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World Bank loans S Africa $1bn for power sector reforms

  • : Coal
  • 27/10/23

The World Bank has approved a $1bn loan for South Africa to support electricity market reforms and advance its low-carbon transition.

The development policy loan will help facilitate the unbundling of state-owned utility Eskom, which will restructure the electricity sector and open it up to competition. It will free up Eskom financial resources, which can then be redirected to investing in the transmission grid and maintaining existing coal-fired power plants.

South Africa needs an estimated 53GW of new additional generation capacity, particularly from renewable energy sources, up to 2032.

To accommodate this about 14,200km of extra-high voltage lines and 170 transformers will be needed by 2032. This will require 2,890km of extra-high voltage lines and 60 transformers at a capital investment cost of R72.2bn by 2027.

The World Bank loan will further support a low carbon transition by encouraging private investment in renewable energy, including by households and small businesses, and strengthening carbon pricing instruments.

The initiative is expected to encourage new investments in renewable energy generation, thereby boosting economic activity and creating jobs. Poor and vulnerable households will be cushioned against recent increases in electricity tariffs, the World Bank said.

Poorer households and businesses — particularly women and black women-owned businesses — will be supported through access to commercial loans to enable them to invest in solar technology, it added.

The South African government will also receive technical assistance to identify future reforms necessary to manage the social costs associated with the decommissioning of coal-fired power.

Lower reliance on coal-fired power generation will gradually reduce pollution, which will substantially improve the quality of life of South African households, the bank said.

The initiative is the result of a collaborative effort between the South African government, the World Bank and three partners, the African Development Bank (AfDB), KfW Development Bank (KfW), and Government of Canada. It was informed by South Africa's development priorities, including the presidency's energy action plan and the just energy transition investment plan.

South Africa's ongoing power crisis has had a marked negative impact on productivity and safety. In 2022, electricity cuts, known as load shedding, averaged eight hours per day and shaved 2-3pc from GDP growth.

South Africa is amongst the world's top 20 greenhouse gas (GHG) emitters. The energy sector accounts for 81pc of the country's emissions, of which 45pc comes from electricity.


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