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Looking for answers

World Coal,

A draft Integrated Resource Plan (IRP 2010) was published in October, stating an intention to cut coal’s share of South Africa’s energy-fuel mix from 99% to 56% by 2030. During Q1 2011, as amended, it will be debated by parliament, but so far it remains the Government’s choice. The question is: is it really doable?

Shareholders in South Africa’s Richards Bay Coal Terminal (RBCT), who funded the terminal’s Rand 1.1 billion capacity expansion to 91 million tpa, could be concerned that their investment will never pay off in the face of a shrinking coal industry. It would also be no surprise should Transnet fail to honour commitments to follow RBCT and upgrade the line to the terminal, effectively capping South Africa’s coal exports through RBCT at the present 71 million tpa capacity of the line.

South Africa’s decision not to import significant coal-fired energy has led to fresh impetus for Botswana to export its coal using a proposed 1500 km Trans-Kalahari railway to an expanded port of Walvis Bay in Namibia, which has won the backing of the Namibian and Botswana Governments.

20 years – and after

The author believes that, as the share of coal in the South African energy-fuel mix drops by almost half, the scenario will be one of increasing job losses, falling tax receipts, poorly performing investment, failed mining companies and the knock-on effect on their suppliers. It adds up to an inevitable loss in GDP and it may signal a significant setback to the Government’s own programme to open up the mining industry to previously disadvantaged South Africans.

Limiting regional fallout

In neighbouring Botswana, the Mmamabula coal project and the nearby Mmamantswe project, were set to awaken Botswana’s 3.3 billion t “sleeping coal giant” through power purchase agreements with South Africa. With proposed deals between Eskom and the developers still on the table, IRP2010 was published. Both projects were put on hold.

Now, Mmambabula – and Botswana – will survive the South African coal import clamp down thanks to Indian investment. JSW Group has made a buyout offer for cash-strapped developer CIC Energy and its major interest, the 20 million tpa, 40 year coal export potential of the project.

In consortium with Exxaro, Botswana’s Morupule Collieries, the Industrial Development Corp. of South Africa and African Industrial Investment Managers, CIC Energy has expressed an interest in the Trans-Kalahari rail project and CIC’s buyer is on board.

Still talking of developing Mmamantswe, Aviva Corp. does not believe South Africa’s position on the import of coal-fired energy is sustainable. Tony Iannello, Aviva’s outgoing chairman, accepts that IRP2010 rules out a deal with Eskom, but is looking at exporting coal to smaller South African operators.

The plan and beyond

South Africa has to increase its present baseload of 45,000 MW to 85,000 MW by 2030. IRP2010 relies on adding a net 3000 MW of power from current programmes and 38,000 MW from new build operations. The plant’s Rand 856 billion price tag would result in an eventual electricity price of around Rand 1.10/kWh by 2019 from Rand 0.40 – discounted prices.

The draft IRP2010 sees coal almost totally giving way to nuclear energy, gas and renewables as the fuels for new sources of power generation by 2030. It builds a reliance on wind power, solar energy, generation using biomass and landfill, which analysts argue will not be able to meet the expectations placed on them of building up to contribute almost 15% of the baseload by 2030 and to be the largest (30%) contributor of new build energy.

Gas – in the later years largely imported – will increase from virtually 0 to 10% of the baseload; major hydropower from 0 to 4%; wind power from 0 to 5%; solar, photovoltaic, landfill and biomass from virtually 0 to 9%; and power from cogeneration projects from 1 to 2%. Apart from gas, the only use of imported power will be 3349 MW (4%), 1000 MW of it coal-fired energy (1%).

Current programmes

As 14,000 MW of current programmes unfold, there will be decommissioning of existing facilities to a total of 11,000 MW. Of the 14,000 MW input, coal generation will provide 72%.

Of the coal-fired energy, 86% will come from Medupi, now under construction, and Kusile. Eskom chief executive, Brian Dames, has confirmed both are now fully funded. The balance will come from the ongoing recommissioning of previously mothballed plants. The first feed from the new plants will be in 2013 and their contribution will build up over seven years. Power from recommissioning will reach its peak by 2013.

Chosen new build options

Of the proposed new build options, the first significant energy will come on in 2014. Nuclear generation will provide 25% of new build capacity, coming on in 2023 and building up over seven years; gas 20%, coming on in 2019 (build up period 12 years); solar, landfill and biomass 20% (2016, 12 years); wind 10% (2014, six years); coal using fluidised bed combustion and flue gas desulphurisation 10% (2027, four years); imported hydropower 9% (2020, four years); imported coal 3% (2027, two years); and cogeneration and demand response 3% (2011, five years).

 Coal could make a minor comeback on a wave of expected new technology to produce clean coal. Additional to inputs under the plan, up to 5000 MW of generic coal-based power generation by Eskom or independent power producers (IPPs) using clean coal technology could ramp up from 2027 and continue well beyond IRP2010.

This points to a small window of opportunity for coal, particularly in a fallback role. IRP2010 says that clean coal technologies were not sufficiently developed to be included in the plan but, with their commercialisation, additional options for coal generation could become viable. Dames has since said that South Africa’s access to cheap coal meant it would be unwise to dispense with it.

Author: Barry Baxter

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