Eskom loan deal hailed as climate winner
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Emerging Markets

Eskom loan deal hailed as climate winner

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The African Development Bank is leading a $365 million support package for South African energy giant Eskom’s renewables programme

The African Development Bank (AfDB), which has been criticized for funding coal fired power stations in South Africa, said its loan for new renewable projects would help correct the country’s energy mix.

AfDB is leading a $365 million financing package to support giant South African utility Eskom’s effort to build a significant renewables component into its multi-billion dollar development programme.

It will support to schemes costed at $1.3 billion to build an innovative concentrated solar power (CSP) plant in Northern Cape and South Africa’s first large-scale wind farm at Sere in Western Cape.

AfDB and World Bank hit the headlines in 2009 by supporting big coal-fired power stations being built by Eskom. The utility saw these units as essential to avoid a repeat of crisis winters, when power blackouts blighted the SA economy, but the projects were heavily criticized by local and international NGOs.

AfDB energy director Hela Cheikhrouhou told Emerging Markets the new project was important because it was an “innovative way” for Eskom to develop an alternative electricity supply and the break South Africa’s dependence on cheap but carbon-emitting coal.

Local companies will be encouraged to develop equipment supply lines and other content, “creating skilled jobs that are essential to develop the economy”. Investment in such a large project, coupled with incentives to develop local content, “will over time lower the cost of this technology,” Cheikhrouhou said.

“If we [multilateral banks] are about economic development, we are also about getting the right energy mix. The solution for Africa lies not in one technology but in getting the balance right, with the optimal application of clean technologies,” he said.

In another initiative, AfDB and Denmark’s Danida are launching a Sustainable Energy Fund for Africa (SEFA), which will back bankable studies and other support for smaller scale projects which local private entrepreneurs can develop, provided they have sufficient resources.

The innovative solar project, at Upington in Northern Cape, will provide 100 megawatts in its AfDB-funded first phase. “CSP is expensive so it needs support, and the innovation in this project makes Eskom’s scheme important,” Cheikhrouhou said.

“Over time, decades, will help to reverse the trend of emitting greenhouse gases”, Cheikhrouhou said.

Carbon-intensive Eskom emitted some 224.7 million tonnes of CO2 in its 2010 financial year. Over a 20-year life span, the Sere wind farm, near Koekenapp in Western Cape, is calculated to save 5 million tonnes of CO2 equivalent and the Upington solar plant 9 million tonnes, Cheikhrouhou said.

Last week it was announced that Eskom had submitted a $250 million loan application to the World Bank for funding from the Clean Technology Fund, the final outcome of which is expected later this year.

The 40-year CTF loan is backed by a South African government guarantee for Eskom’s debt. The AfDB package consists of a $265 million bank loan and $100 million from the CTF, for which AfDB is agent.

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