Eskom: The World Bank's Coal Power Support Program

By Smita Nakhooda, WRI

The prospect of a $3.75 billion World Bank loan to support the Medupi Supercritical coal plant in South Africa has raised questions about the future of development assistance in a warming world.

The coal plant, part of the national South African utility Eskom’s program to expand generation capacity, is expected to provide 4,800 MW of electricity. Construction of the plant has already begun, and contracts for key components have been signed. Yet Eskom’s longer-term electricity expansion program may have problematic implications for environmentally and socially sustainable development in South Africa.

There are trade-offs between increasing South Africa’s electricity generation capacity and reducing its greenhouse gas emissions (as laid out in the country’s national Long-Term Mitigation Scenarios) that must be reconciled. Electricity planning processes to date, however, have been neither transparent nor inclusive.

The assumptions that coal is the most viable long-term option for South Africa need to be revisited through open, fact-based debate on all available energy options.

An Urgent Need for Energy

South Africa has been in the middle of an electricity crisis since 2008: Demand significantly exceeds supply, in a marked turn of events for a country that was once awash in cheap electricity. Major investments in new electricity generation have not been made since the 1980s.

The Medupi coal plant for which World Bank funding is sought was originally one of more than five large-scale coal plants that Eskom proposed to build as part of a large-capacity expansion program to stop the gap. Eskom and the Department of Energy proposed the core elements of this build program in a draft 20-year Integrated Resource Plan (IRP) for the electricity sector in September 2009. At the end of last year, the government approved an interim five-year IRP plan, pending consultations on a longer-term plan for the sector, recognizing the need to address the longer-term implications of electricity development.

Questioning Conventional Assumptions

The full costs and benefits of the options for meeting near- and long-term energy needs must be considered more carefully than in the past.

Eskom’s projections of 80,000 MW of future demand for electricity by 2028 are debatable. Historically, electricity planners — and Eskom in particular — have been overly optimistic about these projections to justify new investments in infrastructure. Financing a massive capital expansion program is certainly not cheap in the immediate term: After Eskom originally requested a 45% per year increase in the price of electricity over three years, the National Energy Regulator of South Africa allowed it an increase of approximately 25% per year between 2010 and 2013.

All base-load electricity options pose risks, and may have hidden costs. The draft IRP emphasized these risks for low carbon options such as renewable energy, without acknowledging the risks of continued dependence on coal fired power. There is limited transparency about the terms on which Eskom contracts coal, and the costs of coal have been escalating. Interruptions in coal supply caused by transport failures and weather events have shown that coal plants are also not always reliable.

In addition, the operation of large coal fired power plants is enormously water intensive in a country where water scarcity is a pressing environmental challenge. Acid drainage from mining already poisons many of the country’s water systems, and restoring water ecosystems is costly. When the implications of climate change are also factored in, the viability of conventional coal in the long term looks far less certain.