"Closing the Komati plant this week is a good first step toward low carbon development," said World Bank Group President David Malpass.
The international bank said the Komati power station about 170 kilometers northeast of Johannesburg will be repurposed using solar and wind sources, supported by batteries for storage.
Workers laid off by the plant's closure will be supported through a transition plan, while a portion of the financing will be spent on creating economic opportunities within local communities.
The project aims at easing carbon emissions and creating economic opportunities in the area, which has been home to one of Africa's largest coal plants for over 60 years.
South Africa remains heavily dependent on coal, which generates 80 percent of its electricity. The power sector accounts for 41 percent of national CO2 emissions.
The Komati closure funding comprises a $439.5 million World Bank loan, a $47.5 million concessional loan from the Canadian Clean Energy and Forest Climate Facility and a $10 million grant from the Energy Sector Management Assistance Program (ESMAP), an initiative to help low- and middle-income countries.
Earlier this week the World Bank said South Africa would require at last $500 billion to achieve carbon neutrality by 2050.