This chapter highlights South Africa’s main opportunities and challenges in ensuring energy security. Reliable and affordable electricity for all remains a major hurdle and the country still needs to complete last‑mile electrification, improve affordability and strengthen energy security. Although the energy mix continues to be dominated by coal, renewable energy is expanding quickly and is, in some cases, already cheaper and more efficient. With strong solar and wind resources, South Africa has begun shifting decisively from crisis management towards deeper structural reform of the electricity sector. The growth of renewables is also becoming an important source of jobs. Small-scale enterprises can act as engines of innovation, inclusive growth and job creation.
Overcoming Financial and Capacity Barriers to Empower Small‑Scale Enterprises in South Africa
Abstract
1.1.1. Introduction and rationale
South Africa has adopted a Just Energy Transition Framework as part of its broader energy, economic development and energy security agenda. The country’s “Just Energy Transition Framework” articulates a people‑centred vision for a resilient economy and places strong emphasis on ensuring that the transition leaves no one behind (Government of South Africa, 2022[1]). Ensuring access to reliable and affordable energy for all remains a key challenge (South Africa's Department for Mineral Resources & Energy, 2025[2]), with decentralised renewable energy solutions, such as renewable microgrids, playing an important role in strengthening local economies and enhancing energy security (Chapter 5).
At the same time, South Africa’s planned decommissioning of several coal-fired power plants, driven by the ageing of coal‑fired power plants, entails significant distributional impacts that require careful management. The transition is expected to result in job losses in coal‑dependent regions; these impacts have already begun to materialise in specific cases, including around the decommissioning of Komati power station in 2022. In parallel, new opportunities are emerging in renewable energy, energy efficiency and other green value chains (Chapter 3 and Annex B). Capturing these opportunities will depend on the ability to translate transition objectives into inclusive growth outcomes that support employment, local economic development and social resilience.
Against this backdrop, micro-, small‑ and medium-sized enterprises (MSMEs) can act as engines of innovation, inclusive growth and job creation. To fulfil this role, however, they require well‑targeted and sustained policy, financial and capacity-building support. South Africa has approximately 2.6 million MSMEs, with over two‑thirds operating informally. They account for around 80% of employment and play a substantial role in economic activity, with turnover estimated at ZAR 5 trillion (USD 306 billion) (Finmark Trust, 2024[3]).
This is particularly important in Mpumalanga province, which faces acute transition risks due to its high reliance on coal and the planned decommissioning of several coal-fired power plants. The province is predominantly rural, with economies and labour markets closely tied to mining and energy production. While it holds significant, largely untapped potential for small‑scale enterprise development in renewable energy‑related activities, severe barriers persist, including capacity gaps, limited access to finance and fragmented policy co‑ordination.
The Western Cape, by contrast, is more urbanised and economically diversified and offers complementary insights into how opportunities along the renewable energy value chain can be advanced through more integrated support, including sector intelligence and business development services. This is supported by a well‑established institutional set-up, stronger innovation ecosystem and more experience with renewable energy technologies and circular economy activities that can inform policy and programme design. These differences highlight how place‑based, historical and structural factors, including levels of urbanisation, economic diversification and institutional capacity, shape both transition risks and opportunities for renewable energy-related and other enterprise development.
While the two provincial contexts differ significantly, they share common challenges in scaling up support for environmental-friendly entrepreneurship, particularly in reaching underserved townships and rural areas, as well as women-owned enterprises. In both provinces, inclusive participation is constrained by weaker specific networks, information asymmetries and limited market access. These shared challenges create opportunities for mutual learning and for generating nuanced, place‑based insights to inform more effective policy responses across South Africa.
1.1.2. Project objectives, scope and stakeholder engagement
In response to these challenges and opportunities, the project aims to unlock inclusive and scalable solutions that support South Africa’s JETP and energy transition goals and strengthen local economies, with a particular focus on Mpumalanga and the Western Cape. Drawing on insights from existing entrepreneurship support programmes, it promotes cross‑provincial learning by enabling stakeholders to share good practices and innovative approaches. It provides a systematic assessment of existing efforts and identifies scalable and replicable models and targeted interventions to close critical gaps.
The report focuses on three priority areas identified jointly with national and local stakeholders:
Tackling capacity barriers and building renewable energy and other skills for the energy transition;
Addressing access to finance constraints;
Advancing economic diversification, including renewable microgrid solutions.
This report represents the final output of the first phase of the project. Translating South Africa’s JETP and energy transition ambitions into actionable deliverables will depend on a clearer understanding of how policies, financing mechanisms and transition dynamics are experienced on the ground. For this reason, the project adopts a bottom‑up approach, drawing on extensive stakeholder engagement to capture constraints, opportunities and priorities, as articulated by communities, small‑scale enterprises, municipalities, business incubators and financial institutions. The extensive stakeholder engagement and local consultations undertaken as part of the first phase of the project (May 2025-July 2026) are summarised in Annex D. This approach aims to strengthen local ownership, improve policy coherence and better align national transition objectives with local realities, thereby supporting a more inclusive and durable energy transition.
South Africa is a leading economy on the African continent, yet it continues to grapple with historic inequalities and a high unemployment rate of 33.6%, the highest among G20 economies (Statistics South Africa, 2026[4]). Over the past decade, South Africa’s economy has faced persistently weak growth (Annex B) due to energy supply shortages, skills gaps and a sizable informal economy. The country only gradually recovered from severe impacts of the COVID‑19 pandemic. GDP is projected to increase by 1.2% in 2026 and 1.6% in 2027, while higher fuel prices are expected to raise inflation and weigh on household purchasing power (OECD, 2026[5]).
