AfDB says Eskom’s R135bn Medupi plant won’t make money

A R135 billion power plant in South Africa won’t ever make a profit because of delays, design defects and increasing opposition to coal-fired electricity generation, one of its funders said.

Cost overruns at the 4 764 megawatt Medupi coal-fired plant, owned by Eskom Holdings, along with the even larger Kusile facility are seen as key reasons for the state utility’s R396 billion debt burden. The project will not meet anticipated returns over its life and is unlikely to stay open that long as pressure grows to reduce greenhouse gas emissions, said the African Development Bank, which approved a 930 million euro loan ($992 million) loan for its construction in 2009.

“The Medupi project as installed will not show a positive return and will deliver internal rates of return below the weighted cost of capital for Eskom,” the AfDB said in a completion report posted on its website last month. “This project will not show a financial benefit over its lifetime.”

Read: R2.5bn to fix Medupi unit that blew up

Medupi, together with Kusile, was touted as the solution to the intermittent power outages that have plagued South Africa since 2008. Instead it’s become a millstone. An explosion at one of its units last year has temporarily reduced its capacity. Now Eskom is being pushed to accelerate the closure of its coal-fired plants to help the country transition to green energy.

Read: These charts show the Eskom crisis has been two decades in the making

“Due to current perceptions of coal energy this plant is unlikely to reach its original projected 50-year life,” the AfDB said. “Choice of megaprojects with such long lives needs very careful consideration to avoid the challenges now faced by this project in terms of cost and time overruns as well as climate change related environmental concerns.”

Other funders of the plant include the World Bank. News24 reported on the AfDB’s report earlier.

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