South Africa is showing increasing reluctance to draw down billions of dollars pledged by wealthy nations under global climate finance arrangements, citing concerns about cost, conditions and national control over energy policy. The shift signals growing tension between the country’s energy security priorities and the expectations attached to international climate funding.
The hesitation centres on the Just Energy Transition Partnership, an agreement first concluded at the COP26 summit in Glasgow in 2021 and initially valued at $8.5 billion. The partnership was designed to support South Africa’s move away from coal-fired electricity generation in exchange for financial assistance, targeting one of the world’s most carbon-intensive power systems. According to Bloomberg, the package combined grants, concessional loans and guarantees from France, Germany, the United States, the United Kingdom and the European Union, with additional support proposed by the World Bank and other development finance institutions.
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Since the agreement was announced, implementation has slowed. South Africa has acknowledged that it will miss some of its original timelines for decommissioning coal plants, arguing that doing so too quickly could undermine electricity supply in a system already under strain. Senior policymakers have increasingly questioned whether the funding on offer adequately compensates for the economic and social risks of accelerating the transition.
Electricity Minister Kgosientsho Ramokgopa has indicated that South Africa intends to retain control over the pace of the transition and the selection of projects supported by external funding. He has also suggested that when the costs of climate finance are compared with alternative funding sources, including domestic and international capital markets, the concessional advantage is not always clear. South Africa’s government bond yields, while elevated, offer predictability and flexibility that some climate-linked facilities do not.
The structure of the partnership has also evolved. Denmark and the Netherlands later joined the initiative, lifting the headline figure to $9.3 billion, but the United States withdrew a proposed $1 billion contribution last year after Congress declined to approve funding on commercial terms. Despite this, some funding has already been disbursed, largely in the form of grants, while France and Germany have extended loans of about €2 billion to South Africa’s National Treasury.
One of the most recent facilities, provided through Germany’s development bank KfW, amounted to €500 million over 13 years, with a three-year grace period and a fixed interest rate of 4.31%. By comparison, South Africa’s 10-year rand-denominated government bonds have recently traded at yields above 8%, highlighting the trade-off between cheaper headline rates and the policy conditions attached to external finance.
Other elements of the package remain unused. The UK has offered a $1 billion guarantee to support African Development Bank lending to South Africa, while the European Union, through the European Investment Bank, has extended part of a broader $1 billion offer to local institutions. In addition, South Africa cleared a key procedural step last year to unlock $2.6 billion from the World Bank and other lenders under an agreement with the Climate Investment Funds, although progress was delayed by debates over coal plant closures. As reported by the World Bank, interest rates on this funding are expected to be concessional, but final terms have yet to be confirmed.
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The debate reflects a broader challenge facing emerging markets as they balance climate commitments with fiscal pressure and development needs. Data from the International Monetary Fund shows that while concessional climate finance can lower borrowing costs, it often represents a small share of total funding requirements for energy transitions in coal-dependent economies.
Ramokgopa has indicated that South Africa’s planned expansion of its electricity transmission grid could provide a practical use for some of the offered finance, provided the terms are affordable and aligned with national priorities. For now, however, the government appears determined to proceed cautiously, signalling that access to climate funding will be weighed against sovereignty, energy security and long-term fiscal costs rather than treated as an automatic solution.