‘US’s withdrawal from Paris Agreement hardly affects local energy sector reform’

You can also listen to this podcast on iono.fm here.

SIMON BROWN: I’m chatting with Johan Marnewick. He is head of private markets at Standup Asset Management. Johan, I appreciate the time today. With  reference to the Paris Agreement, one of the first executive orders President Trump signed was withdrawing the US from the agreement. Your view is that this does not necessarily detract from South Africa’s sort of reforming its energy sector. Why are you not overly concerned by the withdrawal?

JOHAN MARNEWICK: A couple of reasons. Thank you very much. That’s right. First, of course, this is not the first time that the US is withdrawing. It has done so before, in Trump’s first period of being president.

Just a reminder quickly of what the Paris Agreement does. It was struck in December 2015. In terms thereof countries come together to agree on certain carbon-emission targets. It’s all aimed at limiting global warming to certain targets that have been set. By the way, some of those might already in the interim have been breached.

But the important point is that South Africa’s context is very, very different. South Africa’s changes to its energy-supply sector are really aimed at modernising and liberalising energy supply within the country. There are very good substantive, can I say, commercial objectives for it. And as part of achieving those, it also ends up meeting its commitments under the Paris Accord.

So it is a bigger picture within South Africa and possibly other emerging economies too, whereby it’s really time for it to change the manner in which it produces electricity and gets the country on a more economic and commercially sustainable path. In the process we also get to meet some of these greener objectives, if I can use that term.

SIMON BROWN: I take your point and I want to bring it home in a moment. But, before I do, is the US going to face challenges as a result of this decision, notwithstanding, you point out, President Trump having done this before? President Biden took them straight back in. So we don’t know what will happen in four years, but is it going to put challenges for this administration?

JOHAN MARNEWICK: Look, of course it’s the political objective of those seeking it that is being achieved here, so I think we need to acknowledge that.

That said, I think to the extent that a large world-leading country like the US exits what is an inevitable path toward more efficient forms of energy production, I think it is a pity. And I think what it does is it opens the playing field to other industrial complexes, in particular China and Europe, to take on the leadership in this – both ownership but also the development of some of these technologies.

It’s not the only place we can point to where Chinese companies and industry are making massive and phenomenal and sometimes market-moving advances in technology development. But in this instance, I think the States is doing itself a disservice.

I do have to just point out that what we are talking about is the commitment at federal government level. Obviously within industry, at state and city level, there is enormous participation in renewable and other greener sources of energy. In fact, some of the states within the US have completely embraced these technologies for the reason, again, possibly less to do with ideological views on the climate, et cetera, but really for compelling commercial and economic reasons.

SIMON BROWN: Absolutely. My next point was going to be around the investment case for the rest of the world to kind of participate and continue with the Paris Agreement. And it is, as you said, commercially viable, it’s efficiency, it’s modernising what in many parts of the world is very, very old energy infrastructure.

JOHAN MARNEWICK: Yes, I’m going to put it like this. I think firstly the commercial case. Its attempts to stem climate change are enormous. So that in itself is a very worthy enterprise with  humanity coming  together, which is really what the Paris Accord is trying to do – for humanity to come together, see if you can stem or alter the course of climate change, because the consequences are enormously negative and costly. I think that’s point number one.

Of course the question might be whether we can do it as a species on this planet and as a race? Are all these efforts not potentially in vain? I think in time we’ll be able to say whether or not the steps that are being taken will be truly effective.

And I think then, as the last point, which is what we are talking about as investors, [is that] obviously as investors we hope we can stem the tide. We hope we can avoid the costs of climate change. But we are also saying that the mere fact of investing in these technologies has been an enormously profitable enterprise and it’s taken humanity to a fascinating place where the way that we used to produce energy – really since the Middle Ages – by burning coal and other fossil fuels, is just no longer the way that we are likely to do it in the future.

That in itself has been a worthy endeavour, and possibly arguably whether or not the Paris Accord is why – maybe it was on the table already, but perhaps it has provided importance because at national level people have gathered and said: ‘Wow, let’s try and invest in some of these industries. Let’s try and share technologies.’ And it doesn’t detract from certainly the course that industry and technology and research have gone.

SIMON BROWN: I like the reminder there that our current energy process is from the Middle Ages – which was some time ago. If we bring it home to South Africa are we, with the US, out of the Paris Agreement? Are we as a country able to invest in our energy requirements? Obviously there’s the Just Energy Transition that we’re looking at. Do we have the capacity and I suppose the resources and finances for it?

JOHAN MARNEWICK: Simon, firstly, we’ll never have enough money, of course. As you know, we always want more. Everyone in the world always wants more. But [in] South Africa, of course, through its remarkable and global standard Renewable Energy Investment Programme, which is a public-private partnership, we have raised more than R200 billion worth of investment. If you just emphasise that, that has mainly been from local sources of funding.

It’s the private sector, the retirement industry, the banks, the life companies, which have all piled in and made those investments. That has resulted in about six and a half gigawatts of additional supply of energy coming on.

The future challenges remain enormous. Can we do it all on our own? Probably not. We always want as a country to attract foreign investment. It’s critical for us and uplifting [for] our people – not only within this sphere but many others in the economy.

But really the private sector is able to invest; the private sector is willing to invest. It’s obviously what we do here at Stanlib, but I do want to say that it’s important that we work with the public sector very often in this space of energy production. We need access to national assets that are not ours. We can’t just go and suddenly plug in a plant that we’ve invested into. We need a regulatory framework, we need permission, we need to do it in an orderly way.

So that partnership with government, the sovereign, has possibly least to do with using sovereign cash. We’re not trying to take sovereign money. What we’re trying to do is get the permission to invest in an orderly manner that works for the national good at the end of the day – as well as obviously for ourselves and our investors.

SIMON BROWN: And in essence, you’ve got a proof of concept with Stanlib. Can you say that you transition funds? We’ve spoken about this before, but that really is a working model and the important two words there are ‘it’s working’. It’s doing it on the ground and it is happening.

JOHAN MARNEWICK: Yes, absolutely. And the point simply being there that this is the very thing that we are looking to achieve. Look, potentially small starts, but big ambitions working with our partners in the marketplace to grow. It’s exactly this. We’re trying to attract funding into the Just Energy Transition theme; we’re seeing a lot of opportunities within this space.

Load shedding thank heavens has abated for a while. We are very grateful for that – everybody in the country, I think. That said, investment is absolutely happening. The big themes at the moment are into the decentralised providers of electricity. These are people who help us to instal, for instance, solar plants or wind projects at industrial sites, shopping centre roofs, and households. And really people are looking to do that because it’s cheaper, longer term, more sustainable.

It’s sustainable in the sense please of being available, continually available – the sources of energy that in a commercial concern or a household or a retail space, etc, can be relied on to deliver what is needed for its clients and people that come through.

SIMON BROWN: I like that. Small starts, big ambitions. We’ll leave it there. Johan Marnewick, head of private markets at Stanlib Asset Management, I appreciate the time.

Listen to the full MoneywebNOW podcast every weekday morning here.