SA secures €500M KfW and $475M AfDB loans for energy transition

South Africa will receive a €500 million (over $583 million) loan from the German state-owned development bank KfW intended to, among other things, stimulate the urgent growth of South Africa’s electrical grid.

The German Federal Minister for Economic Cooperation and Development, Reem Alabali Radovan, announced an agreement with the South African government on the expansion of renewable energy in South Africa during her visit to the country to attend the G20 Development Ministerial Meeting.

The loan is meant to facilitate further reforms to South Africa’s energy sector that will create a conducive environment for private investment.  This includes the expansion of the necessary grids for solar and wind power. The loan is entirely made up of market funds, according to the German development ministry.

Enrico Brandt, Deputy Head of Mission at the German Embassy in South Africa, spoke with ESI Africa about the significance of business voices being heard at the Africa Green Hydrogen Summit.

“South Africa and Germany are already feeling the impacts of climate change. Climate change mitigation is something we can only achieve through global collaboration—and that is what our energy partnership with South Africa is about. 

“This energy partnership also benefits the German economy. German businesses and developers are already investing in the expansion of solar power, and South African companies are drawing on German materials, machinery and expertise. As a result, our energy partnership with South Africa will pay off many times over,” said Radovan.

She said their international energy partnership—known as a Just Energy Transition Partnership (JETP)—facilitates the expansion of renewable energies.

Accelerating green growth and energy security in South Africa

Germany, the United Kingdom, France, the Netherlands, Denmark and the European Union are all supporting South Africa’s climate and energy strategy through the JETP. Since its inception in 2021, the JETP has developed and received more support than was initially anticipated, according to the ministry.

“Under the partnership, the South African government has committed to accelerating the phase-out of coal and investing in renewable energy. This also makes economic sense, as South Africa has huge potential when it comes to solar and wind power in particular,” the German Minister explained.

More than 14,000 kilometres of new transmission lines are expected to be built by 2032 in South Africa.

“Grid expansion also opens up new business opportunities for German companies, such as German machinery and plant manufacturers. In addition, the expansion of the grid aims to stabilise South Africa’s energy supply. Frequent power cuts have previously represented a major investment barrier for companies. 

“There are over 600 German companies based in South Africa, which will therefore also benefit from the energy partnership” said Radovan.

AfDB loan to support energy transition in South Africa

Meanwhile, South Africa and the African Development Bank (AfDB) have signed a $474.6 million loan agreement aimed at supporting the implementation of the Just Energy Transition (JET).

According to the National Treasury of South Africa, this loan is part of the third Development Policy Operation which includes participation from the World Bank, KfW Development Bank, Japan International Cooperation Agency, and the Organization of the Petroleum Exporting Countries Fund for International Development (OPEC Fund) to support structural reforms to enhance the efficiency, resilience, and sustainability of the country’s infrastructure services. 

The National Treasury stated that the loan agreement with the AfDB follows the first policy loan, which was completed in 2023 to support South Africa’s Just Energy Transition. The new agreement emphasises the significance of South Africa’s collaboration with the AfDB in accomplishing its development goals.

South Africa’s National Treasury said this strengthens efforts to improve energy security, accelerate decarbonisation and enhance socio-economic benefits of the energy transition, resulting in inclusive economic growth and job creation.

“The National Treasury wishes to express its appreciation to the AfDB for its continued partnership and support of South Africa’s development objectives. This includes efforts to implement critical reforms in the energy and transport sectors, while also advancing the country’s Just Energy Transition goals and meeting foreign currency commitments at lower interest rates.”

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