HomeCoalA burning issue - what is the future of coal?

A burning issue – what is the future of coal?

Coal and renewables complement – rather than compete with – each other.

This was the general consensus following a recent high-level panel discussion on how African coal miners can compete with renewable energy resources. GERARD PETER reports.

The discussion, held during Investing in African Mining Indaba last month, was moderated by Mining Review Africa’s Editor-in-Chief, Laura Cornish and comprised a panel of well-respected experts in the coal industry.

This article first appeared in Mining Review Africa Issue 3, 2019

The speakers included Dr Nombasa Tsengwa, executive head: coal operations at Exxaro Resources; Shoaib Vayej, executive director at Afina Capital; Nonkululeko Nymbezi, CEO of Ichor Coal; July Ndlovu, CEO: Anglo American Coal SA; and Vuslat Bayoglu, MD of Menar Capital.

And, while the panel agreed that cleaner energy sources have to be explored, the world cannot simply discard the role that coal plays in driving African economies, particularly in South Africa.

According to Bayoglu, coal is pivotal to economic growth in South Africa.

“Firstly, South Africa needs jobs to create a stable economy. “Currently, more than 80% of the country’s energy is derived from coal. We need this energy source to drive industry and promote employment,” he mentioned.

The world needs renewables such as solar and wind power, Buyoglu added.

“But, think about it. What would happen if the world stops deriving power from fossil fuels for just one day? There will be chaos because renewable sources supply less than 1% of the world’s total energy consumption. Yes, we have solar and wind power but if we kill coal, we will be in trouble. We need coal at least until 2040.”

Tsengwa added that there is a vast amount of coal reserves in the country.

“Domestically, the industry is well-positioned to supply Eskom and the power utility will need coal for some time,” she mentioned.

“In addition, looking at the seaborne market, particularly in Asia, there are more than 1 000 new coal-fired power stations and these require coal. We are in a position to meet these requirements.”

Meanwhile, Vayej agreed that coal is still a lucrative option. When it comes to substitute fuel sources, there aren’t many affordable options, so even at $90/t, coal remains cost-competitive,” he stated.

However, Vayej alluded to the fact that there was been a deterioration in the quality. A case in point is Indonesia supplying the seaborne market with sub 5 000 kcal coal. Closer to home, there has also been lower quality coal coming out of Richards Bay Coal Terminal.

Government must step in

However, while the experts agreed on the need for coal, they did raise concern about the waning level of investment in the sector.

So what needs to happen in order for coal to remain attractive to investors?

Anglo’s Ndlovu stated that government involvement is vital for investment.

For starters, Ndlovu believes that government needs to ensure that Eskom remains a viable entity and is successful.

Tsengwa added that the coal sector must work closely with the Minerals Council South Africa to ensure to ensure that Mining Charter III, for instance, is investor friendly.

She further commented that some traditional funding institutions such as the IMF and the world banks are now shying away from the coal space because of the stigma attached to it and this has impacted Eskom as well.

“At the same time, however, there is also a need to diversify our exposure because of our reliance on Eskom. Now there are fewer funders, our own projects have to be profitable,” she added.

Ichor’s Nymbezi agrees that there is little investment interest in coal in the current market.

“The reality is that has been a lot more private or commercial bank lending than there is from market investment,” she explained.

“Also, major mining companies have diversified so coal doesn’t come across as important as before.”

However, she pointed out that when it comes to renewables, the situation is not dissimilar because there is a level of infancy in their development in the country. 

Nymbezi further pointed out that information is the lifeblood of the investing market. As such, grappling with the magnitude of climate change, it becomes a major challenge for any analyst or investor to see value in the coal industry.

“Perhaps, climate related financial disclosures embedded reporting such as annual filings can show how coal processing companies are doing more to reduce their carbon footprint,” she stated.

Levelling the playing field

However, while the world advocates for the furtherment of renewables, Bayoglu believes that South Africa is being treated like the “red headed stepchild” when it comes to its usage of coal as an energy source.

“How is it that European countries used coal to progress in the Fourth Industrial Revolution?” he asked.

“Yet, when South Africa wants to use coal, it is frowned upon. This country needs to industrialise, so I believe it’s unfair that those who benefited from coal in the past are now saying that it shouldn’t be used.”

Bayoglu agreed energy needs to be produced in the least polluted way, but added that there are ways of dealing with pollution emanating from coal-fired plants.

For example, many plants have installed technologically advanced filters.

Also, carbon capture and storage (CCS) is also another solution to reducing greenhouse emissions. Already, CCS has produced positive results in parts of Europe and the USA.

Importantly, Bayoglu also pointed out that South Africa should maximise its fossil fuel potential.

“Without taking Eskom into account, this industry employs more than 80 000 people. We need stable jobs in order to produce clean air. We have 118 years of reserves.

“We don’t know what will happen at the end of this period. So, South Africa should benefit from existing coal reserves. Yes, we need to invest more in renewables but we need to keep coal alive,” he added.

Meanwhile, Ndlovu believes that the industry is in transition and that renewables will become first choice over time.

He cited the USA as an example. Thermal coal is still being used but as older powers stations are replaced with renewable energy sources, that country will become less reliant on fossil fuel.

He believes that this transition will happen over the next 10 to 15 years.  

With an increase in the number of electric vehicles, questions are also being raised as to how these automobiles will source their electricity.

According to Ndlovu, this will be a melange of gas, solar, wind and coal. This demonstrates once again how coal and renewable fuels complement each other.

Looking ahead

Prospecting on the future, the speakers agreed that the industry is set for a major change, following South32’s decision to divest its coal interests.

This provides opportunity for junior miners, however, as Bayoglu, stated, a lot depends on who takes overs South32’s interest. 

He remarked that government needs to get involved in this divestment so it is not given to a monopoly, but rather to a host of businesses who can benefit from these rich coal reserves. This, in turn, will create more employment opportunities.

In conclusion, Nymbezi stated that the sustainable development goal of the UN is to reduce poverty.

In order to do this, the coal industry should balance the needs of today yet still operate in a way that is sustainable for future generations.

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