WASHINGTON, April 8, 2010 – The World Bank’s Board of Executive Directors today approved a US$3.75 billion loan to help South Africa achieve a reliable electricity supply while also financing some of the biggest solar and wind power plants in the developing world. The loan – the Bank’s first major lending engagement with South Africa since the fall of apartheid 16 years ago – aims to benefit the poor directly, through jobs created as the economy bounces back from the global financial crisis and through additional power capacity to expand access to electricity.
The loan is provided to South Africa’s power utility, Eskom, and was brought about by unique circumstances including South Africa’s energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country’s vulnerability to an energy shock and severe economic consequences.
“Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth,” said Obiageli K. Ezekwesili, World Bank Vice President for the Africa Region. “Access to energy is essential for fighting poverty and catalyzing growth, both in South Africa and the wider sub-region. Our support to Eskom combines much-needed investments to boost generation capacity for growing small and large businesses, creating jobs, and helping lay the foundations for a clean energy future through investments in solar and wind power.”
The Eskom Investment Support Project (EISP) will co-finance the following blend of energy technologies:
- US$3.05 billion for completing the 4800 MW Medupi coal-fired power station, using for the first time on the African continent the same proven, efficient supercritical technology used in OECD countries;
- US$260 million for piloting a utility-scale 100 MW wind power project in Sere and a 100 MW concentrated solar power project with storage in Upington; and
- US$485 million for low-carbon energy efficiency components, including a railway to transport coal with fewer greenhouse gas emissions.
In approving the project, the World Bank Board of Executive Directors noted South Africa’s achievement in increasing energy access from around 30% of citizens to more than 80% since the fall of apartheid in 1994 and noted its Free Basic Electricity policy that provides 50 kilowatt hours (KWh) of free electricity per month to poor families.
The Board noted South Africa’s pivotal role as generator of 60% of all electricity consumed on the African continent and the importance of a functioning electricity sector for job creation, economic progress, human welfare, and poverty reduction.
Also discussed were South Africa’s efforts to diversify its energy sources and address climate change through its Long-Term Mitigation Scenarios and the United Nations Framework Convention on Climate Change, through which they have confirmed ambitious emission reduction targets.
As part of its due diligence, the World Bank project team consulted an External Panel of Experts to review the EISP according to the criteria established in Development and Climate Change: A Strategic Framework for the World Bank Group approved by the Board of Executive Directors in 2008. In accordance with the criteria, the EISP involves demonstrable developmental impact, inclusion of low-carbon projects, energy efficiency, conservation, use of best available technology at least cost, and full consideration of environmental externalities in project design.
“The Eskom project offers a unique opportunity for the World Bank Group to strengthen its partnership with the Government of South Africa, Eskom, and other financiers and help South Africa chart a path toward meeting its commitment on climate change while meeting people’s urgent energy needs,” said Ruth Kagia, World Bank Country Director for South Africa.
A key vision guiding the project is to assist South Africa in taking the first important step toward a low-carbon future by investing in large-scale renewable energy projects, and catalyzing the nascent renewable energy industry across Africa. By using a mix of technologies and setting a goal to save more than 3,000 megawatts of electricity through demand-side management by 2013 (a plan which is on target having already saved 1,000 megawatts by 2009), the Government of South Africa is taking steps to renew its electricity sector for greater private sector investment and mobilizing expensive renewable energy technologies for wide-scale adoption.
“As part of the project, Eskom will pilot 100 megawatts of solar power with storage and wind power, the biggest grid-connected renewable energy venture in any developing country,” said Vijay Iyer, World Bank Energy Sector Manager for Africa. “We are optimistic that the lessons learned from these projects will facilitate the scale-up of the renewable energy industry across Africa.”
The World Bank Group energy portfolio is increasingly oriented toward renewable energies and energy efficiency. In our last fiscal year, the Bank Group financed more than $8.2 billion in energy projects or programs, of which 76% was for non-fossil fuels and less than 3% was for coal. For every dollar in energy financing:
- 40 cents went to renewable energy and energy efficiency
- 35 cents went to transmission and distribution facilities and/or to helping governments build capacity in the energy sector
- 18 cents went to help countries develop a natural gas industry or to build new gas power plants
- 4 cents went to help countries develop their oil industry
- Less than 3 cents went to coal-related investments
The project has received strong support, both from South Africa and other parts of the world. In a letter to World Bank Group President, Robert B. Zoellick, South African President Jacob Zuma stated that the energy sector in South Africa is of “strategic national importance” and “achieving energy security will be a critical factor for restoring economic growth, both in South Africa, and the wider southern Africa sub-region.” President Zuma has also stated that his Government is “committed to reducing the country’s carbon footprint and broadening its energy sources in line with our cabinet-endorsed Long-Term Mitigation Scenarios” and expressed appreciation that the EISP includes “investments in cutting-edge, supercritical technology being installed for the first time on the African continent as well as substantial investments in renewable energy.”