Powering ahead after the U.S. 'Pulls the Plug' on the Just Energy Transition Plan
In his first 100 days in office, U.S. President Donald Trump made several globally controversial executive decisions, not least the on-again, off-again tariffs. With markets still reeling, the withdrawal of the United States from the Paris Climate Accord for the second time and the U.S. pulling out of South Africa's 'Just Energy Transition Plan' (JETP), a crucial initiative aimed at shifting the country's economy away from coal-dependent energy towards cleaner, renewable sources, seemed already relegated to yesterday's news.
Undeterred, South Africa recently adopted the Renewable Energy Masterplan (SA-REM). Guided by the updated 2023 Integrated Resource Plan (IRP), which envisages 29.5 GW of new capacity by 2030, SA-REM is another step towards sustainable energy security and growth in critical areas of the renewable energy value chain.
In a country working hard to keep the lights on and meet its climate goals in the face of diminished support from the US and changing geopolitics, what does the U.S. funding withdrawal mean for South Africa's energy sector?
What is the JETP?
The Just Energy Transition Investment Plan (JETP) is a five-year strategy based on the Just Transition Framework, which was established during the COP26 Climate Summit in 2021. This framework was developed through a partnership between South Africa, Germany, France, the United Kingdom, the European Union, and the United States. The primary goal of JETP is to 'decarbonise' South Africa's electricity sector by transitioning from coal-generated power to greener, renewable energy sources such as solar and wind. Additionally, JETP aims to ensure a just and equitable transition, minimising the socio-economic impact on communities reliant on the coal industry while fostering sustainable economic growth.
The U.S. had initially committed $56 million in grants to the initiative, along with an additional $1 billion in potential commercial investments. This withdrawal represents an estimated 10% reduction in the total funding for the partnership and is expected to significantly delay key projects, including the transformation of Komati Power Station – South Africa's largest coal-fired power plant – into a renewable energy facility.
In addition to withdrawing from JETP, President Trump has also terminated U.S. participation in Power Africa, an initiative launched by former U.S. President Barack Obama. Power Africa aimed to provide electricity to 60 million homes across the African continent. As of December 2024, the programme had successfully brought electricity to 37 million households. However, with U.S. support discontinued, the remaining intended beneficiaries – including some informal settlements in South Africa's Eastern Cape – will no longer receive access to electricity under this initiative. The U.S. withdrawal from these energy transition initiatives undermines several key objectives, including the need to alleviate energy poverty, support Africa's industrialisation, and the global commitment to decarbonisation.
What are South Africa's options?
Should the country extend its reliance on coal for power generation?
One possible option is to abandon or slow down the JETP and extend the lifespan of its existing coal-fired power stations while investing further in fossil fuels infrastructure, including refurbishment of existing aged coal plants. To make this feasible, South Africa would likely need to secure additional funding. However, this approach presents financial and economic risks. One major challenge is that the World Bank, South Africa's primary funding source for energy projects, has pledged not to support the generation and development of any new coal-fired stations. Without World Bank financing, South Africa would have to turn to sovereign providers, typically Export Credit Agency (ECA), Development Financing Institutions (DFIs) and private investors, which are not concessional – options that generally come with higher borrowing costs and political conditions.
Additionally, extending coal reliance could negatively impact South Africa's already strained trade relations, particularly with the European Union (EU). The EU's Carbon Border Adjustment Mechanism (CBAM), a recently introduced regulation, aims to limit the import of commodities produced with high carbon emissions, including those sourced from coal-fired power. This means that South African imports by the EU could face additional tariffs, making them less competitive in the global market. South Africa would need to weigh the immediate benefits of maintaining coal-fired power against the long-term economic consequences of losing key international trade partnerships.
South Africa also grapples with the trilemma of abundant feedstock in its coal reserves, a critical need to avoid more job losses and unemployment, and rising electricity prices. The need for balance and equity in the energy transition has likewise seen a resurgent trend of fossil fuel for baseload power generation, especially in countries with access to carbon-intensive fuels. The need for a more "just" energy mix will require both short and long-term strategic choices rather than an outright transition and headlong rush to renewable energies.
Increase investment in Gas Exploration and Production?
One of the often-cited shortcomings of renewable energy is its intermittency, heavily reliant on weather conditions and dependent on energy storage solutions for dispatchability and scale.
