Cost analysis questions value of pollution retrofit
South Africa’s state power utility has cautioned that consumers could face even higher electricity tariffs if it proceeds with installing flue gas desulphurisation (FGD) technology at the Medupi Power Station.
Eskom this week released a draft cost-benefit analysis for public comment, evaluating whether retrofitting Medupi with emissions-reduction equipment would deliver sufficient public health benefits to justify the expense. The findings suggest the financial burden would be substantial.
According to the report, implementing wet flue gas desulphurisation units — considered the most effective option for removing sulphur dioxide (SO₂) — would cost approximately R383 billion over the plant’s lifetime, including installation and operating expenses. While the technology would significantly reduce harmful emissions, Eskom argues that the monetised health benefits are far lower than the projected costs.
The analysis indicates that even alternative FGD configurations fail to achieve a benefit-cost ratio above 1, meaning the measurable economic value of improved health outcomes would not outweigh capital and operational expenditure.
Eskom has made clear that if the project proceeds, the funding would have to be recovered through electricity tariffs. The warning comes as households and businesses already prepare for a 9% tariff increase in April, with a similar adjustment expected in 2027. Over the past decade, electricity prices have risen sharply as the utility sought to stabilise its finances amid operational challenges and load-shedding crises.
World bank loan agreement and activists add pressure
Medupi, one of the largest coal-fired power stations in the world, has long been central to South Africa’s electricity supply strategy. However, it has also drawn scrutiny for environmental compliance. In 2010, Eskom secured a $3.75 billion loan from the World Bank to complete construction of the facility. One of the loan conditions required the installation of pollution-abatement equipment.
In 2021, the utility reached an agreement with the lender to postpone the FGD installation deadline from 2025 to June 2027. Any further deviation could raise concerns among international financiers and climate-focused stakeholders.
Environmental advocates argue that sulphur dioxide emissions contribute to respiratory illness and acid rain, with broader social costs that may not be fully reflected in Eskom’s calculations. Lauri Myllyvirta of the Finland-based Centre for Research on Energy and Clean Air told Bloomberg that the analysis underestimates the benefits of emissions reduction, claiming significant population centres were excluded from assessment.
Eskom has also raised practical concerns, noting that wet FGD systems require substantial water usage and limestone supplies, and may increase carbon dioxide emissions due to additional processing requirements.
As an alternative, the utility has proposed an offset programme focused on distributing clean cooking technologies to surrounding communities, replacing coal-based household energy use. Eskom claims this initiative would cost around R5.1 billion and deliver health benefits more than 30 times higher than its implementation cost.
The debate places policymakers at the intersection of affordability, environmental compliance and international obligations. South Africa remains heavily reliant on coal-fired generation, even as it commits to a gradual energy transition.
The public consultation period on the draft report will close on 25 March 2026. Eskom has scheduled an online public information session on 10 March from 14h00 to 16h00 to discuss the findings.
The outcome could shape not only future tariff trajectories but also the country’s broader environmental and energy policy direction.
