An Economy-Wide Evaluation of New Power Generation in South Africa: The Case of Kusile and Medupi

The South African economy has suffered over the past decade due to a lack of adequate electricity supply. With two new coal-fired power stations, Kusile and Medupi scheduled to come online over a six year period (2014-2019), their additional generation capacity is expected to restore electricity reserve margins and facilitate increased growth and investment in the local economy. In this paper, we use a dynamic CGE model for South Africa to evaluate the economy-wide impact that the additional power generation from these two stations will have across a broad range of macroeconomic and industry variables. In terms of the new power generation capacity, our findings suggest that the macroeconomic impact of Kusile and Medupi will be a definite positive. Results show that, in the medium term, investment expenditur is particularly sensitive to the building of these new power plants. Additional costly blackouts are also likely to be avoided, further promoting economic growth and investment. Once Kusile and Medupi are fully operational and able to provide its projected 9600MW of base load electricity supply, old coal-fired power plants may be decommissioned and replaced by cleaner and more efficient generation sources as outlined in the Department of Energy's Integrated Resource Plan. Our analysis also suggests that this outcome provides a good balance between utilising modern clean coal technologies that are cost-effective while laying the foundation to improving our generation-mix and carbon emissions profile.