The history of ‘black gold’
From the earliest days of the Brakpan and Vereeniging power stations, and through the years of growth and expansion of electricity supply to the current fleet of Eskom power stations, coal has formed the mainstay of primary energy for electricity generation, accounting for some 85% of electricity used in South Africa today.
Since the early days of electricity in South Africa, when there was little or no consideration given to the environmental consequences, carbon emissions and health impacts from mining, transportation and burning of coal, “black gold” enabled South Africa to generate the cheapest electricity in the world.
Where we are now
Today, even taking into account their long plant lifetimes and high load factors, the levelised cost of electricity from new coal, and new nuclear power, which takes into account the full capital costs, fuel costs and all fixed and variable operating and maintenance costs over the economic lifetime of the plant, are among the most expensive technologies per kWh of electricity delivered.
In addition, the negative environmental, climate change and health impacts resulting from the burning of coal for electricity generation are becoming increasingly evident and important.
At both a technical and economic level, we can now look to a blend of distributed wind, solar PV, gas and energy storage capacity to provide clean, reliable, dispatchable, flexible, baseload generation capacity at least cost.
There is no longer any trade-off needed between the requirement for least-cost on the one hand, and providing clean, reliable power that enables carbon reduction targets to be met with low water use and high job creation, on the other. This was not the case a decade ago.
As Eskom notes in its IRP 2017 study for the Department of Energy (DoE): “The combination of gas (through gas engines and turbines) and renewable energy provides a suitable replacement for traditional baseload generation”.
The decisions required in the new IRP for the electricity mix of the future, will be based on current and future technology costs and demand projections, and not on the past. Our decisions need to be forward thinking and not backward looking.
But, in so doing, we cannot ignore or neglect the fate of the people and the communities that will be displaced by technology shifts in electricity generation, as we move to better, lower-cost alternatives. Fortunately, the energy transition that is required is not an event, but a process that will span several decades.
So, there is plenty of time to plan, fund and execute a just energy transition. Regional renewable energy development zones, or Redz, can be located appropriately and strategically where needed most, to maximise socioeconomic development.
Training, upskilling and a transition to new, cleaner, healthier, quality jobs in the green economy can easily be managed over a period of decades if we put our minds to this.
This will not only provide replacement jobs, but will provide much more jobs than the steadily declining job numbers in coal mining, due to mechanisation and automation.
The real issues that the coal sector needs to face
The reality of course is that the coal mining industry is in decline, not just in South Africa, but around the world, and in my view, this is both desirable and irreversible.
The coal majors, with their big market shares, do not see growth prospects or much of a future in coal mining. They understand that the decline is going to accelerate, due to reputational considerations and the increasing environmental pressures from governments, shareholders, civil society and the business and financial communities.
Global institutional investors and pension funds, who historically were agnostic around fossil-fuel investments, are increasingly becoming sustainable investment activists, and are placing pressure on the companies in which they invest to demonstrate plans to transition away from dirty coal mining, coal-fired power generation and other high carbon emission activities.
Anglo, BHP Billiton, South 32, Exxaro and Glencore have seen the writing on the wall for thermal coal for power generation around the world, and are already withdrawing and diversifying away from thermal coal.
In the meantime, there is a lot of noise out there, a lot of misinformation and propaganda, with a plethora of different political and ideological agendas.
However, there is a need to cut through all of this noise to identify the real needs and issues facing electricity generation and delivery in South Africa that must be addressed going forward. Issues such as:
- The need to decarbonise the economy and transition to a clean energy future.
- The need for safe, clean, healthy, quality jobs, and high job creation.
- The need for generation technologies that enable South Africa to meet its international carbon emission reduction commitments to mitigate climate change.
- The need for low water-use generation technologies.
- The need to minimise ground, water and air pollution, and meet South Africa’s environmental compliance regulations.
- The need to reduce the negative health impacts and premature deaths resulting from the mining, transportation and burning of coal.
- The need to be able to access both public and private sector funding, and the need for private sector funding to relieve the fiscus of this burden.
- The need for short power plant construction times to provide construction flexibility to meet uncertain demand for grid electricity.
- The need for multiple smaller, simpler projects, with different technologies and a variety of suppliers to mitigate risk.
- The need for cost and construction time certainty, without cost and time overruns.
- The need for flexible generation capacity (such as gas-to-power and energy storage) to meet demand peaks and to complement and provide back-up to low-cost variable generation (wind, solar PV).
- The need for a least-cost electricity price trajectory while meeting the socio-economic and policy imperatives of government.
- The need for investment in generation assets that are future-proof in respect of becoming stranded assets because of increasingly stringent climate-change policy implementation.
These needs contrast sharply with the reality of large, coal-fired, power projects in an uncertain world where there are disruptive technologies emerging, and where grid electricity demand in the years ahead is highly unpredictable. The realities of coal-fired power include:
- Large, expensive, centralised, complex mega-projects.
- Long and inflexible construction programmes.
- High financial and operational risks, with the real threat and possibility of stranded assets.
- Low job-creation, with high water use, high CO2 emissions, high levels of ground, water and air pollution, and high negative health impacts.
- Unclear business model(s) for funding the development of large new coal mines in SA, as well as to extend and expand existing coal mines.
- Long power plant construction times, with high cost and time overruns (e.g. Medupi and Kusile).
- High upfront capital cost before the first kWh is produced (i.e. high overnight cost + high interest during construction)
- Financing and funding difficulties – including public sector, private sector and development finance institution (DFI) funding.
