investment into South African wind energy as it looks to double down on investments made into Kenyan wind energy earlier this year. The South African Department of Mineral Resources and Energy seeks to add 9600 MW of wind energy to its existing generation capacity in the coming years. Despite the resistance to coal divestment, KSG assesses that South African demand for wind energy investment will likely continue to expand and potentially be buoyed by the growing inability of coal to meet the full energy demands of the country in the next decade. This is over and above consumers' inclination to reduce their dependence on Eskom, given the country’s recent experience with prolonged power outages.
As consumers look to move away from dependence on Eskom, solar energy has also become a growing option for upgrading South African energy production capacity. Like wind, the South African solar farm sector is largely comprised of firms from EU countries. Businesses like Ireland’s Mainstream Renewable Power, Italian Enel’s Tom Burke solar plant and several others operate or are developing solar farms that take advantage of South Africa’s solar potential. KSG assesses a high likelihood that solar investment demand in South Africa will increase in the next 6-8 years but will be hindered by the high cost of solar infrastructure.
Chinese Engagement in South Africa’s Renewable Energy Sector
Chinese influence in South African solar energy has proven extensive, with President Cyril Ramaphosa lauding Chinese support in South Africa’s transition to climate-friendly infrastructure. Furthermore, the Minister of Electricity and Energy, Kgosientsho Ramokgopa, signed a joint memorandum with Chinese energy giants that committed to the Chinese donation of power equipment. The Chinese firm LONGi Solar partnered with ArtSolar, a South African solar panel manufacturer, in 2021 through the Independent Power Producer Procurement Programme's bid process, an entity that has managed the hiring of firms to supply South African energy demand. China also recorded high export levels of solar panels to South Africa in 2022 and 2023.
However, despite the growth of Chinese influence in South Africa’s solar sector, there exists a limited chance of this trend tapering off following Finance Minister Enoch Godongwana’s announcement of a 10% import tariff on solar panels on June 28th. Many notable countries like the US have enacted such legislation to protect domestic solar panel industries from being undercut by Chinese firms. The Chinese Ministry of Commerce has argued that such tariffs harm the global economy but has yet to respond in kind to the recent South African tariffs. New deals with Chinese companies like Trina Solar's project in the Northern Cape, which partners with China Energy International Group and China Gezhouba Group, financed by France’s EDF Renewables and local firms, have recently been announced. Coupled with China’s lead in global solar energy production, KSG assesses that China is highly likely to still significantly influence the South African market over the next six years, especially if it helps meet the South African Department of Mineral Resources and Energy’s call for 3,940 MW of solar cell capacity by 2025.
South African Natural Gas Sector
Beyond renewables, natural gas may supplement the potential shift away from coal as it emits nearly 50% less carbon than coal production. Despite considerable shale and offshore gas reserves, South Africa still has a limited natural gas production sector. This is due to its historical preference for coal, low natural gas demand, and foreign competition. South Africa imports the majority of its natural gas from neighbouring Mozambique. However, there is a high likelihood that northern Mozambique will remain unstable in the coming years, with the Southern African Development Community Mission in Mozambique (SAMIM) withdrawing in the face of increased insurgent activity. Therefore, South Africa may decide that divesting from Mozambican natural gas could help derisk its energy supply chain. KSG assesses that investment opportunities in South African natural gas may increase as the government looks to leverage its natural gas supply to meet increasing energy demand. The Mozambican natural gas sector may seek to maintain its share of the South African natural gas market as demand rises, but until fears of continued instability subside, Pretoria may be hesitant to remain reliant on Mozambican natural gas.
Several Western businesses have already started investing in domestic South African natural gas, including the Australian firm Kinetic Energy and several others. However, the French firm TotalEnergies recently began exiting its project at the offshore field of Block 11B/12B (an area just off the southern coast, southeast of Cape Town), citing a lack of South African market demand. This echoes Shell’s exit from South Africa in May 2024, justifying its divestment with similar bearish predictions on the South African domestic natural gas sector. While these exits from prominent South African gas ventures may open the door for new investors, the departure of such multinational firms may signal the limited prospects for natural gas investment in South Africa. Political opposition to coal alternatives, complicated regulations, and little support from a government that doesn’t see gas as a long-term solution all make for potentially dismal investment projections.
