City of Cape Town takes R3bn loan from Germany for green energy

A €150m ($157m) loan from Germany’s KfW Development Bank, finalized in December, will be formally unveiled this week. The funds aim to modernize the city’s power grid to accommodate renewable energy and potentially expand municipal power generation. This loan was undertaken before feasibility assessments were completed on the specific projects it will be funding.

KfW stated the investment would enhance Cape Town’s grid infrastructure, facilitating the integration of additional renewable energy sources and increasing access to electricity for more households. This brings the metro a step closer to freeing itself from Eskom’s erratic service, as tariffs rise and rolling blackouts return.

The latest outages, the worst in nearly a year, underscore the fragility of Eskom’s coal-dependent power plants, after nearly a year of unsustainable emergency power generation was activated in time to shore up the legitimacy of the regime across the 2024 elections and coalition formation period.

While specific projects await feasibility assessments, Kadri Nassiep, Cape Town’s executive director for energy and climate change, suggested possible uses for the funds. These include upgrading the Steenbras pump storage facility and constructing a solar plant. The Steenbras plant, which has a current capacity of just 180MW, could potentially see its output doubled. Meanwhile, the city continues to court private power producers through procurement tenders.

KfW has declined to disclose the loan’s duration or interest rate. The bank has loaned the City money for infrastructure projects before – in 2018, it provided an €80m loan and €6m grant to upgrade wastewater treatment facilities. The interest rate for that loan was fixed at 8.107% per annum, described as “highly subsidized” by the City, touting it as a concessional rate compared to standard market rates at the time. However, the national interest rate at the time was 6.75%, and fell to 3.5% between 2020-22, before rising to the present 8.25% gradually between 2022 and mid-2023, making it highly profitable, with a final profit, assuming a constant rate of change in the Euro-Rand exchange rate, of around €50 million, and a total cost to the City of around R1.3 billion, excluding the €6 million grant which, being non-repayable, carried no interest rate.

Assuming a similar margin of difference between our national interest rate and the loan mentioned above, the bank would make less profit this time, because of funding costs under present conditions in Germany – roughly €45 million, but would cost a total of roughly R5.6 billion to the City including interest payments.

Nationally, KfW has lent €800m to South Africa’s National Treasury to support efforts to reduce reliance on coal.

The DA has positioned itself as a champion of net-zero green energy projects, and endorsed the Climate Change Act, which gives plenary power to the Minister to set any kind of target it wishes for any region, sector or individual company in South Africa.

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