Randgold Resources
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- Laura Cornish, Editor
Industry Insight  
9 October 2017

EXCLUSIVE: The future of coal in South Africa literally rests in the air

It is perfectly true that coal-fired power stations, and their associated mining operations, used to be massive pollutants of the air and their environment.

The coal industry's fate is dependent on three major highly flawed arguments being used against it.

Coal and massive pollution

The first faulty argument is the view that coal fired power stations cause mass pollution.

It is perfectly true that coal-fired power stations, and their associated mining operations, used to be massive pollutants of the air and their environment.


AUTHOR: Rob Jeffrey is an independent economic risk consultant. He is the former MD of Econometrix and continues to consult for them. In addition he is a member of the Fossil Fuel Foundation.

However, over the years Eskom has made enormous progress in reducing pollution. Particulate matter and emissions have been reduced 90 % over 35 years.

New High Efficiency Low Emissions (HELE) or ‘clean coal’ power stations will reduce pollutants further.

The installation of flue-gas de-sulphurisation (FGD) at Kusile – a state-of-the-art technology removes oxides of sulphur, such as sulphur dioxide and Hg pollution will have disappeared.

Not only that but CO2 emissions of HELE power stations are some 30% to 50% less than previous generation power stations. This puts them in a category close to gas power station emissions.

In any event CO2 is not the environmental disaster the ideologists claim. There is substantial research on this subject by world renowned experts supporting this view.

They include Dr Patrick Moore, co-founder of Greenpeace and Dr James Lovelock, proposer of the Gaia Hypothesis.

Apart from the well-known Milankovic cycles, “Solar experts in Asia, the Middle East and parts of Europe believe it is the sun.

Over the past 3 1/2 years they have published over 400 papers that discredit CO2 and support natural cycles of the sun.

If this is true, why is there intense pressure to spend billions and billions of dollars on green energy?”

Enough is Enough! Stop hyping Harvey and Irma! Dr Neil Frank, former Director National Hurricane Centre.

Amongst many others, the conclusion of a landmark paper – titled Emission budgets and pathways consistent with limiting warming to 1.5 °C, Richard J Miller et al, Nature Geoscience, 2017 concludes that the computer models have overstated the impact of carbon dioxide on climate and that the planet is warming more slowly than predicted.

Wind power is cheaper than coal

The second blatant flawed argument is the myth that wind power is far cheaper than coal fired power or nuclear power.

This is totally dispelled by a recent Australian Research study by GHD and Solstice Development Services entitled “HELE Power Station Cost and Efficiency Report” which estimated that efficient construction and production, generation costs would be between 41.3cents/kWh and 80.5 cents/kWh compared to Kusile estimates running at about R1.20/kWh and latest estimates for nuclear of R1.20/kWh.

These costs could clearly be substantially reduced. Furthermore, this is for power generation over 80% of the time.

It is therefore far cheaper than wind and solar at 65 cent/kWh but which generate power less predictably and for less than 35% of the time. The CSIR has plans for high penetration wind in South Africa involving over 100 000 MW of wind covering over 100 000 square kilometres of land.

Apart from the huge environmental damage, a report entitled ‘Critical Review of The Levelised Cost of Energy (LCOE) Metric’, by M.D. Sklar-Chik et al, South African Journal of Industrial Engineering December 2016 concludes that “LCOE neglects certain key terms such as inflation, integration costs, and system costs.”

They note “Many international reports prove that such electricity supply is extremely expensive due to its variability, interruptibility, inefficiency and its requirement of 100% backup”.

Another study by B.P. Heard et al entitled a ‘Burden of proof: A comprehensive review of the feasibility of 100% renewable-electricity systems’ concluded that “there is no empirical or historical evidence that demonstrates that such systems are in fact feasible”.

They also reviewed the CSIR proposals. The study concluded “both the use of the terms ‘technically feasible’ and the attempted costing of the proposed system are inappropriate and premature”.

Germany is trying to develop new markets in Africa and South Africa. Yet, Germany have now curbed their own domestic renewable expansion plans.

This is not surprising. They are experiencing growing integration cost problems associated with large-scale wind. Fritz Vahrenholt in his study entitled ‘Germany’s Energiewende: A Disaster in the Making’ sums up the situation.

“It will take a long time to repair the severe damage caused by a misled energy policy”. In 2016, it must be noted that the prices paid by industry in Germany were 52% higher than France (nuclear) and 86% higher than Poland (coal).

Clearly South Africa cannot allow this to happen. A research report by D. Weißbach et al (2013) on energy returned from energy invested (EROI) in Germany showed that renewables are uneconomic and will lead to economic stagnation.

Whereas the EROI of coal and nuclear are in territory that fosters growth. It certainly is a fact that all major economies with fossil fuel reserves are substantially increasing their electricity supply from these resources, including India, China, Asian countries, Poland and now the United States.

Energy and mining polices uncertainty

The third major problem that all business, but particularly the mining industry including the coal industry faces, is the current policy uncertainty in the country.

There is a complete lack of confidence caused by political and economic policy uncertainty. South Africa occupied the 11th position out of the top 25 rated countries in the AT Kearney Foreign Direct Investment (FDI) Confidence index in 2012, in 2016 it dropped to the 25th position.

South Africa’s has also declined on the 2017 Fragile States Index.

Ten years ago, South Africa was ranked in the stable category, but now falls in the elevated warning category - It is hardly surprising that the three key ratings agencies S&P, Moody’s and Fitch have all downgraded South Africa and have it on a negative watch.

