The World Bank Group is considering financing up to $500 million for South Africa's participation in a new credit guarantee mechanism, intended to unlock private financing for a vast plan to expand the electricity transmission network, a senior bank official told Reuters.

South Africa is encouraging private investors to invest in an ambitious plan that includes building 14,500 km of new lines and increasing transformer capacity over the next ten years at an estimated cost of $25 billion. The country wants to recover from a decade of devastating power outages that ravaged

According to Standard Bank, the proposed credit guarantee vehicle will help overcome transmission infrastructure bottlenecks that have prevented the connection of around 20 gigawatts of renewable energy to the national electricity grid.

The majority of renewable energy projects are located in the windswept provinces of the Western Cape and Eastern Cape, which are far from the existing transmission corridors connecting the rest of South Africa to coal-fired power plants in the North.

The credit guarantee vehicle, which would operate as an independent entity, would provide collateral in place of the South African Treasury and would cover any default in payments should there be a problem during deployment.

Yadviga Semkolenova, senior director of the World Bank, said on Thursday evening that “we could cover or commit to funding half a billion US dollars from the South African government's first loss, or a junior equity stake.”

South Africa is trying to avoid new financial tensions by offering sovereign guarantees. It is facing sluggish growth, high debt service costs, and the inability of the coalition government to agree on an increase in VAT this year

The Treasury is committed to providing first loss capital or junior capital of 20%. This amount will initially be $100 million and then increased to $500 million. A Treasury report dated April 4 indicates that the credit guarantee vehicle aims to reach $2.5 billion.