With a young and rapidly growing population – currently estimated at 63 million – the country is projected to reach 79 million by 2050, with most citizens living in urban areas. Located at the southern tip of Africa, its approximately 3 000‑kilometre coastline offers strong potential for offshore wind, complemented by some of the continent’s best onshore wind resources. South Africa is also one of the countries with the highest solar resource potential, thanks to its excellent irradiation levels, vast land area and fast‑growing renewable energy pipeline. Nearly one third of South Africa’s land area is covered by forests. Its diverse geography results in multiple climatic zones, ranging from Mediterranean conditions in the Western Cape to subtropical, semi-arid and desert climates across different regions. As a water scarce country, South Africa is highly vulnerable to weather-related impacts, facing multiple risks such as rising temperatures, droughts, extreme storms and biodiversity loss.
Moreover, South Africa is one of the most carbon- and energy-intensive economies in the world, with more than 80% of South Africa’s electricity generated from coal (Figure 1.1). South Africa, together with partners, pioneered the Just Energy Transition Partnership (JETP) in 2021, a groundbreaking initiative aimed at accelerating decarbonisation while creating jobs and securing livelihoods (Chapter 3).
South Africa is a founding member of BRICS, a grouping of Brazil, Russia, India, China and South Africa that has since expanded to include additional emerging economies, as well as of the Group of Twenty (G20). South Africa placed its G20 presidency in 2025 under the theme Solidarity, Equality, Sustainability (G20 South Africa 2025, 2025[6]). The final G20 Leaders’ Declaration endorsed collective global goals to triple renewable energy capacity and double the annual rate of energy-efficiency improvements through existing targets and national policies (G20, 2025[7]). It also committed G20 members to advance energy security, affordability and access by supporting diverse pathways, transmission expansion and system modernisation, alongside demand‑side measures, to meet rising energy needs while maintaining reliability and affordability. South Africa’s strong multilateral leadership during its G20 presidency in 2025 also lays a solid foundation for advancing the structural reforms needed within its own energy system.
South Africa has one of the most sophisticated and well‑regulated financial markets on the African continent, supported by a solid institutional architecture that includes the South African Reserve Bank, financial sector regulators, a central securities depository and the Johannesburg Stock Exchange. The country hosts Africa’s largest stock market, with a market capitalisation equivalent to around 246% of GDP in 2024 (World Bank Group, 2026[8]).
It also ranks among the top African performers in terms of private credit provision, with domestic bank credit to the private sector amounting to around 58% of GDP in 2024 (World Bank Group, 2026[9]). Its banking, bond and insurance markets are deep and highly developed. The insurance and pension fund sectors are particularly important, reflecting mandatory retirement savings and providing a large pool of long‑term domestic capital. Domestic asset managers play a central role in intermediating these savings and allocating capital through the bond and equity markets.
Financial flows to the real economy are substantial, including significant lending for manufacturing, infrastructure and sustainable development projects. However, South Africa does not operate a sovereign wealth fund; long‑term capital is channelled primarily through pension funds, insurers and other institutional investors. At the same time, the system is highly concentrated, with a small number of banks, insurers, asset managers and pension funds dominating their respective markets (World Bank Group, 2022[10]).
Recent policy and institutional developments provide a more supportive macro‑financial environment. The introduction of a lower inflation target of 3%, alongside a strengthened monetary policy framework, is expected to reinforce macroeconomic stability and contribute to lower borrowing costs over time. The exit from the grey list of the Financial Action Task Force (FATF) is also a positive milestone, signalling improvements in financial integrity (IMF, 2026[11]).
Notwithstanding the maturity of the financial system, access to sustainable finance remains constrained, particularly for small‑scale enterprises in renewable energy and other environmental sectors. While facing higher upfront capital requirements, greater perceived risks of early-stage green business models, limited collateral and longer payback periods, small-scale green enterprises are largely treated the same way as conventional ones. For these reasons and due to information asymmetries, commercial lenders remain cautious, which results in narrow credit windows, high interest rates and a preference for established firms with predictable revenue streams. The share of bank lending to small-scale enterprises has continued to decline, representing 12% of total loans in 2025 (IMF, 2026[11]). These constraints, and their implications for MSMEs, are examined in more detail in Chapter 4.
1.4.1. South Africa’s energy mix
The country’s energy sector is among the most carbon‑intensive in the world, largely due to structural and historical factors, including its long-standing dependence on coal. Despite reform efforts, coal remains the cornerstone of the energy system, accounting for approximately 69.2% of the total energy supply (Figure 1.1) and 81.6% of the total electricity generation in 2023, representing the largest share of any country globally (IEA, 2026[12]). Other fossil fuels remain part of the energy mix, with oil representing 21% and natural gas 2.5% in 2023. The potential of renewable energy remains largely underutilised despite recent increases in electricity generation, including through solar rooftop photovoltaic systems. Renewables contributed only about 5.4% of the primary energy supply and 8% of electricity generation in 2023, mainly from solar, wind and hydropower. Nuclear energy accounted for 1.8% of total energy supply and about 3% of South Africa’s electricity generation in 2023, making it the only African country with an operational nuclear power plant.0F1
Total energy supply by source, kilotonnes of oil equivalent (ktoe), South Africa
Source: IEA, World summary energy balances, extracted from OECD/IPAC Dashboard, https://oecdch.art/f758ba4b17/zaf.