Not only is natural gas a source of flexible, dispatchable energy, it's also estimated to burn less than half the CO2 emissions from coal and additionally has no SOx emissions. South Africa, as a signatory to the Paris Agreement, has committed to a "Peak-Plateau-Decline" carbon emission trajectory. The government's policy is to diversify the country's energy mix (which is currently coal-dominated) to a lower-carbon future, by introducing proportionately higher renewable-energy resources such as wind and solar, into the energy mix as well as gas-to-power.
Gas is therefore a suitable transition fuel towards a lower-carbon economy for South Africa, especially since gas-to-power technologies are flexible and would therefore complement the intermittent renewable energy being added to the national grid. South Africa's energy mix is changing to include more gas through importing liquefied natural gas (LNG), using shale gas if reserves prove commercial, and developing infrastructure for the import of LNG. With substantial gas reserves in the Luiperd and Brulpadda fields, prospects in the Karoo shale reserves, and recent attempts by PetroSA to extend its gas production off Mossel Bay, South Africa could be well poised to follow the examples of neighbours Namibia and Mozambique, which are already making significant strides to tap into billions of cubic feet of natural gas in the Southern African basin, in the process presenting significant industrialisation and revenue prospects. Investment in South Africa's midstream and downstream sectors, including regional transmission pipelines, gas storage facilities, gas-to-liquids, regasification and LNG plants, would all be critical components of the supply chain. While the construction of gas-fired power plants is already underway at Coega, Richards Bay and Saldanha Bay, new projects will be needed to boost South Africa's gas availability and reliability.
Source additional funding for JETP continuation?
Despite the loss of U.S. support, 90% of JETP's funding remains intact, making the continuation of the plan South Africa's most viable option. While the withdrawal of U.S. funding is a significant setback, it does not render the plan unachievable. South Africa is actively seeking alternative funding sources to ensure the success of JETP and remain committed to a low-carbon, sustainable energy future.
Minister of International Relations and Cooperation (DIRCO), Ronald Lamola, emphasised the importance of collective action in mitigating the impact of the U.S. withdrawal, stating "We must act in unison to mitigate the negative impact of the USAID cuts. We must seize this moment to reconceptualise our global system and ensure that our domestic imperatives serve our nation efficiently and sustainably." This statement reinforces South Africa's determination to adapt, secure new partnerships, and maintain its commitment to a just energy transition. By engaging with other international partners, private investors, and multilateral institutions, South Africa can bridge the financial gap left by the U.S. withdrawal and ensure that the country's transition to renewable energy remains on track.
Recent reports suggest South Africa's Treasury is in talks to secure so-called policy loans from the likes of KfW, Germany's state development bank, and the African Development Bank. "While the withdrawal of the US is regrettable, the International Partners Group remains fully committed to supporting South Africa delivering its just energy transition" the other partners in the group, Germany, the Netherlands, France, United Kingdom, Denmark and the European Union, said in a statement on 19 March 2025.
The Renewable Energy Masterplan and the Way Forward
The South African Renewable Energy Masterplan appears to understand the complexity of the challenge. The plan is underpinned by bold targets and strategic interventions, including;
- Increasing the roll-out of renewable energy projects, with at least 3-5 GW of renewable energy generation to be rolled out annually across market segments to underpin the development of domestic manufacturing capabilities.
- Creating more than 25 000 jobs by 2030 through localising the manufacturing of key components such as solar panels, inverters, wind turbine towers, cables, and batteries.
- Localising industrialisation through the establishment of industrial hubs and Special Economic Zones focused on renewable energy manufacturing and services.
- Providing significant demand- and supply-side support, targeting high levels of local content for key inputs and increasing domestic manufacturing capacity.
- Shifting to renewable energy that is inclusive, skills-intensive, and aligned with climate commitments through its support for a Just Energy Transition.
As South Africa navigates its energy future, it faces hard choices; continue with JETP despite funding challenges and geopolitical uncertainty; transition towards cleaner energy by securing and allocating scarce funding to gas exploration, production and infrastructure development; or extend coal-fired power, risking trade and capital loss but preserving jobs and union confidence.
With the majority of JETP's funding still available and the potential for additional finance, guided by a robust renewable energy masterplan and commitments from the JETP Partners, continuing with the Just Energy Transition Plan remains a sustainable and economically sound path forward. South Africa must now focus on securing the necessary investment and accelerating the implementation of the energy transition contemplated by the plan and the IRP.
Co-author: Nadia Nassiep
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
