The World Bank Board has pledged its support to South Africa’s endeavors in achieving long-term energy security and transitioning to a low-carbon economy through a substantial $1 billion Development Policy Loan (DPL). The loan aims to address the country’s ongoing energy crisis and promote a sustainable energy transition.
South Africa has grappled with persistent energy challenges, with widespread load shedding averaging eight hours per day in 2022, resulting in a significant 2-3% dent in the country’s GDP growth. To address these issues and further the transition to a low-carbon economy, the World Bank has stepped in with a transformative loan program.
Marie Francoise Marie-Nelly, World Bank Country Director for South Africa, expressed her satisfaction with South Africa’s decisive reforms in response to the energy crisis, highlighting the potential benefits for the nation, particularly its most vulnerable households, the economy, the environment, and the ongoing energy transition.
This operation encompasses key reforms in two critical areas. Firstly, it supports the restructuring of South Africa’s power sector, focusing on the unbundling of the country’s primary power utility, Eskom. The operation aims to enhance the power market’s openness while directing resources within Eskom toward crucial investments in transmission infrastructure and the maintenance of existing power plants.
Additionally, the World Bank’s initiative actively encourages private investment in renewable energy, including by households and small businesses. Furthermore, it bolsters carbon pricing instruments to promote low-carbon transition.
South Africa is recognized as one of the top 20 greenhouse gas emitters globally. A staggering 81% of the country’s emissions are attributed to energy, with 45% arising from electricity production.
The program is anticipated to stimulate economic activity and generate employment opportunities through new investments in renewable energy generation. Vulnerable households, in particular, will be shielded against recent electricity tariff increases. Poorer households and businesses, with a focus on women and Black women-owned enterprises, will gain access to credit from commercial banks, facilitating investments in solar technology.
Beyond its economic and social impact, the operation is expected to contribute to gradual reductions in water and air pollution by reducing the reliance on coal for power generation. This shift holds the promise of improving the quality of life for South African households over the long term.
Furthermore, the South African authorities will receive technical assistance to identify and implement future reforms necessary to manage the social costs associated with the decommissioning of coal-fired power plants.
The operation reflects a collaborative effort between the South African government, the World Bank, and three partners: the African Development Bank (AfDB), the KfW Development Bank (KfW), and the Government of Canada. The initiative aligns with South Africa’s development priorities, including the Presidential Energy Plan and the Just Energy Transition, reinforcing the nation’s commitment to sustainable and equitable energy reform.
This substantial funding from the World Bank marks a pivotal step in South Africa’s journey toward energy stability and a low-carbon future, with potentially far-reaching benefits for the country’s economy and environment.