1.4.2. Recent electricity sector reforms
South Africa’s electricity market has traditionally been characterised by a vertically integrated, state‑dominated model, with Eskom, the public electricity utility, playing a central role across the value chain. While significant reforms are under way, the system remains in transition (Annex B for a detailed overview of South Africa electricity market structure). South Africa’s electricity sector has faced a prolonged crisis for more than 15 years. Per‑capita electricity consumption has declined by 26% since its 2007 peak falling from around 5 MWh per capita to about 3 MWh per capita in 2023 (IEA, 2026[12]). This reflects a combination of constrained supply, rising electricity tariffs, persistent load-shedding (Annex B) partly offset by the rapid uptake of rooftop solar and, to a lesser extent, energy efficiency measures. In response, the country has undertaken major reforms of its electricity sector, gradually opening the power market to private generation, initiating the unbundling of Eskom, expanding renewable energy procurement and improving generation availability and grid planning readiness (Box 1.1). These measures have supported the emergence of a more competitive electricity market, attracted private investment and enabled early progress in stabilising supply.
Providing reliable and affordable electricity for all remains an important policy priority for South Africa. Significant progress has been made over the past decades, raising the level of electrification from 58.1% of households in 1996 to 94.7% in 2025 (South Africa's Department for Mineral Resources & Energy, 2025[2]). In total, approximately 8.4 million households have been connected across South Africa. However, an estimated 1.6 million households remain without electricity. Accounting for households relying on informal and illegal connections, the effective backlog may be closer to 3 million households (Annex B).
An inclusive energy transition in South Africa can measure success not only by connections, but also by how equitably energy is shared and sustained (ISS Africa Futures, 2025[13]). Ensuring universal access therefore requires addressing electricity affordability for low‑income households while maintaining the financial sustainability of INEP (Annex F). To support South Africa in addressing its electricity backlog, Chapter 5 focuses on unlocking financing for decentralised energy solutions, including renewable energy microgrids.
South Africa’s recent electricity sector reforms mark a clear shift from short‑term crisis management towards structural reform of the electricity system (Mudau, 2026[14]). The unbundling of Eskom is a central pillar of South Africa’s energy sector reform and decarbonisation strategy, which also foresees the establishment of a fully independent transmission system operator. The Just Energy Transition Investment Plan 2023-27 sets out the financial and infrastructure requirements to support a low‑carbon economy, with a focus on phasing out coal‑fired power plants, expanding renewable energy capacity and supporting affected communities and workers through reskilling and economic diversification (The Presidency. Republic of South Africa, 2022[15]). Market and regulatory changes have accelerated renewable energy deployment while strengthening competition and system resilience. The 2025 South African Renewable Energy Masterplan (SAREM), for instance, aims to build domestic manufacturing capacity, create jobs and strengthen industrial capabilities across renewable energy value chains (Republic of South Africa, 2025[16]). Thanks to recent developments, the renewable energy sector is increasingly contributing to lower electricity costs and job creation (Chapter 3).
Years of underinvestment in generation and grid infrastructure, coupled with declining coal plant performance, have resulted in chronic supply shortages and severe load-shedding. At the system level, the government has acknowledged transmission grid expansion as a critical enabler of further renewable energy deployment. It aims to add more than 14 000 km of new high‑voltage transmission lines through the Independent Transmission Projects programme over the coming decade, with around 1 100-1 200 km planned for the near term starting from 2026, to unlock renewable energy investment and relieve critical grid constraints (National Treasury, 2025[17]). A Credit Guarantee Vehicle is being developed by the government in collaboration with the World Bank to leverage private capital for transmission infrastructure under the JETP.
Independent transmission projects are expected to commence from 2026 (South African Government, 2026[18]). These reforms aim to create a level playing field for competition and reduce reliance on a single supplier. Fast‑tracking investment in transmission infrastructure, particularly in renewable‑rich provinces, has been identified as essential to unlocking new renewable energy generation and will require co-ordinated action by the system operator, National Treasury and private investors (South African Government, 2026[18]). Overall, these reforms signal a decisive move towards modernising South Africa’s electricity system.
Energy Action Plan
Launched by President Ramaphosa in July 2022 to stabilise Eskom’s operations and close the supply gap through short and long‑term measures. The plan includes five key pillars:
Fix Eskom and improve the availability of existing supply.
Enable and accelerate private sector investment in generation capacity.
Fast-track procurement of new generation capacity from renewables, gas and battery storage.
Unleash businesses and households to invest in rooftop solar.
Fundamentally transform the electricity sector to achieve long-term energy security.
Establishment of the National Energy Crisis Committee (NECOM)
NECOM was created to co-ordinate implementation of the Energy Action Plan across government. It is chaired within the Presidency and supported by more than 100 officials from government and Eskom, working across 10 workstreams to deliver time‑bound actions.
Creation of the Department of Electricity and Energy
In response to deepening load-shedding, the government declared a national state of disaster and created a Department of Electricity in the Presidency in February 2023. In July 2024, this was merged with the Ministry of Energy to form a unified Ministry of Electricity and Energy, mandated to stabilise the system, drive the energy transition and support industrial renewal.
Electricity Regulation Amendment Act
Effective since January 2025, the Act ended Eskom’s legal monopoly and established a framework for a competitive electricity market. It enables multiple generators to sell power, accelerates private investment and sets the legal foundations for vertical unbundling and the creation of an independent Transmission System Operator.
Eskom unbundling strategy
The Eskom unbundling strategy, approved in December 2025, outlines the transformation of Eskom into a holding company with separate subsidiaries for generation, renewables, transmission and distribution, along with the establishment of an independent Transmission System Operator. The changes aim to improve transparency, operational focus and investor confidence.
Operation Vulindlela and licensing reforms
Operation Vulindlela, launched in 2020, accelerated structural reforms including energy sector changes. The government raised the embedded‑generation licensing threshold from 1 MW to 100 MW, which unlocked significant private investment.
