Assessing the impact of environmental cost on the capital investment decision-making of the Electricity Supply Commission, South Africa

Abstract

The availability of energy (electricity) is a key factor in economic growth and the sustainability of production processes. The need to quantitatively measure the environmental risk and hazard associated with energy sources for the environment is useful in evaluating capital investment for decision-making. Coal (fossil fuel) is the main source of energy in South Africa, based on its availability and cost-effectiveness. Specifically, quantitative research using mathematical marginal social cost modelling to evaluate the environmental cost of emissions emanating from the Electricity Supply Commission’s (ESKOM) coal power stations is employed. It was discovered that the price of electricity has trebled over the lifespan of coal power plants. Therefore, the need to construct coal power plants with optimum levels of production was highlighted. The net present value (NPV) technique was used to evaluate ESKOM's capital investment and the marginal social cost mathematical model was developed for measuring and quantifying the emission costs associated with the lifespan of the coal power plants. Results revealed that the optimum level production of 2,150,000 Gigawatts per annum within the range of the present capacity of ESKOM of 2,292,000 gigawatts annually is required and profitable to ESKOM. The net present value yielded a positive value of R1, 448,713,000,000-00 over a period of 30 years of coal power plants’ life-span. However, various technologies used to minimize emissions were also considered and investigated to confirm the feasibility and profitability of investment in coal- powered stations using environmental management accounting and marginal social cost approaches.