What are Associations for the Just Energy Transition? Financing for renewables

What are Partnerships for the Just Energy Transition and what do they mean for Latin America?

The Partnership for a Just Energy Transition has become a new financing mechanism to address one of the greatest challenges of the modern world. Although they have been questioned in each target country, they appear to be an option to finance the transition to cleaner energy sources.

In the two years since the first Just Energy Transition Partnership (JETP) was announced, world powers have committed more than $45 billion to finance the energy transition in four countries: South Africa, Indonesia, Vietnam and Senegal.

Initially created by the G7 –as a result of the climate negotiations at the United Nations–, the JETP was born as a broad financial package to accelerate the decarbonization of the energy sector in countries that largely depend on fossil fuels, mainly coal.

Objective of partnerships for the Just Energy Transition

These alliances therefore aim to provide support, tools and access to international financing to accelerate the energy transition, raise the ambition of Nationally Determined Contributions (NDC) of the target countries by 2030 and reaffirm their commitment to achieve net neutrality in carbon dioxide emissions by 2050.

Each of the four contracts signed to date has its own unique characteristics and issues. For Indonesia, for example, this means achieving carbon neutrality by 2050, 10 years earlier than initially planned in the NDC, phasing out its relatively young coal fleet (an average of 12 years) and, at the same time, developing sources of renewable energy.

For its part, South Africa has old coal-fired power stations, but they are concentrated in the province of Mpumalanga, and coal mines and plants are essential to creating jobs in the region.

Could JETPs be a viable option for Latin America?

That is the question. Perhaps the answer lies in the lessons learned from implementation in Asia and Africa.

The JETPs come at an uncertain time, when low- and middle-income countries receive only a fifth of global energy investment and often face challenges in expanding energy access for their people without the financial resources necessary to address the challenges. costs of the transition to renewable sources.

The current transition not only includes moving from polluting energy sources that significantly contribute to climate change to clean energy sources. As described in research from the Center for Global Development (CGD), countries must balance transitions that are cost-effective, rapid, broad-based, and that incorporate a just transition perspective. That is, an element of justice. This is exactly what JETP is looking for, as its name implies.

"What worries me is that they focus a lot on the supply side and only take into account the energy sector, when what you need are truly integrated solutions. At least South Africa, Indonesia and Vietnam, their JETPs, the key objective is to eliminate coal"says Annika Seiler, author of the cited article.

In his opinion, countries cannot afford to ignore the necessary adjustments to their energy policies, such as the establishment of tariffs, carbon pricing and effective industrial regulation, which give rise to what the energy transition ultimately is: a long-term conversion of their economies

Innovative source of resources?

From a financial perspective, Just Energy Transition Partnerships are seen as an innovative source of resource mobilization by combining public and private money and attracting multilateral banks.

According to an analysis by the International Institute for Sustainable Development (IISD), this type of mechanism could ultimately speed up decision-making in the United Nations climate negotiations, where countries dependent on fossil fuels could veto any agreement.

To date, of the four JETP beneficiary countries, only South Africa has presented the investment plan necessary to implement it. But according to the Association, this African country is reaching the budget: it needs 98 billion dollars to finance the energy transition, almost ten times more than initially announced.

This difference also reflects the nature of the agreements: based on the political declarations of the donor countries, the recipient units must translate them into specific and realistic plans.

This is already causing problems for Indonesia. A recent Bloomberg report shows that the determination of the investment plan should be published before the United Nations Climate Summit (COP28, which will be held from November 30 to December 12) in Dubai, United Arab Emirates.

Indonesia, currently the fifth largest emitter of greenhouse gases (which cause climate change), still plans to add an additional 13 gigawatts of coal-fired power plants. In their Partnership for a Just Energy Transition they propose to stop building new thermal power plants by 2030, which, according to the International Energy Agency, should occur in 2024 to meet global commitments to limit global warming to a level of 1,5° c.

In this sense, an independent analysis shows that if the Asian country used JETP funds to prematurely close about half of its existing coal power plants, the country would not only save money and reduce emissions, but would also be able to maintain the energy security.

Just Energy Transition
Kelanis coal-fired power plant, Indonesia. The Partnership for a Just Energy Transition aims to achieve peak emissions from the electricity sector in 2030 and net zero emissions in 2050. Credit: Dominik Vanyi / Unsplash

The small print

One of the most important aspects of these alliances has to do with the details of the billions of dollars promised. For example, in the case of South Africa, only 3% are direct subsidies. The rest is mainly debt.
The United States, the country leading the agreement with Indonesia, is also the country's main creditor.

