South Africa: Is a transition away from coal just around the corner?

Workers at the Hendrina coal power station in Mpumalanga, South Africa, are unsure if they will soon be joining the former workers at the nearby Optimum coal plant, protesting outside a shuttered plant.

Former miners at the Optimum mine have not been paid since the mine was closed in September. Two units at Hendrina are reported to have already closed with more units under threat. Workers in older coal mines and power stations across the region are starting to question whether these closures will soon be replaced by a new fleet of modern power stations as a natural part of the project cycle or if it is the beginning of a fundamental shift away from coal.

Old King Coal

Coal has long been king in South Africa: 92 per cent of electricity and 20 per cent of transport fuels come from coal. Approximately half of the 140 million tonnes of coal produced each year is exported (production is 142 million tonnes and exports are reported to be 73 million tonnes) predominantly to India, China, Korea and Japan. However, there are several factors on the horizon that might derail the coal train.

Export demand for South Africa’s coal is starting to wobble. India has a target to reach zero coal imports, and China faces a massive overcapacity problem of its own, with more than 1 million coal workers facing unemployment. This creates pressure to avoid imports and buy local in key export markets. A drop in exports, where much of the best South African coal currently ends up, could push many mines into insolvency.

An aging coal fleet means that a number of coal power plants, including Hendrina, Camden and Arnot, face decommissioning by 2025. This is significant because existing coal plants, which have long since recovered their capital investment, are considered reasonably competitive against new alternative forms of power generation, including renewables. New coal plants are estimated to be significantly more expensive. The latest auctions for renewable energy and coal power purchase showed renewables costing ZAR 62 cents/kWh for wind and ZAR 79 cents/kWh for solar photovoltaic. Wind is approximately 40 per cent lower than the Thabametsi and Khanyisa projects, the two recent coal independent power producers that won bids through the coal-baseload independent power producers’ procurement program at a price of ZAR 1.03/kWh.

The need to get ready for a transition

If policy catches up with economics, there is a risk for the coal industry that old plants will close as they reach the end of their life cycle but new coal capacity will not materialize. This would lead to a gradual decline in domestic demand for coal.

Together these international and domestic factors create the conditions for the current coal-dominated energy industry to unravel faster than many commentators are predicting.

If a transition away from coal is starting to appear more likely, the impact on the workers in the coal mines and coal power sectors must be considered. Indeed, South Africa was the only country that included a mention of the need to ensure a just transition in its Nationally Determined Contribution under the United Nations Framework Convention for Climate Change (UNFCCC) process.

IISD recently published a report reviewing international examples of how governments have responded to low-carbon transitions in terms of reducing negative impacts on energy consumers and workers. A key finding of that research is that, to ensure a just transition, it is important for the government, industry, workers and other stakeholders to be prepared for a possible sunset of the coal sector. A just transition requires policies that include social dialogue and a careful mapping of the transition's winners and losers. Such policies should give workers and communities opportunities to acquire skills and roles beyond coal while minimizing the negative impacts of the energy transition.