State-owned power utility Eskom and the coal industry are at the core of the 'Just Transition', says mining services provider Ukwazi Mining director Spencer Eckstein.
"[About] 75% of our electricity is coal based and derives from 16 large power stations. By December 31, 2021, Eskom was due to split out its transmission business from generation and distribution, while the issues of its sticky debt of R400-billon-plus and deep operational challenges remain."
He notes that Eskom has to retire about 80% or more of its coal-fuelled power stations by 2050. South Africa is globally ranked as the fourteenth-highest emitter of greenhouse gases in the world and government has committed to reducing carbon emissions as part of the National Determined Contribution to reduce carbon dioxide emissions by between 350-million tons and 420-million tons.
"Decarbonisation and the transition to a low carbon economy represents a profound moment in our political economy, locally and globally. It is a fundamental shift in our reality, which has been driven by fossil fuels for the past 200 years. Circuits of commodities and circuits of capital will be shifted; and their associated value chains and ecosystems with them. This will require new ways of working, innovation and digitisation, as well as different skillsets, mindsets, institutions, regulatory and labour regimes. Simultaneously, herein lies the deepest risks and the greatest opportunities. Risks have to be managed and opportunities need to be commercialised, or they will remain nascent."
What This Means in the Short, Medium and Long Term?
A transition from a high carbon emissions-based economy to a low emissions economy is a much broader and more fundamental transition than moving from coal-based energy to renewables, comments Eckstein.
The policies, principles and practices around the just transition will become increasingly contested, with social dislocation and potential conflicts between stakeholders becoming more strident, unless the process is managed, phased and funded appropriately.
"What is critical is how to achieve sufficient inclusivity and consensus between core stakeholders to move the process forward in a manner where there is both procedural and substantive fairness in terms of impacts, outcomes and trade-offs. The tension between lives and livelihoods in the coal industry is only one binary to manage, while access to affordable electricity and environmental sustainability of the industry (pre- and post-transition) and its products are others which also require solutions."
He says some lessons can already be learned from cases involving community consultation which have been adjudicated by the Constitutional Court, which may be used as guidelines, while international experience suggests creating green funds, and green construction and building codes, as well as incentivising the transition, work well. Refining the national energy mix beyond the current Integrated Resource Plan formulation, with a greater emphasis on the adoption of renewables, particularly wind and solar, are also crucial enabling mechanisms.
Eckstein notes that, on November 24, 2021, during a talk at the Ahmed Kathrada Foundation, Eskom CEO André de Ruyter indicated that R100-billion would be needed to remediate Eskom’s environmental footprint and reduce emissions.
He says that while "fixing" Eskom is the most important pillar in a range of initiatives needed to reduce reliance on coal and to achieve significant progress towards a carbon neutral economy, the industry cannot wait indefinitely for Eskom to "get its house in order".
Further, pressure must be created around changing the regulatory environment which governs energy and the configuration of energy markets into macro, mezzo and micro grids and the national, regional and local independent power producers.
"Load-shedding will remain a relative fixture in our mineral-energy landscape for the foreseeable future, with steady increases in electricity costs of from 10% to 20% per annum. It is likely to be aggravated by poor governance and incapacity at local government level, where municipalities distribute electricity to local residents and businesses."
Eckstein notes that mines, in particular, are likely to respond positively to environmental, social and corporate governance (ESG) compliance requirements from funders, shareholders and regulators, and are likely to improve their ESG performance in the short to medium term, thereby migrating faster to a zero emissions status over time.
Mining companies are also likely to move off grid to ensure energy security and leverage their ability to self-generate up to 100 MW with no licensing required. Potential exists to allow energy trading and energy wheeling between mines, or between mines and other third parties, which also creates the potential to sell back into the national or local grid. "Municipalities in the Western Cape such as George and Overstrand are already doing so," he says.
Eckstein also believes that mining companies have the potential to be at the forefront of building the hydrogen economy; however, "deeper collaboration is needed to promote and develop the hydrogen valley project, which extends from Anglo Platinum's Mogalakwena mine to Durban."
He avers that the hydrogen economy is a "game changer" for the coal industry, and the national economy in general, and may allow the industry to offset job losses and other potential negative impacts in coal with potential positive opportunities in hydrogen.
"Our company has made a strategic decision to support these initiatives as the [mining] industry pivots by establishing renewable-energy companies, where we can combine our expertise in mining, engineering and environmental services. In particular, we have a service offering intended to assist mining companies to build, operate and maintain their 100 MW solar projects. We are also looking at initiatives which will create green hydrogen from minerals beneficiation, using coal gasification."
South Africa’s journey toward decarbonisation is only starting, says Eckstein. "What this means and how it is implemented is beginning to emerge slowly. The issue is not so much the consultation, or the vision per se – both of which are critical – but rather the depth of stakeholder consultation and the quality of execution of the transition strategy; and the trade-offs that are required to make the transition successful."
He notes that those with vested interest in the status quo in the mining-energy complex will resist the transition, "but transition we must, as a country and as a society, as part of the global transition, provided we do it on our terms".
Eckstein notes that, as the transition "will be neither linear nor smooth", coal will still be required in the short to medium term for energy. However, he also cites the UK, which this year announced that it will no longer be using coal-based power from 2024, and that in the decade between 2010 and 2020, it had reduced the amount of energy it used from coal power fire stations from 40% to 1.8%, as offering up evidence that a transition "can be done".