The Musina-Makhado special economic zone (SEZ) will ask the government to intervene on its behalf with the Chinese authorities over funding for its planned coal-fired power station, which is now in the balance after Chinese president Xi Jinping declared that Beijing would stop investing in such projects abroad.
Lehlogonolo Masoga, CEO of the SEZ, said the entity is in the process of “formally approaching national government to facilitate interaction with the Chinese authorities in the country to get more clarity”.
In September, Xi said in a pre-recorded address at the UN General Assembly that China will help developing countries build green energy production and halt construction of coal-power plants abroad. China has been under pressure to reduce carbon emissions and cut its financing of coal projects outside its borders as part of its climate pledges to be submitted to the UN, Reuters reported.
The announcement could affect 44 coal plants earmarked for Chinese state financing, totalling $50bn (about R740bn), according to Global Energy Monitor, a US think-tank.
The SEZ’s 1,320MW-3,300MW power plant was expected to receive funding from China.
“Our plans going forward will be guided by the outcomes of the interactions with the Chinese authorities,” said Masoga.
Spokespersons for the national government and Limpopo administration referred queries to the SEZ.
Situated near the coal belt of Limpopo’s Vhembe district, the 8,300ha SEZ is also due to host steel, cement and ferrochrome plants, among others.
It is an initiative of the Limpopo government aimed at attracting foreign direct investment for the beneficiation of mineral and agricultural resources. Construction is due to start once compliance with environmental regulations is concluded, Masoga said.
The project is currently in the public comment phase.
Analysts have welcomed Xi's announcement that China will stop financing coal-power projects abroad.
Simon Nicholas, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, says it is a positive development for any nations that had been planning coal-fired power expansion, though many developing nations such as Bangladesh were already reconsidering their fossil-fuel plans before Xi’s statement.
Now that China, South Korea and Japan — the three key providers of finance and technology for coal-power development in developing nations — are withdrawing from such projects, there are very few remaining options for any developing nation intending to build such plants.
“This is a positive because the construction of coal-fired power to date has placed a major financial burden on developing nations. This burden comes from the cost of coal imports, high power tariffs for new coal plants and the fact that developers demand capacity payments to their coal plants even if they are not generating any power,” Nicholas said.
Capacity payments are fixed amounts that an energy customer pays to the generator to ensure capacity is available to meet demand.
Having these projects cancelled is unambiguously good news both economically and for the environment
— Lauri Myllyvirta, lead analyst for the Centre for Energy Research and Clean Air
In Zimbabwe, Chinese firms and banks are involved in Beifa, Binga, Hwange and Sengwa power stations; of these, Hwange is already under construction, but the others could be affected, said Lauri Myllyvirta, lead analyst for the Centre for Energy Research and Clean Air, an independent research body.
“Having these projects cancelled is unambiguously good news both economically and for the environment,” he said.
Some countries with Chinese coal-power investment, including SA and Indonesia, already had overcapacity in coal-fired power, Myllyvirta said. “Besides imposing costs on electricity users, both countries have already seen their sovereign credit rating under pressure because of the financial mess that their national utilities are in.”
Other countries with China-backed coal-power projects do have a need for more generation capacity, and for them the new announcements of financing and support for green energy by the US and China represent opportunities they should capitalise on, he said.
Masoga, asked what options the SEZ has if China pulls out, said: “There are various sources of energy generation that will be considered to provide uninterrupted and cheaper energy to support the SEZ metallurgical complex. The South African government is hard at work to ensure security of power supply which is not dependent on any other country.”
Local banks are facing pressure from environmental groups to stop funding fossil-fuel power projects that are seen as a major risk to global plans to tackle climate change.
Myllyvirta said both commercial and public financing are moving rapidly towards clean energy, as made clear by the announcements of increased financing for green energy at the UN General Assembly meeting.
It is not clear from what Xi said whether existing plans for coal-fired power stations will be cancelled.
“It may be that some projects may continue if they have reached financial close, even if they haven’t begun construction, but China will come in for criticism if that is the case,” Nicholas said. “However, I think we can expect to see some project cancellations, which may include the proposed Sengwa project.”
Nicholas expects China to shift towards financing wind and solar projects overseas. Until recently, China has not been that active in renewable projects in developing nations, he said, though “we’ve now seen Chinese solar projects proposed in Zambia and Uganda. Going forward, we should see more of these types of China-backed solar projects around developing Asia and Africa.”
He said developing nations would do well to increase their focus on renewable energy, which is increasingly the cheapest source of new power generation.
For example, Botswana has begun to focus on solar but is also still planning new coal plants. Botswana has been frustrated by the unreliability of its Chinese-built coal-power plant, which has forced it to rely on expensive electricity imports from Eskom.
“Given its excellent solar resources, an end to coal-power development and increased commitment to solar makes much more sense for Botswana (and other developing nations) and can help lower the cost of power generation — a better alternative to consumer power tariff increases,” said Nicholas.
