Spain to Invest $2.3 Billion in S. African Energy Transition

(Bloomberg) -- Spain is providing 2.1 billion euros ($2.3 billion) to help fund South Africa’s energy transition and water needs, even as some of the world’s richest nations struggle to push forward on a ground-breaking climate-finance initiative with the continent’s most-industrialized country.

The Spanish funding is being provided through a mixture of financial instruments, with the country’s government working with its development finance institution, COFIDES, and South Africa’s Industrial Development Corp., said Ambassador Raimundo Robredo Rubio.

While not part of it, the Spanish initiative is in line with the aims of the $8.5-billion Just Energy Transition Partnership between South Africa and funding partners including France, Germany, the US, UK and the European Union. That program has been hailed as a pioneering example of how rich nations can help wean developing economies off their dependence on coal.

“This is the first time in history we have done something like this,” Robredo said in an interview at his nation’s embassy in Pretoria, the capital. “It is tailor-made just for South Africa,” with the potential to replicate it in other countries, he said.

Spain, along with other developed countries that aren’t part of the Group of Seven wealthy nations, weren’t included in the JETP as it was an initiative of that bloc. JETPs are also being put in place in countries including Indonesia, Vietnam and Senegal.

Spain will provide 15 million euros in grants for feasibility studies, while the rest of the money will come in the form of loans at about half the cost of commercial credit, risk insurance, and capital investments, Robredo said.

Capital investments will be done together with COFIDES and the IDC, with clear exit prices and dates, Robredo said. There will be a requirement that while those projects will be 100% financed, 30% must go to Spanish companies in the form of equity or procurement, he said. 

“Spanish participation is needed,” Robredo said. “There must be a return to the taxpayer.”

The funding will cover potential investments in renewable energy, battery storage, transmission, green hydrogen and electric vehicles. Unlike the JETP it will also be open to water and sanitation projects.

The IDC signed a cooperation agreement with COFIDES in October, though the amount and funding instruments are still to be finalized, as are ownership and procurement levels, Tshepo Ramodibe, the development institution’s head of corporate affairs, said in a response to queries. A pipeline of opportunities is now being developed and agribusiness opportunities may be included, he said.

Denmark, Netherlands

Spain isn’t the only European country seeking to help South Africa transition from its reliance on coal, which accounts for more than 80% of the power the nation produces. 

Denmark has funded knowledge-exchange programs on topics such as power-market operation and energy regulation, and oversaw the mapping of South Africa’s wind resources. 

It’s also made South Africa, a middle-income country, eligible for development finance for infrastructure projects such as power plants and a fund of about 1 billion Danish krone ($146 million) to cover this, said Tobias Elling Rehfeld, the Nordic country’s ambassador to the African nation. 

The Netherlands is planning a study to identify energy-transition opportunities in South Africa for Dutch-funded businesses and investors, and will use existing instruments to execute this, a diplomat familiar with the plans said. The Dutch embassy in South Africa declined to comment,

The country is also working with national power utility Eskom Holdings SOC Ltd. to repurpose land for labor-intensive agriculture at the site of the Grootvlei power plant, which is scheduled to be closed in coming years, they said. That partnership would initially create 300 jobs and the aim is to form a commercial venture between Dutch and South African agricultural companies, the diplomat said. 

Eskom said a memorandum of understanding was signed in July last year over the development of a “climate smart” project at Grootvlei that could include horticultural activities.

“The studies are still underway and it is too early in the process to comment on number of jobs to be created or on the commercial processes to be followed,” Eskom said.

More Partners

South Africa produced an energy-transition plan last year that estimated it will need 1.5 trillion rand ($82 billion) in investment over the next five years. It comes at a time when frequent breakdowns of aging coal-fired plants are subjecting the country to rotational power cuts of often more than 10 hours a day.

“What I see now is a lot of other international partners moving in to see where they can help,” Rehfeld said, adding that Denmark has been running energy programs in South Africa since the end of apartheid in 1994.

(Updates with comment from Eskom in 16th and 17th paragraphs)

©2023 Bloomberg L.P.