Understanding implications of 2°C-compatible coal phase-out plan for SA

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South Africa is highly coal and energy intensive, and has an economy characterised by extremely high levels of inequality and poverty (with more than half of the population living in poverty). In the long run, sustainable growth and development in South Africa will depend crucially on the transition away from a coal-intensive energy system and economy.

This study has examined the challenges already facing the coal sector and highlights the risks of a development strategy that continues to rely on the sector for energy security, employment, and growth. Nonetheless, mitigating the effects of the energy and coal transition on vulnerable workers and communities means understanding the challenges already facing the sector, planning to make the transition one that is just for workers and communities in coal-dependent areas, and implementing strategies for the country to diversify into new sectors and maximise employment.

This is the executive summary of the report

Click here to download the full report

The difficulty of the transition is exacerbated by South Arica’s very high dependence on coal for energy and coal’s role in the economy in general and Mpumalanga in particular. At the same time, the coal sector is already facing challenges and crises due to cost increases, energy security risks, export demand risks, and low local demand growth. These are already having profound implications for South African electricity consumers.

For example, Eskom’s primary energy costs have increased by 300% in real terms over the past 20 years. The large increases in Eskom’s primary energy costs have, along with cost overruns at new coal fired plants under construction, contributed to rapidly increasing electricity prices that have put Eskom, and the economy, under increasing pressure.

Demand for electricity has thus stagnated over the past decade even as Eskom continues to bring new coal-fired generating capacity online. At the same time, new renewable capacity is now considerably cheaper on a levelised cost and system basis than either new Eskom coal-fired power plants (under construction) or proposed privately owned coal plants (CSIR, 2016; Steyn, Burton, & Steenkamp, 2016).

From an employment perspective, coal mining employment peaked in 1981, and has declined as mines have increasingly mechanised their operations. The sector employs far fewer workers than in the past and has become more skills-intensive over the past 20 years. Around half of the coal mining workforce is unskilled, and the trend has been towards higher numbers of skilled and semiskilled workers.

This could be exacerbated as mining technology develops and autonomous mining becomes the norm. There is already an employment crisis in mining in general and coal mining in particular that requires intervention from the state to manage and resource.

The scenarios

The study examines three future pathways for South Africa’s coal sector that allow us to assess key risks and opportunities in South Africa’s coal transition.

First, we examine a least-cost energy pathway that assumes no climate change mitigation policy is implemented beyond a gradual phase down of coal power as stations reach the end of their lives or become uncompetitive with new generation technologies. In this scenario, South Africa meets its nationally determined contribution (NDC) under the Paris Agreement in 2025 and 2030, and also achieves average annual GDP growth of 3,3%. The largest users of coal are the electricity and liquid fuels sectors, where alternative supply options and mitigation costs are also considerably lower than in end-use sectors such as industry.

As our results show, meeting South Africa’s NDC is possible through decarbonising electricity and liquid fuels, but without large scale mitigation in the industrial sector. By 2050, wind and solar PV provide 71% of electricity. The trend is towards higher growth in the electricity sector, and this is also reflected in the employment numbers, where the net job effects in the electricity sector are positive, even as the number of workers employed in coal plants decreases as stations are decommissioned (since only Medupi and Kusile are online in 2050).

Decrease in coal mining jobs

Employment in coal mining decreases by 28 200 workers by 2050, relative to 78 000 workers in 2015. The impact on total coal mining employment is limited by the increased use of coal directly by the industrial sector, which grows over the period. However, overall, coal production in the NDC scenario declines by 1,1% per year between 2017 and 2050 in a least-cost energy pathway for South Africa. This points that there is a need for planning for South Africa’s due to the relative economics of new supply options alone.

Even with limited implementation of climate change policy, coal is no longer South Africa’s future. Compatibility with 2°C will require large scale and rapid switching away from coal in the electricity sector and liquid fuels sectors, and also requires industrial fuel switching. Meeting the low-PPD emission budget to 2050 results in the installation of substantially more renewable energy in the electricity sector, where, because of its lower cost, most mitigation still takes place. By 2040, the share of coal in the electricity sector is zero with both Medupi and Kusile coming offline before then.

Unlike the older coal plants which are surplus in the 2020s but have been paid off, Medupi and Kusile will only be online by 2022, and their retirement by 2040 results in both economic and technical stranding of the stations. Given this, calls for the last two units of Kusile not to be completed make economic sense given South Africa’s climate mitigation policy commitments and the need for least-cost mitigation planning.

By 2050, solar PV and wind make up 80,2% of electricity generated, and gas 16% (with hydro 1,3%, and imports 1,5%). As in the NDC scenario, industrial use of coal increases, making industry the largest emitter of GHG emissions by 2050. The sector grows slightly more slowly than in the NDC scenario (0,3% lower on average per year, or 3,6% average annual growth. By 2050, employment in the coal mining sector has decreased to just below 30 000 jobs, as a more rapid transition away from coal in the electricity sector takes place.

