By Antonio Ruffini, Editor, ESI Africa magazine
The South African coal roadmap project, a fact-based policy-neutral analysis of the country’s coal sector, is largely complete.
A broad base of stakeholders including business and government participated in the development of the South African coal roadmap, a project begun in early 2010. Its work includes the development of four possible scenarios and the identification of key actions that have to be taken to maximise the value of South Africa’s coal endowment for the benefit of the whole country, and critically, its coal dependent energy sector.
“The key actions identified are those that are required irrespective of how the future evolves and which scenario pans out,” Ian Hall, chairman of the SA coal roadmap steering committee, says.
Coal has dominated the global energy sector for over 100 years, and continues to do so. It accounted for 45% of the world’s energy supply growth from 2001 to 2011. Going into the future, the coal roadmap context takes into account the scenarios considered by the International Energy Association (IEA) and these see primary energy demand across the world increasing by over a third between 2010 and 2035. This growth, driven by emerging economies across the planet, is the new policies scenario employed by the IEA as its base-case.
The IEA estimate for the total power investment over this period is US$16.9 trillion worldwide. The scenario is an intermediate one: between one where the world follows a current policy and where the world agrees on a global climate change mitigation policy to stabilise the atmospheric concentration of greenhouse gasses at 450 parts per million (ppm) of CO2 equivalent. The 450 ppm concentration level is seen to be that at which there is at least a 50% chance of stabilising the world’s climate at a global average temperature increase of 2 degrees C.
Although there will be a large increase in the use of renewables, it is anticipated that fossil fuels will account for 60% of the increase in energy demand and remain the principal source of energy worldwide. At the same time the gap between oil, the biggest of the three major fossil fuels as a primary energy source, and the smallest, gas, will close quite dramatically. Taking all this into account, coal will remain the second largest source of primary energy behind oil, and it will remain the largest primary energy source for electricity generation. Growth of coal-fired electricity generation in the world’s emerging economies will outweigh any reductions of such power generation in the developed world. This is the global context which South Africa’s coal roadmap takes into account.
For South Africa to provide a basis to guide policymakers in the sector, it was important to undertake a study into what the country’s recoverable coal reserves actually are. No such study had been undertaken for many decades and there was increasing uncertainty and debate as to the quantification of the country’s coal endowment. In mid-February 2013 when ESI Africa spoke with Hall he said, “The coal resources and reserves study has been undertaken by the Council for Geosciences, but not yet released and is in the final consultation stages. What I can say is it indicates that the country has over 60 billion tonnes of recoverable coal reserves.”
Along with South Africa’s substantial coal endowment, the country is an outlier in terms of its carbon footprint, in that it is the world’s 24th largest economy but the 12th largest contributor of greenhouse gas emissions. It means South Africa has a tricky balancing act in order to maximise the value of its coal resources: its current policy position is one of carbon reduction versus its business as usual baseline.
At the same time coal is one of the mainstays of the country’s economy, and one of the top two commodities its mining sector produces, sometimes being number one by value dependent on its relative position to platinum at the time. Coal exports account for just over 25% of the country’s coal production, but well over 50% of the total value from the sector, all in foreign revenue, accounting for almost 18% of all commodity exports by value in 2011.
South Africa’s coal export component is a major source of desperately needed foreign income for the country as it attempts to keep its balance of payments healthy. As it turns out, South Africa is well positioned to supply the major new market that has emerged, India, which is predicted to become the world’s largest net importer of coal by 2035. Therefore South Africa’s coal sector, which produces just over 250 million tonnes a year, is a critical one for the country even before the coal dependent energy and power sector in particular is taken into account.
Hence, it was important for an exercise such as the coal roadmap process to be undertaken, and for it to include all the key stakeholders. It did achieve this inclusivity with stakeholders in the process including the state in the form of the Department of Mineral Resources, the Department of Energy, the Council for Geosciences, Transnet Freight Rail and Eskom. The South African National Energy Development Institute (Sanedi) supported and controlled the finances for the project. Key business sector stakeholders that participated include Anglo American Thermal Coal, Exxaro, BHP Billiton, Shanduka, Optimum Coal, Grindrod and industry consultants. Non-government organisation (NGO) groups such as the South African National Energy Association (Sanea) also participated, with the Fossil Fuel Foundation providing administrative support.
The large base of stakeholders meant the process took longer than may have been originally envisaged, particularly as it coincided with a major restructuring by government of the original department of minerals and energy into two separate departments. “The new department of energy has been supportive, and the department of mineral resources has also participated in the process,” Hall says.
“The roadmap is intended to be a platform for the sharing and dissemination of knowledge, to align all stakeholders and their objectives and collectively support societal and economic objectives: these being accelerated growth, employment, environmental responsibility, capital and social investment.”
