Germany Grants €500M Loan to South Africa for Just Energy Transition Reforms

In a major boost to South Africa’s ambitious energy reform agenda, the German government, through its development arm KfW Development Bank (KfW), has extended a €500 million concessional loan to support the implementation of the country’s Just Energy Transition (JET) plan. The financing agreement marks a significant milestone in bilateral cooperation between Germany and South Africa and reinforces global efforts to accelerate a fair and inclusive transition to low-carbon energy systems.

The loan is part of South Africa’s third Development Policy Operation (DPO), which is co-financed by several major international development partners, including the World Bank, African Development Bank (AfDB), Japan International Cooperation Agency (JICA), and the OPEC Fund for International Development.

Supporting Structural Energy Reforms

According to South Africa’s National Treasury, the DPO series supports the government's structural reform program aimed at improving the efficiency, resilience, and sustainability of public infrastructure and services, with a particular focus on the energy sector and climate change mitigation.

“KfW’s financing forms part of the government’s broader efforts to implement structural reforms that strengthen public institutions, crowd in private investment, and improve service delivery across priority sectors of the economy,” said the Treasury in a public statement.

The €500 million loan builds on earlier KfW-supported policy-based loans from 2022 and 2023, bringing Germany’s total commitment to €1.3 billion in direct financial support for South Africa’s Just Energy Transition. These funds form part of Germany’s pledge at the 26th UN Climate Change Conference (COP26), where international partners agreed to support South Africa’s JET Partnership (JETP) with a $8.5 billion funding commitment, involving grants, concessional loans, and technical assistance.

A Just and Inclusive Transition

The Just Energy Transition in South Africa aims to decarbonize the energy sector, reduce dependency on coal, and ensure a socially inclusive transformation that protects workers and vulnerable communities. The plan prioritizes investments in renewable energy, grid infrastructure, and green industrialization while supporting job retraining, reskilling, and local development in coal-dependent regions such as Mpumalanga.

In remarks shared by the National Treasury, Finance Minister Enoch Godongwana underscored the importance of Germany’s support, stating:

“The partnership with Germany and KfW is critical to South Africa’s development agenda and marks a significant step towards strengthening our short- and medium-term energy security. It promotes decarbonisation and enhances the socio-economic benefits of the energy transition for disadvantaged communities, thereby enabling inclusive economic growth and fostering job creation.”

Godongwana also emphasized the need for continued policy and institutional reforms to ensure that the energy sector becomes an attractive space for private-sector investment and sustainable growth. Creating an enabling regulatory and operational environment remains central to achieving South Africa’s net-zero targets and unlocking green economic potential.

Enabling Private Sector Participation

KfW’s Country Director for South Africa, Cornelia Tittmann, expressed strong confidence in South Africa’s reform agenda:

“This loan seeks to support the government’s commitment to energy sector reform, advancing climate action and enabling greater participation from the private sector. It opens new avenues for stronger economic cooperation between Germany and South Africa.”

The financing is expected to facilitate:

• Renewable energy investments,

• Grid modernization to support variable power sources,

• Decommissioning of high-emission coal power plants, and

• Development of climate-resilient infrastructure in disadvantaged areas.

By supporting a fair and equitable energy transition, the loan also addresses gender inclusion, employment equity, and the participation of historically marginalized communities, particularly in regions most affected by the planned coal phase-down.

A Regional and Global Model

South Africa is the first developing country to develop a detailed, government-led JET Investment Plan. As such, it is being closely watched as a model for similar transitions in other fossil-fuel-dependent economies. The JET framework not only outlines investment priorities but also underscores the need for partnerships between government, civil society, development banks, and the private sector.

In line with this, Germany’s broader contribution includes not just financing, but also technical cooperation, institutional support, and capacity-building through its development agencies, including GIZ and KfW.

As the world navigates the complex path toward a green energy future, the South Africa-Germany cooperation on energy transition stands out as a benchmark for inclusive climate financing and multilateral partnership in the Global South.