In a significant move to bolster South Africa's pursuit of long-term energy security and its transition to a low-carbon economy, the World Bank Board has approved a substantial $1 billion Development Policy Loan (DPL). The loan is designed to address the country's persistent energy challenges while facilitating a sustainable shift toward cleaner and more reliable energy sources.
South Africa has grappled with a protracted energy crisis, with widespread power cuts, or “load shedding,” averaging eight hours per day in 2022, which had a notable 2-3% negative impact on the country's GDP growth. In response to these challenges and to advance the country's green energy transition, the World Bank has initiated this transformative loan program.
Marie Francoise Marie-Nelly, the World Bank Country Director for South Africa, commended South Africa's decisive reforms aimed at resolving the energy crisis. She highlighted the potential benefits of these reforms for the nation, particularly for its most vulnerable households, the economy, the environment, and the ongoing shift toward sustainable energy.
The operation focuses on critical reforms in two key areas. Firstly, it supports the restructuring of South Africa's power sector, with a particular emphasis on the unbundling of Eskom, the country's primary power utility. The operation seeks to enhance transparency in the power market while directing resources within Eskom toward essential investments in transmission infrastructure and the maintenance of existing power plants.
Additionally, the World Bank's initiative actively encourages private investments in renewable energy, including participation by households and small businesses. It also reinforces carbon pricing instruments to promote the transition toward low-carbon energy sources.
South Africa is recognized as one of the top 20 greenhouse gas emitters globally, with a significant 81% of its emissions attributed to energy consumption, particularly electricity production, responsible for 45% of these emissions.
The program is expected to stimulate economic growth and generate job opportunities through investments in renewable energy generation. It also seeks to shield vulnerable households, especially against recent electricity tariff hikes. Additionally, it aims to facilitate access to credit from commercial banks for poorer households and businesses, with a particular focus on women and Black women-owned enterprises, to support investments in solar technology.
Beyond its economic and social impact, the operation is anticipated to contribute to gradual reductions in water and air pollution by reducing reliance on coal for power generation. This shift holds the promise of enhancing the quality of life for South African households in the long run.
Furthermore, South African authorities will receive technical assistance to identify and implement future reforms necessary to address the social costs associated with the decommissioning of coal-fired power plants.
This operation signifies a collaborative effort involving 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, reaffirming the nation's commitment to sustainable and equitable energy reform.
The substantial funding from the World Bank represents a pivotal step in South Africa's journey toward energy stability and a low-carbon future, potentially offering far-reaching benefits for the country's economy and environment.