The UK and the African Development Bank will extend $1 billion in climate-related guarantees to secure funding for local governments. Germany has more than doubled its financial commitments as concerns persist over Eskom’s funding conditions. Despite the slow rollout of Just Energy Transition Finance, strong private sector appetite is emerging.
Germany and the UK have reaffirmed their support for South Africa’s Just Energy Transition, as Eskom suggests it may pursue alternative funding routes amid concerns over the cost and availability of promised funds.
Britain worked with the African Development Bank to extend $1 billion in climate change-related debt guarantees to South Africa and save $400 million in municipal funding contracts that were in danger of expiring late last year. The guarantee forms part of the $10 billion Just Energy Transition Partnership agreed between South Africa and a group of developed countries at the end of 2021.
The extension comes as South Africa is negotiating with the African Development Bank for a $400 million loan to fund municipal energy and water services. The loan is guaranteed by the UK and is intended to support local government reform projects, alongside the development of further low carbon infrastructure.
Guarantees have been extended to enable the South African government to implement priority municipal reforms and move forward with climate-smart infrastructure projects in 2026, the British High Commission said.
South Africa’s Just Energy Transition Partnership has drawn criticism for the slow pace of disbursements, despite its status as the flagship climate finance model that has since been emulated in countries such as Vietnam and Indonesia. To date, about $3.8 billion of the $10 billion pledged has been disbursed.
National Treasury previously indicated that negotiations over the guarantee extension were still ongoing. Once completed, this local loan will be directed towards water and power loss reduction and infrastructure improvements in four municipalities in Mpumalanga province, which account for the majority of South Africa’s coal mining and coal-fired power generation capacity.
Local governments have traditionally provided services with limited private sector participation, but this program is expected to encourage greater involvement of private companies in both water and electricity provision.
Energy financing remained high on the agenda at the World Economic Forum in Davos, with the Minister of Power and Energy, Dr Kgosiensho Ramogopa, reiterating that the terms attached to the $13 billion promised under the Just Energy Transition were not sufficiently attractive for Eskom. He noted that strict requirements have made access to finance difficult, prompting utilities to consider commercial banks and bond markets as alternative sources of financing for transition and infrastructure projects.
Although the United States withdrew from the partnership in early 2025, total pledged funding remains in excess of US$13 billion.
Rainer Baake, Germany’s Special Envoy for the Just Energy Transition Partnership with South Africa, said Germany’s commitment was demonstrated by its decision to increase its funding from the originally committed EUR 986 million to EUR 2.68 billion in 2021, confirming that more than EUR 1.4 billion has already been disbursed under the program, which is scheduled to run until 2027.
Speaking in Pretoria at the end of his official visit, Mr Burke said the increase in allocations reflected strong demand for grant funding and concessional financing in line with South Africa’s Just Energy Transition Investment Plan. In more than 40 meetings with private sector stakeholders and government officials, he observed a particularly pronounced need for financing in the renewable energy sector.
Burke declined to comment directly on the concerns raised by Minister Ramokopa regarding the cost of debt, but stressed that the price of policy loans provided through the German Development Bank KfW is well below prevailing market rates. Three such loans, totaling 1.3 billion euros, have already been disbursed to the national treasury following the implementation of the agreed energy sector reforms.
He cited examples such as a €300 million loan approved in November 2022 with a maturity of 20 years and an initial interest rate of 3%, compared to market interest rates of nearly 9% at the time. Subsequent loans approved in 2023 and 2025 also compared favorably with South Africa’s sovereign debt issuance. In December 2024, a further €150 million in concessional financing was approved for the City of Cape Town to support power infrastructure.
Additional concessional loans amounting to €1.07 billion were approved for electricity, green hydrogen, skills development and local government support, along with €125.6 million in grants.
Mr Burke praised recent reforms aimed at opening up the electricity sector to private investment and competition, and highlighted the planned introduction of a wholesale electricity market later this year as an important step towards future retail competition. Drawing on Germany’s own experience, Burke expressed confidence that South Africa could avoid the failures of earlier reforms by ensuring non-discriminatory access to the grid and a clear separation between generation and transmission.
Author: Brian Groenendaal
