Emboldened by a surge in coal demand in Europe in 2022 and record high prices, which have both since almost completely reversed, and by the decision to delay the shutdown of Eskom’s old, coal-fired power stations, sentiment about the future of coal in SA seems to have turned.
“We have won the war of government supporting coal,” said Silas Zimu, special adviser to electricity minister Kgosientsho Ramokgopa, at the McCloskey Southern African Coal Conference in Cape Town during the first week of February.
Even the department for forestry, fisheries & the environment (DFFE) had joined the party, Zimu said, having agreed to grant Eskom temporary exemption from complying with air quality regulations which allowed it to proceed with implementation of the temporary fix at Kusile power station which will result in increased sulphur dioxide emissions during the 13-month period.
It is also the DFFE which will, in the next few months, announce its final decision on Eskom’s request to delay the timeline for certain of its power stations to meet minimum emission standards. Environment minister Barbara Creecy is under pressure to grant the request because failure to do so would result in Eskom having to immediately shut 16,000MW of generation capacity (about 40% of Eskom’s total generation capacity from coal) and up to 30,000MW (75% of total capacity) after March 2025.
A delay in compliance, and a delay in shutting down old power stations, will see Eskom require more coal for longer to keep power stations running.
Add to this the news from the International Energy Agency (IEA) that coal demand hit a record high in 2023. It is then understandable why the talk at the Investing in African Mining Indaba this year was all about new opportunities in coal mining.
As Exxaro Resources CEO Nombasa Tsengwa told Business Day, the urgency that coal companies might have felt a few years ago to diversify away from this commodity has subsided, allowing them more time to make decisions about future acquisitions outside coal.
The risk SA now faces is that in celebrating that the coal phase-out has been delayed for now, it will fail to plan for it when this does eventually happen — and then SA will sit with many more stories like the shutdown of Komati power station, where poor planning resulted in unnecessary job losses and hardship.
In addition, while it might be true that global coal demand soared to its highest level last year, the turning point is near. The IEA expects the market to fall by 2.3% over the next three to four years as increasing demand in places like China and India fails to make up for the sharp drop in demand from the EU and US.
Also, once they are given a choice, local exporters will try to move away from using Eskom’s expensive, dirty electricity to ensure their products remain competitive when more countries start implementing carbon border taxes similar to the EU’s carbon border adjustment mechanism.
Our devastating energy crisis has compelled SA to delay the phase-out of coal from the energy mix, but the country should use this time to plan better and be prepared when more coal power stations start shutting down.
Even the delayed shutdown plan assumes 13,000MW of coal-fired power will be decommissioned by 2034, and 10 years is not a lot of time to establish a whole new economy in Mpumalanga.
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