Pimco, one of the largest asset managers in the world, is deploying a small slice of its $2.2-trillion in funds under management into renewable energy projects in South Africa. And there may be more to come.

The fund announced that it will lend R3-billion to the Development Bank of Southern Africa. The money will be used to refinance debt that DBSA has in renewable projects, freeing up capital for DBSA to invest in other renewable energy projects.

“This is historic,” says Jason Harlan, CEO of Fieldstone, an independent investment bank that specialises in structuring deals in the energy and infrastructure arena. 

“Debt financing is typically provided by development finance institutions (DFI), not by private capital which has not been a player in this space. But Africa’s need is so great that the DFIs cannot meet their need. Private capital is essential and Pimco is one of the big dogs of private finance.” 

The financing was conceived as part of the Sustainable Development Goal Seven Programme (the SDG7 Programme) and brokered by the United Nations Economic Commission for Africa (UNECA). The programme was launched in February 2020 in Addis Ababa and aims to deploy private capital in Africa to support the development of renewable energy.

“The success belongs to South Africa and the DBSA for their single-mindedness in recognising the value of attracting foreign private debt investment into the energy sector, and to Pimco for committing to the green energy transition on the African continent,” says Dr Vera Songwe, Under-Secretary-General of the UN and Executive Secretary of UNECA. 

This first close is an important signal to the many other countries interested in the SDG7 programme who recognise the value of attracting private capital to support economic growth and green industrialisation, she says. 

While Pimco has indicated that it has appetite for further funding, the deal is also significant given that it comes just two weeks before COP26. This will be the 26th time that world governments are meeting to forge a solution to the looming climate catastrophe — and time is running out. 

This year the summit will address what has and hasn’t been achieved since 2015 when the landmark Paris Agreement was adopted. In a nutshell, 196 governments committed to limiting global warming to well below 2°C, preferably to 1.5°C, compared with pre-industrial levels. It was a binding agreement. But, curiously, to meet those goals, countries set their own non-binding national targets to cut, or in the case of developing countries, to curb the growth of greenhouse gas emissions in the near term — by 2030 in most cases. At the time, the world knew this was farcical. The Paris goals were not going to be achieved under those targets.

All countries are now being urged to revise their Nationally Determined Contributions (NDC) before COP26 in line with a 1.5°C target, the lower of the two Paris goals.

In South Africa, the Cabinet has recently approved the country’s revised NDC, as well as the Climate Bill and South Africa’s negotiating position for COP26. The government has also brought forward the year in which emissions are due to decline from 2035 in the initial NDC, to 2025 in the updated NDC.

But this requires finance.

“Where we get to depends on the support we get for our transition,” wrote President Cyril Ramaphose in this week’s newsletter. “Increased ambition cannot be achieved without the support from the more developed economies living up to the promises they have made in the past to provide financial support to developing economies.”

This needs to be in the form of grants, loans at concessional rates and private investment. The energy transition at Eskom and the development of green industries such as electric vehicles and green hydrogen will need to be underpinned by these forms of financial support, he says.

There has been a lot of focus on mobilising the targeted $100-billion ahead of COP26, says Jean-Paul Adam, director for Technology, Climate Change and Natural Resources Management at UNECA.  

“This R3-billion is a small part of what is needed. Africa may need up to R500-billion, and that is just to transition to clean energy. That does not involve investing in climate resilience, which is the ability to withstand external shocks,” he tells Daily Maverick. 

In South Africa, moving towards renewables will build resilience in the long term, he says.

“Our studies suggest that the return on investment in terms of jobs and economic value created will be 250% and 420% more than if one just remained invested in, for instance, coal.” DM/BM