The coal roadmap completes its work at a critical juncture because it dovetails with the increasing awareness that Eskom is facing a coal supply cliff. Associated with that has emerged the discussion by government that it wishes to make coal a strategic resource, though specifically what that entails and the implications of such an action remain unclear. “Within the next five to seven years Eskom needs new coal supplies of at least 60 million tonnes a year, and one of the key findings of the roadmap is that this is one of the required actions no matter which variation of the four modelled scenarios eventuates,” Hall says.
It is expected that Eskom will have at least five coal fired power stations still in operation after 2040, and its 40 year coal supply plan sees a requirement for 3.8 billion tonnes of coal of which 1.7 billion tonnes remains uncontracted. A complicating factor is that some 300 to 800 million tonnes of Eskom new supply is threatened by competition from low-quality exports. This coincides with the 16 MJ/kg to the 24 MJ/kg calorific value range coal that South Africa’s existing power stations require until 2035 and beyond.
“The challenge Eskom faces is that the collieries which supply the existing power stations are running out of reserves and meeting future coal demand will require the development of lower yield thus more costly orebodies, further away from the stations than those that are coming to the ends of their lives,” notes Hall, who is also the general manager for projects for Anglo American Thermal Coal, one of Eskom’s major coal suppliers. If coal is to be transported from the Waterberg, then it is estimated the rail cost alone of this coal to the power stations in Mpumalanga could amount to R200/tonne, whereas in the last reported year (to March 2012), Eskom was paying around R230/tonne for coal overall. Take into account the need to invest new capital into new coal mines, as well as the necessary washing facilities and added transport costs, from a coal sector perspective Eskom’s attempt to keep its coal cost escalation low will encounter difficulties. “There will be a step change for Eskom in the cost of new coal supplies, no matter who builds the new mines that are required.”
Investment in this new mining capacity comes at a time when the South African mining environment is facing challenges, including implications of the recently published Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill, a sensitive labour environment and increasing environmental and regulatory requirements.
Part of the uncertainty also comes from the recent proposal in the bill to declare certain minerals (such as coal) a strategic resource, with a percentage of the mineral being reserved for domestic use. Around 75% of coal production in South Africa is already used domestically, accounting for 80% of the country’s primary energy requirements – over 90% of electricity production and a substantial coal to liquid fuel and chemical industry. South Africa pioneered commercial coal to liquids technology and remains the only country with significant coal to liquids capability, with coal producing 25% to 30% of the country’s liquid fuel and chemical requirements. Attempts to enforce more beneficiation will have to take into account that South Africa already has the most advanced coal beneficiation programme in world – and faces pressure to decarbonise its economy.
While Hall emphasises, based on global trends, that the coal industry’s current and future prospects do not rest on global climate change policy trends alone, it is climate change response that provides the framework for the roadmap’s four scenarios. “The scenarios are not suggested to describe what will actually occur, but represent a range of plausible and divergent futures which serve as a framework for development of a roadmap.”
The scenarios used are:
- More of the same: There is a low global and local response to climate change, and limited action is taken on emissions mitigation globally and in South Africa.
- Lags behind: The world pushes ahead with emissions mitigation, but South Africa continues to pursue coal as its primary energy source due to its substantial coal endowment.
- Low carbon world: Strong action is taken globally and locally on emissions mitigation.
- At the forefront: South Africa joins the global leaders in emissions mitigation, while much of the remainder of the world takes limited action.
At the moment, South Africa, as policy direction stands globally and locally, is pointed towards the at the forefront scenario as it attempts to reduce its emissions from about 1.0 kg of carbon dioxide equivalent per kWh to about 600 g/kWh by 2030. This is widely acknowledged as a very aggressive target. In this scenario coal use continues globally while South Africa aims to diversify its energy mix to include renewables and more nuclear generation. This is the direction reflected by the Integrated Resource Plan (IRP2010). Under this scenario, any new large-scale coal fired power plants after Medupi and Kusile are developed in the late 2020s, using ultra-supercritical technologies, with smaller power stations including fluidised bed combustion technology being built. No more coal to liquid plants are built.
In the lags behind scenario the world decarbonises, but coal remains a significant energy source in South Africa and other developing countries. Coal based power generation still dominates local electricity supply but with clean coal technologies such as ultra-super critical power stations, carbon capture and underground coal gasification applied as they become available. A new coal to liquids plant is built in 2025 to meet local liquid fuels demand.
In the low carbon world scenario the world decarbonises and moves towards the use of nuclear and renewables for electricity supply. Funding is available for South Africa to follow suit, with no significant new coal fired power stations built beyond Medupi and Kusile. Carbon capture and storage is pursued and retrofitted and no more coal to liquids plants are built in South Africa.