Implementing NDCs

South Africa’s NDC pathway described above, although it is a least-cost energy pathway to 2050, is unlikely be achieved unless several conditions are met. While a least-cost energy pathway is consistent with the upper range of South Africa’s NDC, it will require policy and planning to implement, in particular if South Africa aims to achieve the lower range.

Firstly, it depends on the release of a least-cost integrated resource plan. An IRP that includes new coal-fired power stations is not consistent with a least-cost electricity plan, nor is it consistent with South Africa meeting the lower range of its NDC and low-PPD. Indeed, South Africa will exceed the lower range of the NDC even if it does not build new coal plants. The inclusion of either new coal plants or the life extension of older plants in the IRP will not only prevent South Africa from achieving the low range of its NDC (398 Mt CO2-eq in 2025 to 2030) but will potentially raise greenhouse emissions to a level that exceeds the upper range of the NDC in 2025.

South Africa will already exceed the lower end of the NDC commitment range in 2025 and 2030. The inclusion of new coal-fired power, for example the planned coal IPPs Thabametsi and Khanyisa, or the full new coal capacity envisaged in the IRP 2010, would further reduce the likelihood that the country could move towards the low range of its NDC (and thus it’s PPD).

At the same time, an IRP should explore the implications of allowing coal-fired power plants to retire because they are surplus to capacity needs, no longer economic to run, or cannot be environmentally compliant. This is also necessary to understand the rate of South Africa’s coal transition even without climate change mitigation policy. In previous iterations of the IRP, the plants were committed to run for 50 years, but as we have seen, it is already feasible from both an economic and energy security perspective to retire some plants due to their high costs (Steyn, Burton, Steenkamp, 2017).

Secondly, unless credible plans to support workers at coal plants and communities in coal areas are put in place, achievement of the NDC will elude South Africa. Already, calls have been made by Eskom and organised labour to keep stations open longer because of their socio-economic importance to towns in Mpumalanga. Eskom faces plants closing and a financial crisis that already means that retrenchments are likely to happen in the coming years, but it has no plans for decommissioning plants or for retraining, reskilling, and supporting workers to migrate to other stations or into new industries.

Even without any climate policy impacts, the closures of power plants are inevitable, and worker retraining, reskilling, and regional development initiatives are required to ease the transition and mitigate the closures of stations in Mpumalanga. The potential risks placed on workers by increasing productivity through autonomous mining could have severe impacts on employment in the coal mining sector.

Opportunities and challenges

As we have shown, the current state of the coal sector, both coal-fired electricity and coal mining, is one of crisis, with rising costs and energy insecurity, and coal becoming increasingly less competitive for electricity. A number of myths about the coal sector are debunked: that coal is cheap, that it employs vast numbers of people and that those people are unskilled. Coal is no longer a cheap and bountiful resource that can ensure security of supply for Eskom power plants. As the trends already show, closures (of plants and mines) are inevitable, the question is not if closures will happen, but when. South Africa is already facing a coal transition. The economic results show that it is possible to both meet climate change targets and grow the economy.

The large investment in new renewable energy will also have positive spin-offs for the country, including net positive employment impacts in the electricity sector. While the net job effects of a large-scale rollout of renewable energy are positive, there are risks for workers at coal-fired stations, mines, and the communities that depend on these assets if there is no orderly and properly resourced transition.

Overall, a transition away from coal is accompanied by many benefits, including cheaper electricity, improvements in air quality, and fewer impacts from extraction. Nonetheless, the concentration of coal-fired power stations and upstream mines in the Mpumalanga region pose a threat to socio-economic stability in those regions. Both a least-cost energy pathway for South Africa and a more ambitious scenario that considers climate change result in declining employment in coal mining to 2050.

Evidence from previous transitions, from this study, and from recent coal sector trends suggests that unless supported, the effects on Mpumalanga’s (and to a lesser extent, Limpopo’s) coal workforce are serious. While subsidies for Eskom are an option, the ability of the state to continue to prop Eskom up is limited, and the money is better spent in supporting workers and regional development initiatives to diversify the structure of the Mpumalanga economy to make it more robust. Planning for the transition and for the possible impacts on coal workers requires a plan on which plants will close and when, who can be redeployed, who is retrained and who pays. These are all considerations that need to be addressed with immediacy given that the transition is already underway.

This is the executive summary of the report

Click here to download the full report

Acknowledgement

This executive summary is published here with permission.

Contact Jesse Burton, University of Cape Town, Tel 021 650-2832, jesse.burton.uct@gmail.com

 

 

 

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