Scaling renewable procurement through REIPPPP
South Africa continued procuring renewable energy under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), with more than 6 GW secured since 2022. By 2025, REIPPPP is shifting towards a more flexible, competitive power market.
Source: Compiled by the OECD Secretariat.
1.4.3. Expansion of renewables
South Africa has excellent solar and wind potential, with some of the world’s highest solar irradiation levels along the northwestern regions, as well as strong, consistent coastal wind resources in the Cape areas (Western, Northern and Eastern Cape) (Department of Electricity and Energy, 2025[19]). Nevertheless, its 9.4% share of renewables in electricity generation remains low compared to the global average (Figure 1.2). This reflects the country’s historically coal‑dominated power system rather than a lack of resource endowment.
Percentage of renewables in electricity generation, 2023 and percentage of modern renewables in final energy consumption (SDG 7.2), 2022
Note: RES: renewable energy sources; modern renewables exclude traditional uses of biomass, such as burning collected wood, agricultural byproducts or dung for cooking or heating.
Source: (IEA, 2025[20]).
Nonetheless, South Africa has the continent’s largest installed renewable capacities and far higher electricity consumption than other countries. Electricity therefore accounts for a higher share of total final energy use, while the country’s reliance on coal keeps the renewable share in electricity generation comparatively low.
South Africa’s renewable capacity has risen quickly over the past ten years (Figure 1.3), reaching around 6.2 GW of utility‑scale renewable capacity from plants larger than 1 MW in 2023, comprising 3.3 GW of wind, 2.3 GW of solar PV and 0.6 GW of concentrated solar power (Department of Electricity and Energy, 2025[19]). In parallel, South Africa has experienced rapid growth in Small‑Scale Embedded Generation (SSEG), with an estimated 6 GW of rooftop solar PV installed nationwide as per 2025 as households and businesses expand self‑generation in response to falling technology costs, persistent electricity supply constraints and previously severe load-shedding. Total installed renewable capacity rose from 6.2 GW in 2023 to 12 GW in 2024, driven largely by the surge in rooftop solar PV (IEA, 2024[21]). This contributed to significantly reducing demand on Eskom (Annex B).
Renewable energy sources as a share of electricity generation in South Africa
Source: IEA, World summary energy balances, extracted from IPAC Dashboard, https://oecdch.art/003c468493/zaf.
In alignment with global trends, the cost of renewable technologies has fallen rapidly, making wind and solar the most competitive options for new power generation. By 2024, nearly all newly commissioned utility‑scale renewable projects in South Africa delivered electricity at a lower cost than the cheapest new fossil fuel alternative, signalling that market forces now favour clean technologies over coal and gas (SAETA, 2026[22]).
The rapid, citizen‑led expansion of distributed generation creates an opportunity for government to further support decentralised energy solutions (Mudau, 2026[14]). Continued electricity tariff increases, such as the 12.7% increase approved by South Africa’s regulator in January 2025 (Reuters, 2025[23]), have enhanced the attractiveness of SSEG for households and businesses able to absorb the high upfront investment costs. South Africa also aims to further develop rooftop solar PV capacity to reach around 11.6 GW by 2030 (Department of Electricity and Energy, 2025[19]). The government expects SSEG to expand by around 900 MW each year through to 2035 (Department of Electricity and Energy, 2025[19]).
In parallel, South Africa plans a substantial scale‑up of utility‑scale renewable generation, with significant additions of solar PV and wind power through public procurement and private sector‑led projects. National planning frameworks and market intelligence forecasts point to several gigawatts of new utility‑scale solar PV and wind capacity to be added by 2030, supported by private procurement, wheeling arrangements and forthcoming independent transmission projects (GreenCape, 2026[24]).
1.4.4. Investment in renewables
South Africa alone accounts for approximately 17% of total energy investment in Africa and close to a quarter of the continent’s installed electricity capacity making it the single largest energy investment destination in Africa (IEA, 2025[25]). This scale reflects both the size of South Africa’s power system and the central role played by private investment in expanding renewable generation capacity.
The government has introduced a range of policy instruments to accelerate both utility-scale and small-scale renewable energy deployment (Table 1.1). The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) was launched in 2011 by the Government of South Africa as a competitive procurement programme to attract private‑sector investment in utility-scale renewable energy generation. It has become the cornerstone of South Africa’s renewable energy investment framework.
Across bid windows 1 to 6 (2011-2023), REIPPPP procured about 7.7 GW of wind, solar PV, concentrated solar power and other renewable technologies, attracting approximately ZAR 239 billion (~USD 14.8 billion) in private sector investment, of which ZAR 43.1 billion (~USD 2.7 billion), or 18%, originated from foreign investors (Department of Electricity and Energy, 2026[26]). A seventh bidding round unfolded between 2023-25, advancing an additional 3 GW of renewable energy capacity towards implementation, attracting another ZAR 31.4 billion (~USD 1.9 billion) in private investment. Despite strong market appetite, limited grid availability constrained the volume of renewable capacity that could be procured and advanced.
The effectiveness of the Renewable Energy Independent Power Producer Procurement Programme also relied on complementary legislative and fiscal reforms that strengthened market demand, reduced investment risk and supported private sector participation. Recent regulatory reforms including the lifting of generation licence thresholds and the expansion of private procurement through corporate power purchase agreements have further strengthened market dynamism. However, despite South Africa’s strong track record in mobilising private capital, domestic resources alone are insufficient. This underscores the continued importance of development finance, blended‑finance instruments and risk‑mitigation mechanisms.
1.4.5. Coal and the progressive decommissioning of coal-fired power plants
While South Africa is expanding the use of renewables, the government has set out a long-term strategy to progressively decommission its ageing coal-fired power plants. Many of South Africa’s coal‑fired power stations are simply too old to operate reliably, where ageing infrastructure, rising operating costs and end‑of‑life technical constraints make their continued operation increasingly unfeasible.