In the more of the same scenario coal use continues globally and in South Africa. Coal based generation using existing technologies dominates the electricity mix, and the life of existing power stations is extended. Two new coal to liquids plants are built to meet local liquid fuel demand.
The difference in cost of electricity between the lowest cost scenario, more of the same, versus the highest cost, low carbon world, scenario is a ratio of up to 1:1.8, whilst in three of the scenarios the Waterberg resources are developed. Only in the low carbon world is there no further growth in this coal basin.
Among the most important outcomes of the coal roadmap are the immediate actions that are required irrespective of the type of scenario that pans out. These relate to the fact that South Africa cannot afford to decommission existing power stations. To ensure that Eskom is able to secure the contracts for coal supply to existing and new power stations so that it gets the 60 million tonnes a year of new capacity which it requires before 2020 there has to be agreement on an appropriate coal pricing model for the national power utility. If the coal for these power stations is to be sourced from the Waterberg, early infrastructure planning must take place now.
It is also critical that an environment be created that is conducive to mining investment. “This means aligning policy and legislation processes for the establishment of new mines. We do need to obtain clarity on carbon tax. The proposed MPRDA amendments and the practical implications if coal is declared a strategic resource must be considered,” Hall says.
Another immediate issue that the roadmap points to no matter how the future evolves is the need to resolve the central basin coal and supply and transport challenges. “There is a need to continue Eskom’s current road to rail migration and conveyor infrastructure programmes. At the same time the coal roadmap suggests that alternative employment opportunities should be identified for coal truck drivers who may be displaced.”
Over the short to medium term, the common actions that need to be taken regardless of how the future evolves are related to ensuring that the value of South Africa’s significant coal endowment is maximised for the benefit of its citizens. It means capitalising on coal exports. “To achieve this South Africa should maximise coal exports to exploit its position as a key supplier to meet the demands of the east and west. This requires the expansion of rail and port infrastructure, and the provision of a supportive investment climate.”
A key short to medium term action that is required, no matter what, is that plans must be made for the next base load station after Kusile power station. “If nuclear and renewables are not achieved at the required scale or on schedule, we need to obtain clarity on whether a new coal plant would be required and who should be responsible for its development. Thus the roadmap encourages finalisation of a revised IRP with clarity on new capacity build,” Hall says.
The finalisation of any further coal fired power stations must be done to enable timeous infrastructure decisions. Additional infrastructure will be required to transport coal, including exports, from the Waterberg. “Early planning will ensure this infrastructure is appropriately sized. Decisions and securing of funding for infrastructure are required immediately in the case of water supply and in the near future in the case of rail.” Hall also says that adequate settlements planning must be made that dovetails with such developments. “That is an opportunity that should not be lost.”
The acceleration of transformation of the sector is another short to medium term action that the map concludes should be undertaken irrespective of how the future evolves. “It involves exploring new business models including cooperative partnerships between Eskom or the existing mining houses and smaller players,” Hall says. “With Eskom funding and existing mining know-how, new mines for supply to the utility sector may provide a platform for the start-up of more black owned mines.”
Another action in the short to medium term that is scenario independent relates to the need to manage environmental impacts, including legacy issues, and the finding of ways to increase the efficiency of mining. It includes coordinated whole systems planning, among this the impacts on water, improved management of coal dust, discards, spoils and mine rehabilitation. “There is a need for technology to make advances in reducing production costs, developing water efficient mining and beneficiation methods, including dry beneficiation technologies and use of discards and fines. There is also the need to develop and introduce safer mining techniques and to maintain and develop skills to operate the mines and power stations of the future.”
A longer term goal irrespective of how the future evolves is that South Africa should assess whether carbon capture and storage (CCS) challenges can be overcome. “This includes conducting more reservoir characterisation studies and a possible test injection to confirm suitable geological sequestration sites. If this proves successful, South Africa should progress towards building an industrial scale CCS demonstration plant.” The roadmap also indicates that South Africa should evaluate whether building coal fired power stations at the coast closer to potential CCS sites offers additional benefits.
The longer term should also plan for the closure of mines and power stations in the country’s central coal basin. This will require coordinated planning to minimise the impact of mine and power station closure, through effective environmental planning, development of alternative industries and reskilling.
A major longer term action the roadmap identifies irrespective of the future scenario outcome is that South Africa should work towards introducing new coal combustion technologies with higher combustion efficiencies, while also exploring opportunities for decreasing water demand or increasing water use efficiency. Hall concludes, “Globally the average thermal efficiency of coal fired power stations is 28%, and new coal fired power stations being built are achieving efficiencies of over 40%. The change in global carbon footprint from coal power generation would drop by around a third if we could convert that 28% efficiency to something like 37%.” Ian Hall, chairman of the SA coal roadmap steering committee.