Abstract:
In South Africa, water is considered a limited
source, not only because of the country’s arid
nature, but also because of the relatively skew distribution
of the resource and the fact that 98% of the
resource is already allocated. Eskom, the South
African electricity supplier, commenced with the
construction of two new coal-fired power stations
namely Kusile and Medupi. The question is: what is
the opportunity cost of investing in these power stations
from a water perspective? We do not argue
here against the need for power plants and additional
electricity generation capacity per se, but consider
the opportunity cost of using this specific technology.
We estimate the shadow price of water for
different power generation technologies as an indicator
of the opportunity cost of water.
We apply a production function approach for a
baseline case (coal-fired power generation using the
Medupi and Kusile parameters), and four alternative
technologies. The only alternative that performs
worse than the baseline case is the traditional wetcooling
coal-fired power process. The baseline case,
however, does show a high opportunity cost when
compared to renewable alternatives (solar, wind
and biomass) ranging from R0.66/kWh (biomass) to
R0.83/kWh (solar) to R1.31/kWh (wind).