- Operational inflexibility and a need to run at high load factors at full load to achieve financial viability and recover the high capex and finance costs, and to lower the levelised cost of electricity generated.
- Long technology commitment in an uncertain world with disruptive technologies emerging (wind, solar PV, energy storage, electric vehicles, distributed generation, micro grid, smart grid)
- Political interference and corruption prevalent with mega-projects where there are national security of supply considerations, with a lack of procurement transparency.
The need for a transition away from the over-dependence of coal in the electricity mix
Most of Eskom’s coal-fired power stations are not environmentally compliant with South Africa’s mandatory minimum emission standards, and only operate through temporary postponements of compliance granted by the Department of Environmental Affairs (DEA) in applying the country’s laws and regulations to Eskom. In addition, at least six Eskom coal-fired power stations are past or close to their end-of-life.
Eskom said at its last media briefing it would require some R400 billion to extend the life of its old coal-fired power stations, and to ensure its coal fleet is environmentally compliant in meeting South Africa’s air pollution regulations. Eskom made it quite clear that it simply cannot afford this cost.
Eskom’s old coal-fired power plants, and the coal mines that feed them, are dirty, thirsty, inefficient, unhealthy, non-compliant killers, and just on pollutant – PM2.5 – causes some 2 200 premature deaths per annum, and about R30 billion per year in costs associated with the health impacts of burning coal at Eskom power stations alone.
Eskom makes a big thing in its annual financial reports of its safety concerns in respect of about ten deaths per year within Eskom. But the utility is publicly quite silent about the pollution, acid mine drainage, health impacts and premature deaths resulting from the coal mining operations that feed its coal-fired power plants, as well as the transportation and burning of coal at its power plants.
If it were non-compliant nuclear power causing 2 200 premature deaths a year, there would be a local and international outcry, and the National Nuclear Regulator would shut down the affected reactors immediately. But not so with coal.
In short, my view is that the status quo at Eskom is financially and environmentally unsustainable.
In order to clean up its act, and meet the country’s environmental regulations and international carbon emission reduction commitments, I believe there needs to be a phased, just transition away from the old, non-compliant, coal-fired power plants, to cleaner technologies, with no new coal power added to the mix going forward, both by Eskom and by new coal IPPs.
The status of the planned new coal IPPs – Thabametsi and Khanyisa
South Africa’s coal IPP procurement programme was launched in 2014, based on new coal capacity envisaged in IRP 2010.
However, since 2010, the electricity sector, and the assumptions on which IRP 2010 was based, have undergone significant changes, in particular changes in the costs of competing supply technologies and fuels, coupled with a decline in demand compared to the increasing demand assumptions of IRP 2010.
An important new research report by the Energy Research Centre (ERC), University of Cape Town, shows that Thabametsi and Khanyisa would cost South Africa an additional R19.68-billion compared to a least-cost energy system.
The new report further shows that the two coal IPPs are not needed to meet South Africa’s medium-term electricity demand, and where future capacity is needed, this is met more cheaply by other electricity sources, such as wind, solar, and flexible gas generation.
The study shows that the two new coal IPP plants would also increase greenhouse gas (GHG) emissions by 205,7 Mt CO2eq over the 30-year period of the power purchase agreements, and negate most of government’s emission mitigation plans, including the expected savings of the entire Energy Efficiency Strategy to 2050.
Furthermore, if the coal IPPs were to operate at the capacities authorised by their environmental authorisations (Thabametsi 1 200MW, Khanyisa 600MW), the above costs and impacts would increase proportionally, and would be roughly doubled.
The two new coal IPPs would further impact South Africa’s commitments under the Paris Agreement, raising the costs of mitigation dramatically, and requiring significant GHG emission cuts elsewhere in the electricity and other sectors.
Under the coal IPP programme, preferred bidder status has been awarded to Thabametsi and Khanyisa, and the plants are required to commence operating by December 2021. However numerous required licenses and authorisations are still outstanding and/or are currently being challenged in the High Court, and neither project has reached financial close yet.
The new IRP for electricity
The optimal electricity mix for South Africa in the years ahead is still to be determined by the long-awaited new IRP for electricity.
An IRP for electricity should be a rational, mechanistic, techno-economic planning process that determines the optimal mix of generation technologies and capacities, at least cost to the economy, necessary to meet the projected demand for electricity in the years ahead, with adequate security of supply, while also meeting government policy and socio-economic requirements and constraints.
In an uncertain world where electricity demand cannot be accurately predicted in the years ahead, and where disruptive new technologies are emerging, the IRP is also about enabling flexible planning decisions of least regret.
In my view, the new IRP is likely to mirror and reflect the work done by Eskom, CSIR, National Planning Commission, University of Cape Town Energy Research Centre, and other international studies, but with some politically-motivated “policy adjustment” by government.
All the above work by the technocrats has shown that there is no longer any conflict between the requirement for least cost on the one hand, and on the other hand meeting carbon emission reduction commitments, maximising job creation and minimising water usage.
As such, I would expect that the new generation technologies and capacities proposed in the IRP for the years ahead to 2050 will be dominated by a blend of distributed wind, solar PV and flexible gas-to-power capacity, with little or no new coal or nuclear power.
We now await the new IRP for electricity, which according to the Department of Energy is currently being reworked by the new administration following the earlier “Zupta” years, and is expected to be approved by the Cabinet in mid-August 2018 after further public consultation.
Chris Yelland is investigative editor at EE Publishers.