SOE POWER GENERATOR: Eskom’s Kendal coal-fired power station in Delmas.

JOHANNESBURG - The government should consider revising the pricing system for electricity to properly reflect all externality costs in the electricity price, according to a University of Pretoria report on the externality costs of Eskom’s Kusile coal-fired power station.

The report - which focused on the social and environmental burdens of coal-based power - said the total coal-fuel cycle externality cost on both the environment and humans over Kusile’s lifespan was estimated at up to R3.2trillion.

James Blignaut, one of the report’s authors, said not accounting for externality costs disadvantaged other technologies because the exclusion, and the non-reporting of the externality cost hid the true cost of coal. “The electricity price charges are therefore not a true reflection of the full cost, and thus reducing its cost disadvantages technologies that might not have the same externalities,” said Blignaut.

The report said accounting for the life cycle externalities of coal-derived electricity conservatively doubled to quadrupled the price of electricity, making renewable energy sources such as wind and solar attractive options.

“However, because all electricity generation technologies are associated with undesirable side-effects, comprehensive comparative analyses of life-cycle costs of all power generation technologies are necessary to guide the development of future energy policies in South Africa,” it said.

The study focused on the externality cost of mining coal and transporting it to Kusile. The externality cost stemmed mainly from water use (more than 65percent), air pollution health cost (more than 21percent), and climate change effects from greenhouse gas (GHG) emissions (more than 10percent).

The report said to address the air pollution-related human health effects, the government could require retrofits of all existing plants with flue-gas desulfurisation (FGD) devices over a reasonable period of time as well as require new plants to be fitted with FGD, which is advanced technology used to remove oxides of sulphur, such as sulphur dioxide, from exhaust flue gases in power plants that burn coal or oil. It’s installed to ensure compliance with air-quality standards. Kusile is the first South African power station to install FGD.

“With regard to climate change effects from GHG emissions (more than 10percent), the South African government has taken action and intends to internalise the externality cost of carbon emissions on producers of GHGs through a carbon tax of R120 a ton of carbon dioxide equivalent.

The National Treasury has disclosed that introducing the carbon tax will significantly reduce the country’s GHGs. In comparison to a business-as-usual scenario, the carbon tax would result in an emissions reduction of 13 to 14.5percent by 2025 and about 26 to 33percent by 2035,” the report said.

Blignaut said it was important for externality costs to be reflected in the electricity price “because decisions people and also society at large make are driven to a very large extent by price signals.

Price signals are extremely important to direct consumer and producer choice. The absence of the externality cost therefore hides the fact that society is paying much more for electricity than merely the financial cost thereof. “That implies that, with the absence of the externality cost, the price signal suggests that we can use more electricity than what would be socially desirable, since lower prices are always associated with higher degrees of consumption than what the case would be with higher prices.

“It also distorts the true cost of electricity and disadvantages informed decision-making with respect to technology choice. It suggests, wrongfully, that there are no further additional costs to society, or what society is paying for the electricity - it therefore purports a lie, or at best a deception, by deceiving society that there is no additional (to financial) cost of the specific technology.”

- BUSINESS REPORT