This transition is therefore mainly driven by system reliability considerations. However, short-term constraints on renewable deployment and persistent financing gaps mean that coal will continue to play a key role in ensuring base load supply.
South Africa’s long‑term power‑sector planning framework provides the main policy anchor for this transition. The Integrated Resource Plan 2025 (IRP 2025) targets the decommissioning of 8 GW of coal‑fired capacity by 2030 and prioritises renewables, which may discourage new coal mine investment (Department of Electricity and Energy, 2025[19]). It forecasts a steep fall in domestic coal use, with coal-fired generation in Eskom’s installed capacity dropping from 59% to 11% by 2042 (Mineral Council of South Africa, 2025[28]).
Despite planned reductions in coal‑fired generation, South Africa remains structurally dependent on coal production. South Africa is by far Africa’s largest coal producer and ranks among the world’s largest coal producers (Annex B). In 2021, Eskom’s Just Energy Transition Strategy committed to retiring nine coal‑fired power stations by 2035 and to neither investing in new coal plants nor returning old ones to service, aligning with the 2019 IRP, which projected the decommissioning of around 10.5 GW of coal capacity by 2030 and 35 GW by 2050 (Eskom, 2021[29]; Eskom, 2021[30]; Department of Mineral Resources and Energy, 2019[31]). Komati in the province of Mpumalanga was the first station to close, in 2022, providing important lessons on the social and economic impacts of coal‑plant retirement and the need for stronger transition planning for workers and surrounding communities (PCC, 2025[32]).
Planned closures of several other ageing plants before 2030 have been postponed due to persistent electricity‑supply constraints. In 2024, the government approved Eskom’s request to continue operating the Hendrina, Grootvlei, Arnot, Camden and Kriel power stations until 31 March 2030. This extension allows these plants to run at minimum emissions‑standards limits until their final retirement.2 However, the postponement of coal decommissioning timelines to the mid‑2030s sends mixed signals and contributes to uncertainty for investors across the energy value chain. Eskom plans to retire additional coal stations throughout the 2030s as part of its long‑term transition pathway. However, the precise decommissioning schedule continues to evolve in response to changing electricity supply conditions and updated national planning frameworks.3
1.5.1. Labour market characteristics
South Africa continues to record one of the highest unemployment rates globally, with about 33.6% in the first quarter (Q1) of 2026, remaining close to the peak of 34% during the COVID-19 period in 2020 (Statistics South Africa, 2026[4]). This stands in stark contrast to the G20 average unemployment rate of about 6.3% as of the latest 2025 data. Job creation in South Africa has stagnated over the past three years.
As in most countries, youth unemployment in South Africa is much higher, estimated at more than 40%. This gap highlights South Africa’s persistently severe labour market challenges compared with other major advanced and emerging economies (Figure 1.4). Specifically, young people with tertiary education continue to struggle in the labour market. Unlike global patterns where higher education reduces unemployment risk, the opposite is true in South Africa: more than half of young adults with tertiary attainment are unemployed. Moreover, youth disengagement remains high. In Quarter 4 (Q4) 2025, 34% of the country’s approximately 10.3 million people aged 15 to 24 were not in employment, education or training (Statistics South Africa, 2026[4]). South Africa’s labour force remains largely underutilised.
Unemployment rates as a percentage of 25-34 year-olds in the labour force
Note: Data for India and Indonesia comes from the International Labour Organization (ILO).
Source: (The Cities Climate Finance Leadership Alliance, 2026[33]), data extracted from Table A 3.4.
Inequality persists. On average, the unemployment rate for black South Africans is nearly 30% higher than that of white South Africans, underscoring continued disparities in economic opportunities (OECD, 2025[34]). In 2024, about 38% of small formal businesses were owned by white people, although they represented only 7% of the working‑age population (TIPS, 2024[35]). This marks an improvement compared with a decade ago but remains far from equal opportunities. However, these figures apply to the formal sector only, as informality remains widespread, meaning that official statistics provide only a partial and less nuanced picture of economic realities (Annex B).
Subnational differences are also significant. With an official unemployment rate of 18.1% in 2025, the Western Cape has by far the lowest unemployment rate in South Africa, while Mpumalanga performs around the national average (Figure 1.5). Employment growth has lacked behind the growth of the working-age population. Overall, informal employment remains lower than in many emerging economies (Annex B).
Official unemployment rate by province, October-December 2025
Source: (Statistics South Africa, 2026[4]).
1.5.2. Job losses related to the planned decommissioning of coal-fired power plants
With the progressive decommissioning of coal-fired power plants, related job losses in the coal sector will further exacerbate the situation at a time when unemployment in the country is already high. Employment in South Africa’s mining sector has shown a long‑term pattern of volatility, marked by cyclical swings and more recent stagnation. It employed roughly half a million people over the past two decades. Since 2024, the mining sector has been losing jobs, although it still employed approximately 480 000 people at the end of 2025 (TIPS, 2025[36]).
While the coal mining sector represents less than 1% of total employment, regional disparities are significant. About 87% of coal jobs, estimated at around 100 000 in 2024, were located in southwestern Mpumalanga, where much of South Africa’s coal infrastructure is concentrated. The Just Energy Transition Implementation Plan 2023-2027 (JET IP) estimates that between 150 000 and 200 000 jobs are at risk, representing about 18% of the employed labour force in Mpumalanga or roughly one in five jobs (The Presidency, Republic of South Africa, 2024[37]).
