Time to remove the blinkers, Gwede – The slow death of coal

Ignoring the coming change among the good times will in the end spell disaster for South Africa.

Coal is dying. The current spring in its step is due to a commodity boom which, however, cannot disguise the inevitable winter analysts predict for the fossil fuel.

These concerns stem from the traditional king of thermal processes’ contributions to climate change.

The United Nations Economic Commission for Africa (Uneca) also cautioned African leaders that coal is a bad bet.

In a recently released report, it said that new coal infrastructure will leave behind a legacy of debt that will be carried for generations to come. Its warning was to be careful of short-sighted gains, echoing similar messages from other institutions like McKinsey and the World Bank.

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There is an innovative plan to help the country quit coal. At climate talk shop COP27 last year, SA unveiled its just energy transition investment plan (JET-IP) that aims to kick coal to the curb. It’s an ambition that’s seen the country bet the lion’s share of its R1.5 trillion just energy on transforming its electricity sector.

But while the writing is seemingly on the wall for coal, with funds available for the transition, a life without coal for many South Africans is simply unfathomable.

South Africa’s love affair with coal

The latest, but outdated, Integrated Resource Plan 2019 still envisions adding more coal-powered generation capacity into the country’s energy mix, even though funding has dried up for most of the proposed projects.

“Coal will continue to play a significant role in electricity generation in South Africa in the foreseeable future, as it is the largest base of the installed generation capacity and it makes up the largest share of energy generated,” the report states.

Weaning South Africa off coal was never going to be easy. Coal has played a significant role in South Africa’s economy for many years.

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It is responsible for around 85% of electricity generation and is also used in the production of steel and cement. And coal mining is essential to the livelihoods of many thousands of South Africans.

According to the Minerals Council of South Africa, the coal sector directly employs around 89 000 people, with an additional 150 000 jobs indirectly supported by the industry.

South Africa also knows coal mining inside out. What makes the country’s coal deposits special is its quality, as the coal is high-grade and low in impurities. Though the volume is relatively small compared to China and India, South African coal is globally sought after commands a premium price on global markets.

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Coal miners Exxaro and Seriti, which together supply two-thirds of Eskom’s coal, has no plans to exit coal anytime soon. Exxaro’s Grootegeluk mine near Lephalale in Limpopo supplies Eskom’s Medupi and Matimba power stations with coal.

This mine has expansion plans, a clear signal that the world’s 14th-largest consumer of coal is not quite ready to quit yet.

Good times

Coal business boomed in the 2021 commodities market, driven by the Ukraine crisis. Prices surged after the invasion, with thermal coal hitting record highs as fears of an energy crisis caused by the threatened loss of Russian supplies swept the global markets.

South Africa, one of the world’s biggest exporters of thermal coal, had a prime spot, but challenges at Transnet prevented the sector from make runaway profits during the crisis.

Richards Bay Coal Terminal recorded its lowest exports in 30 years because of an inability to get coal to the terminal.

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But good times are still rolling. In February, the Minerals Council revealed statistics that showed junior mining in South Africa generated R88 billion’s worth of revenue in 2022, up from R54 billion in 2018 – mostly due to the resurgence of coal.

Coal bosses like Thungela Resources CEO July Ndlovu believed that even though Transnet cost South Africa, coal was shining bright.

He said in an interview that “in the short term there is no question that Europe will import more coal from South Africa to replace Russian coal”. But he also believed that in the longer term, the appetite will remain as Europe wants to diversify their energy sources.

Climate treaties

Climate treaties that make coal unsustainable are coming to spoil the party. South African has also set a 2050 deadline to phase out coal-fired power generation.

New economic statistics released by Fortune magazine show that the spike in fossil fuel use due to the conflict was just a blip, with the next few years are set to see low-carbon energy sources generate a record share of the world’s electricity.

Coal will play an increasing smaller role. On top of that, South Africa faces penalties and trade restrictions if it does not take stronger action to address climate change.

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A study commissioned by the Presidential Climate Commission shows South Africa is highly unlikely to be exempt from a new carbon pricing mechanism proposed by the European Union, which could see exports fall 4% by 2030.

After China’s Premier Xi Jinping announced late last year that China would no longer finance new coal power abroad, Fossil Free South Africa coordinator David le Page wondered about the implications for the proposed 3GW China-financed coal-fired in the Musina-Makhado Special Economic Zone.

The Chinese embassy confirmed that China’s end-to-overseas-coal-funding policy applies in South Africa. This shows Medupi and Kusile will be South Africa’s two last coal-burning power plants, the end of an era as the appetite to finance anymore fossil fuel projects has all but disappeared.

Investors are also moving away from fossil fuels and adopting more responsible approaches as they manage their environmental footprint.

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Still, the two juggernaut plants are among the world’s largest and will eat up significant amounts of coal in the years to come. Grootegeluk, for instance, has enough coal to supply Medupi to the end of its estimated 50-year lifespan.

But climate change treaties will prevent Medupi from even coming close to that, a stark warning that any new power plants are destined to become stranded assets.

Politicians with blinkers

Energy analyst Chris Yelland said it is a case of making hay while the sun shines for many of South Africa’s coal miners as the energy transition sweeps the globe.

He said mine bosses know that the change is coming but will squeeze every bit of profit out of coal while they still can, while politicians with vested interests try to delay coal’s exit. This explains what many have described as South Africa’s schizophrenic stance on coal.

On the one side, stands a commitment to reduce its emissions. But on the other, it is booming business in the coal community.

Mineral Resources and Energy Minister Gwede Mantashe has urged an expansion of coal mines at mining conferences and indabas, saying that coal still had a bright future in South Africa.

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South African officials also say they have no option but to mine coal as renewable energy cannot meet South Africa’s energy demands. Politicians who favour coal regularly point out that even though South Africa currently has one of the highest emissions per capita, it bears little responsibility for the past century’s emissions.

And demanding that South Africa just abandon coal is hypocrisy, they say. Developing countries who are more dependent on coal and have less money to invest in the green transition, are expected to shoulder more and ignore their coal resources.

While experts agree that the global transition away from coal, should be more just, South Africa’s JET-IP funds are meant to help South Africa with this difficult transition and ensure that it is just.

Ignoring the coming change among the good times will in the end spell disaster for South Africa.

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