Raging wildfires in California and other climate change events are once again grabbing headlines and reminding a world consumed by Covid-19 that a move away from fossil fuels towards green alternatives remains paramount for future sustainability. But in SA, as economic growth takes a nose dive, coal mining and having adequate electricity supply (mostly generated from coal) is also imperative for recovery.
As the debate over coal continues, Tycho Möncks MD and partner at Boston Consulting Group, a global management consulting firm, gives his thoughts.
Given the growing negative sentiment towards fossil fuels, does the coal industry have a future?
There is an element of negative public perception towards coal and I think it is mostly based on fact. The use of coal for power generation produces carbon dioxide (CO2) that contributes to global warming. In the long term, it’s clear the path will go towards renewables. But what are our short-term alternatives? Coal is part of the journey and part of the process. So despite the negative perception of coal, it is still a requirement.
SA’s electricity infrastructure blueprint, the Integrated Resource Plan, suggests the country will continue to move away from coal in favour of renewables. How do you expect the market will respond to this?
On the demand side, there is no strong outlook for coal, especially for thermal [power station] coal. But at the same time I also don’t see a rapid decline. Neither globally nor in SA. Yes, there is this transition from coal and fossil fuels to renewables, and at the same time the base demand is growing in emerging economies and especially in developing regions of the world. That basically means that despite a lower share of coal in the overall electricity generation, the overall net demand will stay reasonably stable in the coming years. For SA — if you look at the energy plan and if you run those numbers, it’s not a steep decline in coal demand, it is rather stable to slightly negative.
Still, big mining companies are divesting from coal, how will that shape the industry?
From an investment perspective, the big investors, hedge funds, public funds — yes they are pulling out of coal because they are under pressure from public scrutiny. Major mining companies are under pressure from their investor base to make portfolio decisions to best position their capital, and many of them have decided it is not best positioned in coal.
If one wants to divest, and the demand is still there, then another will buy in. So there are companies that are buying those assets; typically its small to medium companies that find new ways of funding.
The previous concentration in the coal industry is losing a bit of traction and smaller companies are jumping at those coal assets. In SA, specifically, several players have interests, and the probability is quite high that we will see consolidation but with those new owners involved.
Metallurgical coal doesn’t seem to be feeling as much heat as thermal coal, is it just a matter of time before it begins to fall out of favour too?
Metallurgical coal, or coking coal, is used for steel production. It is as big an emitter as thermal coal but the public scrutiny is a little bit less because the alternatives are not there. There are experiments taking place to replace coking coal with more sustainable approaches. But it is just not there yet — a solar panel is there, a wind turbine is there, but alternatives for steel production for metallurgical coal are not there. So the pressure on producers of metallurgical is not as big, though some investors see coal as coal and they don’t differentiate between lignite [thermal] or coking coal.
Is there such a thing as clean coal?
Burning coal produces CO2, there’s no way around that. Of course there are technological solutions such as carbon capture and storage. The problem is they are prohibitively expensive and come with all kinds of implications. For example, storing a tonne of CO2 produced is roughly in the range of $400 (R6,792) to $450. So it’s not economically feasible. If you cannot store and mitigate the CO2 that is produced, then there is no green or clean coal.
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