Scepticism toward the planned decommissioning of several coal-fired power plants is therefore an important political dynamic in the region. The postponement of the decommissioning of several coal-fired plants sends mixed signals, as it sustains a degree of hope among some stakeholders that the sector may continue along its historical path.
Beyond direct mining jobs, a much larger number of people rely on the broader coal value chain, including informal and small‑scale coal‑related activities that provide livelihoods in mining. As a result, anxiety about the future is growing among local communities, underscoring the need for inclusive, early planned and targeted strategies. The closure of the Komati Coal-fired Power Station has already demonstrated that the transition affects not only formal workers – who typically have access to structured retraining or redeployment pathways and retirement benefits – but also informal workers. They often remain largely invisible in official planning processes and therefore risk being excluded from economic alternatives during repurposing efforts. This experience has become a key lesson: future decommissioning and repurposing strategies need to explicitly integrate these informal workers to prevent further socio‑economic marginalisation in already vulnerable mining communities (PCC, 2025[32]).
1.6.1. South Africa’s Just Transition Framework
“South Africa’s Just Transition Framework”, developed as one of the first tasks of the Presidential Climate Commission in 2022 (Box 1.2), sets out a people‑centred vision to guide the country’s shift to a low‑emissions, resilient economy (PCC, 2022[38]). The framework aims to ensure a quality life for all South Africans while strengthening resilience to weather-related impacts and aligning the country with a pathway to net‑zero emissions by 2050. It emphasises a need to advance decent work, social inclusion and poverty eradication, with decision‑making that prioritises those most affected – the poor, women, people with disabilities and the youth. Central to this vision is building economic and social resilience through affordable, decentralised and diversely owned renewable energy systems, sustainable land‑use, conservation of natural resources, as well as equitable access to clean water and a healthy environment.
The Presidential Climate Commission (PCC) was established in 2020 to guide a just and equitable transition towards a low-emissions, resilient economy and society. It comprises government ministers and 22 commissioners representing labour, civil society, business and youth. In 2025, the PCC was institutionalised as an independent and impartial advisory body under the Climate Change Act. The Commission convenes quarterly, with thematic working groups meeting on an ad hoc basis.
The PCC’s first five years were characterised by a learning-by-doing approach. It facilitated the generation of new knowledge, underpinned by technical studies. This period culminated in the launch of the “Just Energy Transition Partnership” (JETP) at COP26 in Glasgow in 2021 and the development of the “Just Transition Framework” in 2022. From its early efforts to build an institution capable of bridging government, business, labour and civil society, the PCC has demonstrated the value of dialogue and collective problem-solving, with justice at the core of South Africa’s transition.
In early 2026, President Cyril Ramaphosa appointed new commissioners for 2026-30. The new Commission has identified priorities that include strengthening support to local governments in forward-looking planning, implementation and disaster response, playing a more prominent role in the energy sector, mobilising adaptation finance and grants for small-scale local projects and supporting government efforts to build capacity and policy coherence to deliver near-term results.
Source: (PCC, 2025[39]; Daily Maverick, 2026[40]).
Within South Africa, knowledge and understanding of energy security, economic diversification and distributional impacts have greatly improved in recent years, reflected in stronger policy dialogue, broader stakeholder engagement and more practical work on skills, planning and implementation. Dedicated training programmes, for instance provided by the Mpumalanga Department of Agriculture, Rural Development, Land and Environmental Affairs (DARDLEA), together with Indalo Inclusive, as well as knowledge and document repositories including the “Just Transition Knowledge Portal” (Just SA, 2026[41]) play an important role in building a common understanding of core economic issues, alongside the technical capacity required to design and implement long‑term, place‑based strategies.
At the same time, awareness is increasing, although it is not yet central to local policy debates, as reflected in OECD survey results (Annex D). Feedback from local officials and community representatives highlighted a clear tension between two dominant approaches: One approach is aligned with national efforts led by institutions such as the Presidential Climate Commission, which promote proactive action and accelerated decarbonisation. The other approach reflects a more cautious stance, emphasising the need for South Africa to transition at its own pace, with a strong focus on economic development, job preservation and energy security. This divergence mirrors wider national debates about development priorities and concerns that moving too quickly could heighten risks in a context already marked by slow economic growth, high unemployment and ongoing energy shortages.
1.6.2. Mpumalanga, South Africa’s coal-producing region
The province of Mpumalanga – whose name means “land of the rising sun” in isiZulu – with approximately 5.1 million inhabitants is South Africa’s primary coal‑producing region and a predominantly rural province with rich biodiversity that has become a central focus of the country’s Just Energy Transition (Figure A B.2).
The coal belt spans several municipalities, particularly municipalities in the Nkangala and Gert Sibande districts. Within Mpumalanga, five municipalities – eMalahleni, Govan Mbeki, Msukaligwa, Steve Tshwete and Victor Khanye – account for 70% of national coal production (Bhorat, 2024[42]). These municipalities are expected to be heavily affected as their revenues will shrink and some public services, such as water and electricity for nearby communities, are partially provided by coal mining companies.
In total, Mpumalanga hosts 11 of Eskom’s 14 coal‑fired power stations, many of which are scheduled for decommissioning by 2030. Sixty-five of the country’s 78 operating mines are located in the province. This makes Mpumalanga the region most exposed to the economic and social consequences of the transition, including large‑scale job losses and deep disruption to local economic development.
In response to these challenges, Mpumalanga is increasingly prioritised for renewable energy deployment, and broader economic diversification under the JET framework. This creates a dual reality: while renewable energy investment opportunities expand, the province remains dominated by mining, coal‑fired power generation and energy‑intensive industries, resulting in overlapping mandates, competing priorities and a fragmented institutional landscape. The limited development of sectors outside the coal value chain further restricts opportunities for MSMEs, which already face place‑based challenges such as long distances to markets, uneven infrastructure and constrained access to support services in rural and peri‑rural areas.
