COP27 focussed the world’s attention on decarbonisation and the pursuit of a just energy transition (JET) for emerging markets. South Africa, Brazil, Chile and Indonesia are all actively discussing how to achieve their own JET partnerships — and putting investment plans in place to proactively secure funding to support this.

South Africa, in particular, presented its finalised Just Energy Transition Investment Plan (JET-IP) and has seen an influx of commitments from various countries, philanthropies and development finance institutions (DFIs).

However, the opportunity for the private sector to participate shouldn’t be overlooked — in fact it should be actively pursued. And, for businesses operating in emerging markets, this roadmap for a holistic and systems approach to securing inclusive and just energy transitions is an opportunity to unlock value through participation in power generation and transmission projects.

What’s more, when the knock-on benefit is not just greener power but also increased energy security, this delivers sustainability of operations for themselves, their market and the customers and citizens they serve.

There are multiple models for engagement, but one that is most familiar is participating in the privatisation of state-run enterprises. In reality, many emerging market governments have placed undue pressure on state-run enterprises to bolster their economies and serve as the primary point for job creation.

However, this is often not particularly successful and can result in inefficient, poorly governed and unprofitable operations that detract from, rather than enhance, the nation’s financial position. 

South African utility Eskom and its role in the JET-IPs investment portfolio is a case in point. Private sector players and local banks have expressed an interest in investing in the JET-IP, but they need clarity around the proposed restructuring of Eskom’s three main divisions: generation, transmission and distribution. 

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In addition, parameters on ownership arrangements in terms of privatisation and public-private partnerships (PPPs) are required. There must be an acknowledgement of where the opportunities lie, how the private sector will get to participate not just in generation, but in transmission infrastructure too, and how the investments are structured to clearly define equitable risk sharing and return mechanisms.  

So, while the privatisation of state-run enterprises and associated PPPs is increasingly seen as the best way to achieve long-term, sustainable economic growth through a commercialisation and reset of operations, it is not always a success story.

When the fundamentals of political will and proper implementation are absent, projects can flounder. This can be caused by anything from a lack of clarity, poor planning and forecasting; to allying with a private sector partner for reasons other than track record; to inherent and unassailable corruption; or even a complete lack of political will to enforce an environment that facilitates success. 

What the world is learning from South Africa’s nascent Just Energy Transition Investment Plan

Emerging market heads of state find themselves unable to afford the scale of infrastructure investment required to drive economic growth within their borders. They also find themselves with the short straw in the fight against climate change. This is because their countries are usually the most vulnerable to climate change impacts while also having limited access to resources to fund mitigation and decarbonisation initiatives.

Moreover, only so much can be funded through developed world and DFI commitments, which is why they seek private sector partners with the funding and expertise to invest. 

In turn, investors keep an eye out for opportunities in this increasingly uncertain world where many large-scale players have withdrawn from markets like Russia and China. This has made emerging markets — and the associated margins — an increasingly attractive proposition.

Being involved in a privatisation project or a PPP can also provide investors with opportunities to deliver on their significant public commitments to climate and sustainability finance, and generates a level of goodwill within the country of operation which may serve as leverage for future investment opportunities.  

While there are many variables in what will be a multi-decade journey to decarbonise economies around the world, what remains constant is the fact that this is not something that can be achieved without collaboration.

For JET-IPs to be the success we so urgently need, it is imperative that both the private and public sectors capitalise on the current momentum around climate finance to create structures for investment that allocate risk, operations, financing, and governance to those best positioned to manage it. DM