Germany, through its KfW development bank, is set to sign an agreement on Friday, lending South Africa €500 million (R10 billion) at rates below commercial market levels, aiming to assist the country in transitioning away from coal-based electricity.

The concessional finance, a part of the $8.8 billion climate financing pledged to South Africa by some of the world's wealthiest nations under the 2021 Just Energy Transition Partnership, is an additional support following the €600 million (R12 billion) extended by Germany and France last year. The interest rate for the recent loan hasn't been disclosed yet.

KfW stated, "The loan aims to aid the South African government in implementing reform measures addressing the acute energy crisis in the country." Additionally, it is intended to contribute to a socially acceptable and ecologically sustainable restructuring of the South African energy sector while combating climate change.

This financial commitment marks a significant advancement for the Just Energy Transition Partnership, despite the challenges it has faced, including delays and internal political disputes within South Africa. Some ruling party ministers and officials have expressed apprehension about closing coal-fired plants, fearing it might threaten energy security and jobs.

Germany's embassy in South Africa hailed the signing as a notable achievement in implementing the Just Energy Transition Partnership. Eskom Holdings SOC Ltd., the state-owned power utility, has already shut down one coal-fired plant under a different agreement, claiming its unviability.

South Africa's National Treasury hasn't provided any comments regarding this development.

With South Africa facing significant energy challenges, a BloombergNEF study highlights the necessity of investing in new wind and solar power plants. The country may need to spend up to $136 billion (R2.5 trillion) on new power generation capacity over the next 20 years, even if the closure of coal-fired plants is delayed. Currently holding 43 gigawatts of coal-fired power, South Africa's failure to maintain and invest adequately in new capacity has led to frequent power cuts, impeding economic growth.

Despite the urgency to transition, some politicians and labour unions are against shifting to renewable energy, citing potential job losses and threats to energy security.

The study outlines three scenarios for South Africa's energy sector development until 2040:

• Economic Transition Scenario: The most cost-effective path involves a substantial expansion of solar power capacity to 65 gigawatts by 2040, accompanied by wind power expansion to 21 gigawatts and 31 gigawatts of battery storage. This scenario aims for 65% of energy to derive from renewables by 2040, a significant increase from the 8% in 2021.
• Coal Extension Scenario: This pathway envisions coal accounting for 58% of generation by 2030 (down from over 80% presently) and 29% by 2040. In this scenario, wind and solar capacity would increase to 79 gigawatts.

Clean Power Scenario: This scenario aligns most closely with South Africa's net zero emissions target by 2050, envisioning 13 gigawatts of gas or hydrogen-fired power and a substantial capacity of 105 gigawatts from wind, solar, and batteries by that date.