Although new employment opportunities may emerge in renewable energy and related value chains, indirect job losses across the coal ecosystem are expected to be substantial (Annex B). As a result, anxiety about the future continues to grow among local communities, reinforcing the urgency of inclusive, early‑planned and targeted transition strategies that can support workers, enable MSME development, and lay the groundwork for a more diversified and resilient provincial economy.
Mpumalanga has a long‑established agricultural base and contains almost half of South Africa’s high‑potential arable land, creating a strong foundation for growth in farming and tourism. In this context, agrivoltaics could represent a promising opportunity to combine agricultural productivity with renewable energy generation (Chapter 2).
1.6.3. South Africa’s Just Energy Transition Partnership
South Africa was the first country globally to enter into a Just Energy Transition Partnership (JETP) at COP26 in 2021, under a G7‑led initiative, inspiring many other countries to adopt similar approaches. These platforms aim to channel international finance to help middle‑ and lower‑income countries shift their energy systems away from fossil fuel reliance, while emphasising justice and equity. Indonesia, Vietnam and Senegal subsequently announced JETPs, benefitting from loans, financial guarantees and grants to support coal phase‑out.
Country platforms differ in scope, ranging from a narrow focus on reducing energy-related emissions through the decommissioning of coal fired power plants to broader strategies for economic transformation, incorporating social benefits such as skills development or job creation (Csanadi, 2025[43]). For example, South Africa has identified six strategic priorities: electricity, Mpumalanga, New Energy Vehicles, green hydrogen, skills and municipalities (Annex B). Despite many challenges, its JETP has helped elevate the social dimensions of the energy transition, particularly in coal-dependent regions.
A lot of progress has been made in implementation and in improving transparency around the use of grant funding and other financing instruments. The JET Grants Register, which is updated quarterly, records all JET IP‑related grants committed since November 2021. This resource has been expanded with the establishment of the South African JET Investment Register in 2025 aimed at tracking the wider range of JET investments (JET PMU, 2026[44]).
By the end of Q1 2026, the Register recorded a total of USD 4.3 billion committed funds, of which 34% had been completed, 50% had moved into the implementation phase, 9% remained in planning, and 7% represented newly approved projects (JET PMU, 2026[44]). By far the largest share of resources has been allocated to the electricity portfolio, followed by green hydrogen, municipalities, development support for Mpumalanga and skills development. While 46% of all JET pledges were allocated by end of March 2026, grants represent a rather small portion of total financing and were almost fully allocated in early 2026, indicating a need to shift toward concessional loans, blended‑finance mechanisms and stronger private sector mobilisation (Figure 1.6).
Allocation of Just Energy Transition Partnership funding by Quarter 1, 2026, USD million
Note: Grant: Non-repayable financial assistance; highly-concessional loan: very low-interest, long-term loans; concessional: below-market interest rate loans; commercial debt & equity: commercial financing and equity investments.
Source: (JET PMU, 2026[44]).
South Africa’s JETP has intensified the focus on blended finance solutions from development partners and development finance institutions (DFIs) to help unlock larger volumes of private investment for the transition. Yet financial intermediation has progressed rather slowly. While several DFIs have signalled interest in scaling concessional instruments, on the ground the status of intermediaries and the channels through which such finance can reach MSMEs remains constrained. Many domestic financial institutions still face limited risk appetite, weak green product pipelines and gaps in technical capacity, which means that the promise of blended finance has not yet translated into effective access to capital for small green enterprises. Further work is therefore needed to strengthen the ecosystem that connects high‑level JETP commitments with the day‑to‑day financial realities of MSMEs in South Africa.
The process to date shows that advancing project-funder matchmaking has been administratively demanding, and that the ticket sizes of eligible projects remain substantially above the scope of most MSMEs.4F4 Support from intermediaries such as business incubators and accelerators is therefore essential. Strengthening efforts to build a robust, scalable project pipeline will be crucial going forward.
While co‑ordination among development partners has improved, monitoring and reporting remain complex due to wide variation in reporting criteria across International Partners Group members and funding instruments. Applicants face additional challenges as each development partner applies its own conditions, procedures and documentation requirements, creating a fragmented and difficult‑to‑navigate landscape. This fragmentation increases transaction costs for project developers – especially smaller organisations and MSMEs – and underscores the need for greater harmonisation and simplified, user‑friendly processes across funding partners (Csanadi, 2025[43]). Moreover, some just energy transition‑focused projects continue to be funded outside the JETP framework, adding further complexity to co-ordination and oversight.
Micro, small and medium‑sized enterprises (MSMEs) are critical to South Africa’s energy transition, both as adopters of renewable energy solutions and as sources of innovation across renewable energy value chains and other relevant environmental sectors. In coal‑dependent regions such as Mpumalanga, where green enterprise activity is still emerging, enabling the creation and growth of new MSMEs is a necessary first step to ensure that the benefits of the transition translate into inclusive growth, social equity and long‑term regional development. The experience of the Western Cape, with its more established networks and support arrangements for renewable energy enterprises, offers complementary insights that can inform context‑specific approaches across different regions. Snapshots of the enterprise landscape in Mpumalanga and the Western Cape, together with an analysis of key strengths and weaknesses, are presented in Annex B.