The list of policy uncertainty includes State capture and corruption, the potential implementation of the mining charter, the threat of interference to the independence of the SA Reserve Bank, attacks on “white capitalism,” a host of often well-meaning but damaging regulatory laws that often interfere in various markets ranging from labour through to purchasing and investment policies and hamper market efficiency and effectiveness.

The future of coal and coal mining t 2050 in South Africa

The above leaves the coal industry in an uncertain position. There are basically two stark choices.

A major decline in the coal mining industry

The first major shock could be a decision to effectively close all coal fired power stations between now and 2050 and go with renewables.

This decision will lead to a steady decline throughout the mining industry, particularly the coal mining industry. In fact, the mining industry is already in a critical situation and such a decision could well be the final nail in the coffin for the mining industry.

The decision would ensure substantially slower growth throughout the entire economy and will have an extensive negative effect on the industrial and manufacturing sectors. In the short run, the impact on coal exports may be insignificant, in fact they may even enhance exports. Eventually however, lack of domestic demand will affect competitiveness.

Any major decline of the coal industry and industries associated with it will have a profound negative impact on the economy.

It is estimated that, Eskom’s demand would fall away totally by shortly after 2050, once Kusile and Medupi are retired, and the coal sector would shrink by effectively 46%.

This will reduce the GDP of South Africa by over 2.5% or R75.2. billion given the direct, indirect and induced impact. Compensation of employees would be reduced by R25.1 billion while investment is expected to be R3.8 billion lower per year.

Government tax income would be reduced by R16.2 billion and the results show a loss in employment of 29000 jobs in the coal mining industry, and almost 162000 jobs with almost 1 million dependants in the economy affected.

Export sales could well increase as export markets are found for coal. However, they are highly unlikely to compensate for lost production. Similarly, other renewable industries may well generate some growth but in turn they are exceedingly unlikely to replace the output and contribution of the coal industry.

In any event, the rising costs of energy due to renewables would reduce general economic growth and negatively impact other commodities.

South Africa’s coal reserves are estimated at around 53 billion tons and nominal sales from coal mining in South is an estimated R110.6 billion in 2016, an increase of 314% from 2003. This could fall back to approximately R60 billion.

Coal mining accounted for 26.7% of the total value of mining production in 2015 making it the most valuable in terms of sales of the 14 main mining commodities tracked by Stats SA. Amongst other requirements mining, manufacturing and industry need security of supply of electricity at competitive prices.

The only two electricity generation sources of energy that can achieve these objectives in this country are ‘clean’ or HELE coal and nuclear. The discounted value of coal reserves is more than a trillion Rand. The value of Uranium reserves is probably equal to this.

The drive for wind would deprive South African citizens of these benefits

Should incorrect political and economic policies be followed the above figures could be far worse. South Africa could move into a full medium-term recession. This would result in political and economic instability with dramatically rising levels of unemployment and poverty.

A steady and stable coal mining industry

It is to be hoped that policy makers do not make the former decision. The country, in practice, should over the next 35 years replace and upgrade its coal fleet.

Wind should be virtually abandoned and approximately 38000 MW new HELE coal power stations should be built. As set out in the IRP 2016, nuclear would constitute approximately 20 000 MW and the balance would be solar, gas and the other power generation sources.

Coal would constitute only 40% of the electricity generation fleet compared to the current 90%. Overseas German windfarm experts even though they have been to this country, together with their local support and vested financial interests, do not seem to realise that South Africa remains an emerging still industrialising country with high unemployment.

Indeed, recently it has been de-industrialising and needs to reindustrialise again. Renewables will never be able to drive or support this process. In addition, large-scale windfarms are one of the most environmentally damaging renewable energy source.

A factor not considered by green idealists or windfarm supporters. The local goods producing industry, namely mining, manufacturing, agri-processing and agriculture are critical for future growth, lowering unemployment and ensuring exports and import replacement to support the current account of the balance of payments.

The IRP base case foresees only 2.2% per annum electricity growth which means the maximum GDP growth rate will be no more than 2.9% per annum. Unemployment and poverty will therefore continue to rise. As far as the coal industry is concerned at least there could be a constant or even slightly increasing demand for coal for power stations. Other demand growth, although small, in comparison should see moderate growth. Export demand would continue to increase at low pace but it would be into a highly competitive market.
The industry wold be vital for the future development and growth of the country. It would provide a stable environment where both junior minors a traditional mining sources could continue earn a return. The above growth path assumes that some of the critical policy decisions listed above are somehow overcome.

Growth for the country and the coal mining industry.

This alternative scenario assumes that the country makes all the correct policy decisions restore confidence and to make this country attractive for investment again, particularly for mining and industry. The results could be startling. GDP growth could be increased to over 4%.

This would require growth in electricity supply increasing at 3.2% per annum. Unemployment and poverty would both be reduced. New HELE coal power stations would need to be increased by 53550 MW. Coal mining would experience domestic demand growth of 1.5% per annum and the industry and the country will truly prosper again.


This last scenario is what is required if the country is to exit the unemployment and poverty trap it is in.

Unfortunately, this scenario is a long shot but it should not be. India and the ASEAN countries are achieving this and are primarily basing their energy source growth on HELE clean coal power stations. South Africa could do it if there was the will and policy makers were willing to work with business to achieve it.

The purpose of this article is not to spread gloom and doom. It is to make quite clear the stark choices the country faces. The mining industry and coal industry need to fight for their very future otherwise all is lost.

In fact, all business needs to look at the facts as these future policies will affect the entire economy for a generation.

Copy courtesy of the Fossil Fuel Foundation.

Feature image credit: Eskom

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