As the electricity supply sector in developing countries undergoes increasingly rapid restructuring, and technology and fuel choices widen, understanding the environmental implications of investment choices becomes ever more important. The objective of this paper is to expand previous analysis of the external costs of electric power generation in South Africa. We present a quantitative analysis of air pollution impacts on human health, damages from greenhouse gas emissions, and the avoided health costs from electrification, as well as discussing other impacts qualitatively. The central estimate of total external costs is R7.3 billion, or 4.4 cents per unit of coal-fired power generated. Relative to current electricity prices, the external costs are approximately 40 and 20 per cent of industrial and residential tariffs, respectively. We then discuss policy options for addressing these costs, including taxation, tradable permit systems, and integrated resource planning, as well as expanded regional energy trade and the possibility of accessing climate change-related funding for cleaner electricity production.