Spain has promised to provide €2.1 billion ($2.3 billion) in loans and grants for South Africa's energy transition and water projects to help the continent’s most industrialized country shift away from coal, Bloomberg reported on Thursday.
The deal requires a 30% return to Spanish companies in the form of equity or procurement.
The funding will focus on projects in solar and wind energy, and will finance green hydrogen and electric vehicle production, as well as water and sanitation projects.
South Africa is among the world’s most coal-dependent countries, with 80% of its electricity derived from the fossil fuel. At least 100,000 jobs in the country depend directly on coal. Meanwhile, the nation’s worn-out and badly maintained coal-fired power plants are struggling to meet peak energy demand, leading to rolling blackouts in recent years.
The funds will be provided through discounted loans, risk insurance and capital investments, according to Spanish Ambassador to South Africa Raimundo Robredo Rubio. Madrid has promised to provide €15 million ($16.4 million) in grants for feasibility studies.
“This is the first time in history we have done something like this,” Robredo said in an interview.
In October 2022, the Spanish government’s development finance institution Cofides signed a cooperation agreement with South Africa’s Industrial Development Corp (IDC) to accelerate the nation’s green transition. However, the amount of investment and funding instruments have yet to be finalized.
According to Robredo, capital investment will be managed together with Cofides and the IDC, with clear exit prices and dates, Robredo said. He added that, while green projects would be fully financed, the deal requires a 30% return to Spanish companies in the form of equity or procurement.
The Spanish initiative follows a separate $8.5 billion funding package from the EU, the UK and the US. Known as South Africa’s Just Energy Transition Partnership (JETP), the project has been presented as “a pioneering example” of how wealthy nations can help developing countries to cut their dependence on coal.
Meanwhile, the South African government has criticized the structure of the JETP finance package, saying it relies too heavily on loans that will add to the country’s debt burden.
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