Founder: Turnaround Talk
South Africa is in the biggest transition period since the birth of democracy in 1994. Rampant inflation and a growing cost of living crisis has left many South Africans feeling as if there are uncertain times ahead in the country.
These are not the only examples of how our way of life is being redefined. It is becoming increasingly clear that Eskom can no longer meet the growing demands of a modern South Africa. Not only does company needs to find new ways to supply more power to its electrical grid, it needs to find a way to modernize its operating model to keep up with new technologies.
In addition, South Africa is a key continental role player in moving towards a Net Zero economy. However, the transition away from coal is leaving key industry questioning its future. These parties squared off at a recent meeting.
Not an easy transition
The News 24 article points out that Eskom CEO André De Ruyter has defended the utility’s move away from coal-fired power generation in response to criticism from coal producers over the utility’s transition strategy.
De Ruyter, who was speaking on Thursday at the McCloskey Southern African coal conference held in Cape Town, outlined the utility’s long-term sustainability plans to focus on improvement of the coal fleet while transitioning to cleaner energy.
Renewables paired with intermittency solutions like pumped storage, and possibly supported by gas, could match South Africa’s demand profile.
German criticism
The News24 article points out that Executive Chair and Founder of Canyon Coal, Vuslat Bayoglu, said Eskom’s transition plan looks a lot like Germany’s which, he said, has failed in the face of an energy supply crisis in Europe, prompting the country to resurrect closed coal plants.
“We are sitting with coal and you are talking about importing LNG [liquefied natural gas] – and at the end of the day gas is also a fossil fuel,” he said, further expressing doubts that hundreds of thousands of South Africans would be reskilled and employed by the energy transition as renewable technologies are manufacturers abroad and wind and solar projects, once constructed require few staff.
Building a coal power station
In response to this point, De Ruyter said that With nine Eskom coal power plants scheduled to close in the next 12 years, building new coal-fired generation in South Africa is not viable.
“To fund it you will need to borrow money, and who will lend you money? Will you get an environmental authorisation? No. Will you get a water use licence? If you got that, would you be able to insure it? No,” he said. “Would you be able to get supply of transformers, generators, major electrical equipment? We’ve received letters from our OEMs [original equipment manufacturers] saying that they are not going supply us.
The News24 article points out that, assuming all those challenges are overcome, such a plant would still take 12 years to build with delays, cost overruns and corruption being a persistent threat.
“These are all very real challenges,” De Ruyter said. “We need to do what we can to solve the problem now.”
Photo By: News24
Building a power plant doesn’t take 12 years
To suggest Eskom is anti-coal is not correct, he added. “We will be a major consumer of coal until at least 2071 when the last unit at Kusile is scheduled to shut down … but also to pretend that we can somehow wave a magic wand and use more coal [is not realistic] given the aforementioned challenges.”
The article points out that, speaking to the issue of coal plants struggling to secure required authorisations – despite new coal being provided for in the Integrated Resource Plan 2019 – July Ndlovu, chair of the World Coal Association and CEO of Thungela Resources, said: “Germany, when faced with a crisis, changed their own rules … as a country we need to be much more pragmatic.”
While the Chinese have committed not to fund new coal-fired plants abroad, nothing stops their companies form helping to build new coal in South Africa, Bayoglu said, adding that it does not take 12 years to build a power plant.
“That is the ANC government that took 12 years to a build power station. If you give it to a Chinese company, it takes four years,” said Ndlovu.
While De Ruyter said old plants have been run past their scheduled closure with Komati having to be decommissioned because it was legally non-complaint. It was also generating coal at a cost of R1.71/KWh – a substantially higher price than some of the younger plants in Eskom’s fleet and a cost that cannot be recovered through the electricity tariff.
The article adds that Bayoglu said producing coal-fired power at that price was still preferable to importing gas to producer power at a significantly higher cost.
De Ruyter argued that baseload power is nowhere near as important in today’s South African energy market as it used to be. “The mining and manufacturing sectors had completely changed in terms of the contribution to GDP. And due to massive electrification, our demand profile is far ‘peakier’ than it used to be. So the old notion of 80% or 90% baseload no longer applies.”
In fact he said output from coal plants in some instances of low demand have to be curtailed, proving they “simply aren’t sufficiently flexible to cater for the volatility that is inherent in the market”.
The article points out that Bayoglu however said South Africa’s power needs could not be served with intermittent renewables attempting to replace base load.
“It won’t,” he said. “It will be complimentary to base load, and we have to decide – is our base load, gas, nuclear or coal?”
Photo By: Canva
Vested interests
While there is plenty of criticism on Eskom’s transition, it must be pointed out that the coal industry is a key economic driver of the country, so transitioning away from coal will have a significant economic impact on the industry.
It must also be pointed out that yes, the German transition is facing challenges. However, like many other countries in Europe, they are largely dependant on the supply of natural gas from Russia while they are transitioning to a Net Zero economy. when this supply was jeopardized by the Ukraine war, many European countries needed to pivot back to coal. While the German criticism is valid, this point of clarification needs to be made. Germany is not s dependent on coal as a power source as South Africa is.
It is clear that the transition to Net Zero will take decades, not years. While this is taking place, there is still significant demand for South African coal internationally. Instead of using all of the ammunition on Eskom, why not question Government about what it is doing to address the challenges experienced by Transnet?
Yes, Eskom is a major player in your ecosystem. However, a lot more can be done to improve business opportunities elsewhere.