1.6.4. Current trends
South Africa’s small‑scale enterprise landscape is vast, diverse and economically significant, with an estimated 2.6 million MSMEs operating across formal and informal sectors (DSBD, 2025[45]), though precise numbers remain uncertain as roughly two‑thirds of small businesses are informal. Recent estimates indicate that formal small businesses contributed 19% of South Africa’s GDP and 33% of total employment in 2023, while the informal sector generated just under 5% of GDP and accounted for 17% of employment (TIPS, 2024[35]). At the same time, government sources estimated that MSMEs could account for about 34% of GDP and employ around 60% of the labour force in 2024 (SEDA, 2024[46]). MSMEs are widely recognised as a cornerstone of economic activity, innovation and local development.
The ownership profile of small-scale businesses is shifting gradually, though marked inequalities persist across demographic and geographic dimensions. In 2024, white owners still accounted for 38% of small formal businesses, despite representing only 7% of the working‑age population – a decline from 57% fifteen years earlier, indicating some diversification in ownership patterns (TIPS, 2024[35]). Conversely, African women owned just 13% of small formal businesses, underscoring persistent, gendered disparities in entrepreneurship despite targeted initiatives for women-owned enterprises.
Geographic disparities mirror these patterns: Gauteng, the Western Cape and KwaZulu‑Natal together accounted for 74% of formal small businesses (Figure 1.7), compared to 58% of the working‑age population and a broadly similar share of informal enterprises, highlighting the concentration of economic opportunity in South Africa’s main economic hubs (TIPS, 2024[35]). Although Gauteng accounts for the largest number of formal enterprises, the Western Cape exhibits the highest concentration relative to population, indicating a particularly strong entrepreneurial base.
Formal enterprises by province in thousands and number of formal enterprises per 1 000 inhabitants by province
Note: Calculated as the number of employers and self-employed people in the TIPS survey. Formal includes commercial farms.
Source: Number of formal enterprises extracted from (TIPS, 2024[47]); population data extracted from (Statistics South Africa, 2025[48]).
Since the COVID‑19 downturn, formal small employers have experienced a decline in both enterprise numbers and employment, reflecting the combined pressures of weak demand, structural constraints and rising operating costs. New MSME formation also remains weak, with nearly a quarter of existing MSMEs having operated for only three years or less.
The broader MSME ecosystem continues to face significant systemic pressures, including limited access to finance, inadequate infrastructure and persistent regulatory burdens. These challenges are further intensified by the current economic environment, where high interest rates, inflation and fuel costs place additional strain on small businesses (SEDA, 2024[46]). These pressures contribute to an exceptionally high MSME failure rate, with an estimated 70-80% of small businesses failing within their first five years, one of the highest rates globally (SouthAfrican Business, 2025[49]).
Yet, despite these systemic challenges, emerging drivers such as digital transformation, tech‑enabled entrepreneurship and growing female participation offer promising avenues for renewal. This could reposition small‑scale enterprises as engines of inclusive growth, provided they receive sustained and well‑targeted policy support.
1.6.5. Environmental-friendly entrepreneurship
Environmental-friendly entrepreneurship in South Africa refers to small and emerging enterprises that contribute to a low‑carbon, resource‑efficient and socially inclusive economy by reducing environmental impacts or providing green products and services (TIPS, 2022[50]). Yet, despite their growing relevance, South Africa lacks a commonly adopted policy definition to guide targeted support. Key sectors typically associated with this space include renewable energy, energy efficiency, water management, waste and circular economy activities and sustainable agriculture (DFFE, 2019[51]). Within the energy sector, South Africa’s initiatives span renewable energy, energy efficiency, hydrogen and fuel cells, bioenergy and waste‑to‑energy solutions.
While activity in these sectors has expanded significantly over the past decade, exposure remains geographically uneven: most initiatives are concentrated within the provinces of Gauteng, the Western Cape and KwaZulu-Natal, whereas comparatively few enterprises in Mpumalanga have been exposed to economic opportunities outside the coal value chain (DFFE, 2019[51]).
For small-scale enterprises to succeed, they require both foundational business skills and sector‑specific technical capabilities but also sustained exposure to alternative economic opportunities – without which innovation is difficult to cultivate. External actors frequently introduce renewable energy initiatives, yet building durable local capacity will be essential to ensure long‑term impact and to reduce reliance on short-term, externally driven support. An increasing number of business support organisations are placing greater emphasis on supporting green businesses. Several initiatives have sought strengthening the small‑business ecosystem.
However, most of these initiatives have focused on small businesses more broadly, suggesting scope to place greater emphasis on sector-specific technical skills. In parallel, there is a need to more systematically assess the impacts of capacity‑building programmes and draw lessons over time. While substantial investments have been made, the MSME support landscape remains fragmented, and co-ordination and resourcing challenges persist (Annex D).
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← 1. In Egypt, the El Dabaa Nuclear Power Plant is under construction and will consist of four reactors (4.8 GW). Ghana, Kenya and Nigeria are moving toward nuclear energy at different stages of readiness.
← 2. Their closure remains unavoidable, as these stations are among Eskom’s oldest, with deteriorating performance, frequent breakdowns and prohibitively high costs associated with maintaining or retrofitting them to meet environmental standards.
← 3. IRP 2025 indicates that coal‑fired capacity is expected to decline from 42 GW in 2024 to 28 GW by 2034, with the phase‑down of coal generation in Mpumalanga envisaged to be offset by new wind and solar power developed largely in the broader Cape regions (Department of Electricity and Energy, 2025[19]). To avoid electricity supply constraints, the planned decommissioning of Eskom’s coal fleet is aligned with the Transmission Development Plan 2024, which follows the Generation Continued Operations shutdown plan. Under this plan, the systematic retirement of ageing coal‑fired units progresses in parallel with planned grid expansions to enable large‑scale renewable energy integration.
← 4. The average amount granted in the smallest project‑size category (below ZAR 5 million or USD 314 000) is approximately ZAR 2 million or USD 125 000.