Transitioning to a low-carbon economy: The role of South Africa’s banking sector in the renewable energy transition

Abstract

An important goal of South Africa’s National Development Plan (NDP) is to achieve a low-carbon economy through the process of a just transition. This goal will require the participation and cooperation from all stakeholders including academia, government, the energy sector, civil society and the financial sector. The role of banks and investment agencies will be particularly important due to the capital-intensity of low-carbon technologies and the large scale of energy grids. Using the framework of Technological Innovation Systems (TIS), this study has explored the role of South African banks in mobilising the necessary financial resources for the country’s energy transition, and particularly the two important questions of whether there are presently sufficient funds, and whether the banks are presently promoting or delaying technological innovation in the renewable energy sector. Thirteen semi-structured interviews with representatives of South African banks and REI4P projects were conducted to collect data that was analysed using a content analysis approach. The study found that the banking sector has been investing in renewable energy producers through the provision of long-term loans and other forms of debt financing. However, it was noted that the banks are unwilling to provide funding for smaller deals (anything less than R100 million) or unproven renewable energy technologies such as small hydro, marine and geothermal. In summary, it was concluded that the financial sector in South Africa is not playing a visible leadership or advocacy role in respect of the country’s transition to a low-carbon economy. Investment proposals from renewable energy firms are assessed in the same way as proposals from other firms and sectors. This response is somewhat surprising given the threat of climate change to the future of the sector. A more proactive role will be important if the NDP goal of a just transition is to be realised.