by gavin du venage, south african editor

CAPE TOWN, South Africa—Coal is still very much in the game for South Africa, in spite of environmentalist pushback both locally and abroad. The Southern African Coal Conference 2020 held in Cape Town during February spelled out how deeply the industry was embedded in the country’s DNA.

South Africa produces around 250 million metric tons per year (mt/y), and coal is also the country’s single largest export by value, Thabo Mokoena, director general at the Department of Mineral Resources told the conference. Coal mining employed 90,000 people and still was the base for most of the country’s electricity. “There’s no doubt that coal will remain the base of our energy mix, and play its role as the majority of our installed energy plants,” Mokoena said.

The coal sector here, as elsewhere, has come under fierce criticism from environmentalists, but most people in the industry are sensitive to concerns around pollution and climate change. “We know climate change is a critical issue,” said Mike Teke CEO of Seriti Resources, the country’s largest producer at 50 million mt/y. “We are not climate change denialists. We are in Africa and see its effects. But we must manage the transition away from coal responsibly.” Teke notes that South Africa’s long-term power plan will see the gradual reduction of coal from around 90 per cent of energy generation, to below 40 per cent over the coming three decades.

Older power stations will be retired and likely be replaced with other technologies. However, it will not be entirely over and done with. “Coal will still be part of electricity generation in 2050.”

Like many in the global coal industry, Teke worries about the upcoming US election. In particular, he fears that a liberal candidate will accelerate the US away from coal generation — which could result in increased competition for sea borne coal.

“Just because coal plants close down it does not mean US mines will all close. Some will divert to offshore markets such as India and China — which is additional competition for us.”

Predictably, much of the conversation regarding South African coal turns around Eskom, which is sagging under a colossal debt of US$30 billion. The utility keeps pleading for an increase in tariffs but with the price of electricity having already risen 300 percent over the past five years, regulators are reluctant to raise the cost of power.

Blackouts of around 5-6 hours a day are now routine as aging power stations break down. Coal supply has also been erratic and a looming ‘coal cliff’ will see many existing mines worked out, with no plan to replace them within the decade.

“There is no clear plan as to what is to happen,” says Langelihle Malimela, IHS Markit country risk analyst. Eskom is only one of the dozen or so state-owned business entities that is in trouble. The current president Cyril Ramaphosa has pledged to end the corruption and incompetence of his predecessor Jacob Zuma.

Ramaphosa’s grip on the party was fragile however, having won party leadership with a slim majority in 2017. Many in the ruling African National Congress benefitted handsomely from the chaotic Zuma administration and are working to see Ramaphosa fail.

“The president is not in a position to act boldly going forward,” Malimela says. Eskom’s problems were also compounded by a growing fleet of renewables such as wind and solar plants. The corporation was obliged by agreement to buy power from them for as much as 33 US cents per kilowatt hour, even though Eskom could only sell power for 3 cents Kwh.

Ultimately drastic change was needed for Eskom to survive. “The question is, does the ANC have the political will to make Eskom drink strong medicine,” Malimela concludes.

Thabang Audat, the Chief Director of Energy Planning at the Department of Energy gave a fuller picture of just how bad Eskom’s situation was. Power plant readiness had deteriorated from 80 percent to just 65 percent. What’s more, at least a quarter of its power plants were in violation of the country’s environmental emission laws and would have to be overhauled or scrapped.

“So, it’s either change the law, or retrofit these plants,” he said.

Environmental concerns were also behind a drastic long-term revision to coal’s place in the country’s energy mix. A policy document in 2010 spelled out at least 127 million tons per annum for state coal plants by 2040, but a version published last cut that to just 50 million tons.

The redrafted policy had become “like an abusive spouse,” says senior economist Bongani Motsa at industry body the Minerals Council South Africa. “The policy ignores the loyalty the coal industry has shown since electricity began. If drastic action is not taken, coal is dead.”

One possible way forward is through technology. “For many years the coal industry did not encourage research beyond the mine gate,” says Professor Rosemary Falcon, Director of the Fossil Fuel Foundation in Johannesburg.

‘Clean coal’ technology such as fluidised bed combustion allowed for emission free burning and toxic substances to be captured and stored before they entered the atmosphere. Indeed, the captured sulphur and nitrogen oxide could even be used in the production of high-tech production such as carbon nanotubes and carbon fibre.

Already, she said the market for sulphur oxide globally was $6 billion, and coal plants using advanced technology could sell their captured emissions to manufacturers as a raw material. This would help give the coal industry a new revenue stream.

“Coal can be a solution. If coal producers take advantage of technology, then the transition away from coal might take a lot longer than our environmental activist friends would like.”

Unfortunately, few testbeds for these new technologies existed, with a handful in countries such China, India and the US. None however in Africa.

“We shouldn’t depend on the Chinese and Indians to develop the technology on our behalf — our coal structure is different to theirs. We need to develop this technology here.”

Meanwhile, elsewhere in the world the picture is mixed, says Rodrigo Echeverri, head of research at Noble Group, the world’s largest coal trader. “Europe is carnage — there’s been a 95% drop in coal use just since 2017.”

Much of this has to do with a glut of gas onto the market and a collapse in price. “Gas being so cheap doesn’t help anybody,” Echeverri notes. However, the big picture showed demand out of Asia was still growing. In 2018 the sea born trade crossed the 1-billion-ton threshold for the first time, with most going to China, India, Indonesia and Vietnam.

South Africa he adds, had become predictable in its exports via the Richards Bay Coal Terminal on the country’s east coast. “South Africa is very consistent — it always exports around 72 million tons.”

David Price, IHS Markit director of research says with few exceptions, the global market looked grim. “It’s a market in trouble. Governments are taking public pressure to do away with coal seriously.”

With so much cheap gas flooding onto the market, energy companies had a quick route to non-coal generation. South Korea for instance was decommissioning old coal plants and replacing them with gas. “By 2023 South Korea may have legislated coal-generation out of existence,” Price says.

Wherever countries are exploring new coal power stations, the gas industry was quick to come forward with alternatives. “The gas salesmen are very, very persuasive.”