Understanding the cost of electricity from Medupi, Kusile and IPPs

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Pretoria - In order to understand and compare the cost of electricity from a power plant, whether it is coal-fired, nuclear, hydro, gas, wind or solar, one needs to look further than simply the capital, fuel or operating and maintenance costs in isolation, to a concept known as the “levelised cost of electricity” over the lifetime of the plant.

The levelised cost of electricity (LCOE) from a generation plant is the net present-day monetary cost per present day kWh unit of electricity delivered, which when adjusted for inflation each year over the lifetime of the plant, will recover its full costs, including the initial investment, cost of capital (including dividends and interest), fuel and all other fixed and variable operating and maintenance costs.

Too often, LCOE figures for different power plants or electricity generation technologies are discussed, presented or compared without a clear statement of the parameters and assumptions upon which the calculations are based, in which case the figures have little meaning.

A revised estimate of the LCOE of Eskom’s Medupi and Kusile’s coal-fired power plants is long overdue and particularly relevant now, in light of the massive increase in the estimated costs to completion and interest during construction recently disclosed on page 141 of Eskom’s 2015/16 integrated financial report.

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