Despite these challenges, KSG assesses that an overlooked portion of the South African natural gas supply chain still retains significant investment potential. Sasol, South Africa’s chief importer of natural gas, announced that it would shut off its flow of natural gas from Mozambique due to depleted field reserves in mid-2026, putting 300,000-400,000 gas-reliant jobs at risk. Scrambling to prevent a shortage, the South African government is eager to find new paths to import gas, hence the selection of the Dutch firm Vopak to partner with Transnet to build a new liquified natural gas (LNG) terminal in the Port of Richards Bay, which is scheduled to become operational by 2027. With upgraded South African LNG capacity, entering this market would help the United States manage its geopolitical risk in the region against Russia, Iran (both leading natural gas producers), and China.
African Renaissance Pipeline Limited, a Mozambican company backed by Chinese investment, plans to build a pipeline to provide South Africa with natural gas from Mozambican ventures by Exxonmobil and TotalEnergies. However, this project has seen numerous setbacks, from Sasol’s exit in 2022 to more recent closures due to Mozambican security concerns, and has yet to make substantial progress. To counter prospective Chinese expansion into the South African natural gas market, the US and its Western allies could utilise the recent findings of sizable offshore reserves by Western energy companies in neighbouring Namibia. As US firms like ExxonMobil and Chevron lead in Namibia alongside EU businesses like TotalEnergies, Shell, and Galp, these companies would benefit from initiating a trilateral deal with Nampower, Namibia’s state-owned energy supplier, and Sasol to use Namibian natural gas for South African industry. Such an agreement would allow South Africa’s northwestern neighbour and Southern African Customs Union partners to capitalise on its natural gas windfall and prevent a potential South African natural gas shortage. The Biden administration would likely welcome US companies' investment in a Namibian-South-African pipeline. The current government has worked to bolster African infrastructure in recent years, and a subsequent Harris administration may expand the trend given Harris’s initiative to support climate-aware action across the African continent.
Looking forward:
KSG assesses that there is a high likelihood that South Africa’s transition away from coal may negatively impact economic growth in the next 10-15 years, despite projects like the Eskom Just Energy Transition Project (EJETP) that seek to ease the growing pains of the green pivot. The steady loss of employment and decreased revenue from the coal sector may also stir political instability despite the potential benefits that South Africa would reap after investing in eco-friendly energy production. Despite the apparent advantages, the move to clean energy remains contentious in South Africa as unions and many political elites in the ANC seek to maintain the benefits from coal. Some have suggested shifting to “clean coal” instead of investing too heavily in renewables. Despite claims that low-emission coal is a viable climate change solution, transitioning to clean coal would require substantive investment and likely not contribute to solving South Africa’s energy crisis. There will be political instability around the gradual phasing out of coal, and the resilience of the new coalition government is yet to be proven.
KSG assesses that despite South Africa’s membership in many significant international bodies such as the African Union, BRICS, and G20, there is a low likelihood that South Africa’s green transition will prove to immediately benefit other states in the Global South over the next 3-6 years.
Furthermore, KSG assesses that it is highly likely that the South African renewable energy sector will remain lucrative and open to investment in the next 6-8 years. South Africa’s vast expanses and other biomes conducive to wind turbines mean businesses investing in South African energy have opportunities to diversify. While EU firms dominate the current South African wind energy market, there is room for nearly all capable parties, as seemingly no nation has plans to dominate the sector. American wind investment may re-energise as US wind energy capacity and proficiency increases due to the Biden Inflation Reduction Act’s expansion of the American wind power sector.
KSG assesses that although Chinese dominance will likely be challenged, Chinese influence on South Africa’s renewable energy sector will remain substantial. While solar and wind farms pose an opportunity for the Chinese expansion of its influence, sustained competition from EU country firms will likely counter any chance China has at dominating the market. Sino-South African economic ties are expansive; around 20% of South African imports come from China (more than any other nation), which potentially gives China leverage over the South African government should competition heighten in the South African renewable energy market.
KSG assesses a high likelihood of a rollback in South African-Indian economic relations due to South Africa’s pivot away from coal in the next 10-15 years. Reduced ties with South Africa, a leading African nation, will decay India’s influence on the continent. Therefore, KSG assesses a medium likelihood of the South African green transition harming Indian coal imports in its competition with China. This may lead India to increase its coal imports from Australia.
Finally, KSG assesses a low likelihood that the South African domestic natural gas market will expand in the next 5-10 years as its reserves are being thoroughly explored and assessed. Until South African natural gas reserves have been fully evaluated, it will be difficult to assess the potential of the natural gas production market definitively. Conversely, KSG assesses that an increase in South African demand for natural gas imports is highly likely as 2026 approaches and will last until at least 2030, whether through increased US imports or a Namibian pipeline.
By Carter Morton, Africa Analyst