The nature of the debt, along with India's refusal to commit to phasing out coal, were some of the reasons why India abandoned its own JETP. "Coal phaseout won't happen anytime soon"said Santosh Agarwal of the Coal Ministry a few weeks ago.

Senegal was the last country to accept a Partnership for a Just Energy Transition in mid-2023, although there were particular differences with the rest. It is not a country that relies heavily on coal nor is it a major emitter of greenhouse gases like the other three. Its carbon footprint is relatively small and its population has an enormous need for access to energy.

On the other hand, the country's government does not hide its intention to take advantage of the alliance to expand the use of gas. Although gas is "cleaner" than coal, it is also a fossil fuel and its combustion contributes greatly to climate change. In this sense, it is important to note that the agreement, led by France and the European Union in terms of supply, comes at a time when Europe is interested in diversifying its gas supply after the Russian invasion of Ukraine.

What could they mean for Latin America?

In May, the G7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, announced its Clean Energy Economies Action Plan which sets priorities and commits key financial support for middle-income countries to achieve carbon neutrality.

In turn, the group has expressed its willingness to cooperate in this direction with the G20 countries, including Argentina, Mexico and Brazil. Furthermore, in its 2022 declaration, the G7 identified among its priorities the following JETPs with Indonesia, India, Senegal and Vietnam. He also announced his “commitment to work with Argentina to achieve carbon neutrality by 2050".

Just Energy Transition
Solar panels in the Atacama Desert, Chile. Credit: Antonio García / Unsplash.

According to Leonardo Beltrán, former Deputy Secretary of Energy of Mexico, this type of mechanism could benefit Latin America. “Mexico is the second economy in the region, it has trade agreements with all regions, a complex economy and access to capital markets. But despite this, carbon emissions are still important. If the country, with all these benefits, fails to show progress under the Paris Agreement, this type of mechanism can achieve it."He said.

He warned, of course, that no country should accept inappropriate terms, but there must be dialogue between Latin American countries and the G7 and find points of agreement. “This region has the largest installed clean energy generation capacity and if the region wants to demonstrate rapid and low-cost progress, we can do so and become a role model."He concluded.

According to climate policy consultant Enrique Maurtui Constantinidis, the Association for a Just Energy Transition "must include viable plans, not only promises but also appropriate political and institutional support at national level, as well as links with stakeholders, unions, civil society, communities and industry".

"Latin American countries can benefit from this because they have very good conditions, but unfortunately no one has dared to raise the issue. Countries like Colombia can benefit greatly from this. However, you have to be careful with the conditions of the debt, this is the most difficult”he added. “The good thing about these partnerships is that they also focus on capacity development”Seiler highlighted. “I think it is not only about finances but also about cooperation in terms of knowledge and capabilities. In fact, several studies conducted in South Africa and Indonesia have highlighted the challenges of energy transition fair I think many countries can benefit from this help".

Ultimately, the energy transition is a global challenge and the financial response will not be possible only through this type of mechanism.

Gabriel Blanco, researcher at the Unicena Faculty of Engineering and author of the evaluation report of the Intergovernmental Panel on Climate Change (IPCC), led the work to estimate the costs of the energy transition to 2050 in Argentina under a "business as usual" scenario. (everything remains as is) and one in the transition towards net zero emissions. Taking into account energy and infrastructure costs, the results show that the second option has lower cumulative costs. This could be achieved by redirecting resources - such as domestic fossil fuel subsidies - without the need for "new" money.

"The cost of the scenario based on electrification of demand and renewable energies for supply is 21% lower than the cost of the trend scenario (US$508.000 million)”says the study, highlighting that the transition will also create 120.000 more jobs than the trend scenario for 2050. So, by switching to cleaner energy, Argentina can not only meet its climate commitments but also save money and create jobs.

"We found that system conversion will initially cost money, but eventually costs will stabilize and remain below the business case scenario.“, concluded Blanco.

*This article is part of COMUNIDAD PLANETA, a journalistic project led by Journalists for the Planet (PxP) in Latin America. It was produced within the framework of the "Planet Community at COP28" initiative.


With information of: https://www.carbono.news/