Stark warning for SA coal industry as renewables gain ground

THE world is transitioning away from coal and South Africa needs to keep up and turn its sights to renewable energies, according to a report from US research group, the Institute for Energy Economics and Financial Analysis (IEEFA).

The report released today says South African coal exports are approaching long-term decline, and the country must come to grips with the prospect of fading demand from its major export destinations.

“The global seaborne coal trade is set to go into permanent decline,” says Simon Nicholas, energy finance analyst with IEEFA and author of the report.

He warns that policymakers in South Africa need to prepare for the ongoing technology-driven transition away from coal or face the inevitable social and economic consequences.

“It won’t happen overnight, but key trends in global markets show new energy technology is replacing coal-fired power faster than most predicted.”

Co-author Tim Buckley, Director of Energy Finance Studies at IEEFA, says major mining companies are already starting to realise that the long-term outlook for thermal coal is bleak.

He says global mining giants such as Rio Tinto, South32, BHP and Anglo American have all either withdrawn from the seaborne thermal coal market already or are now considering it.

The report shows that by 2030, new wind and solar will be cheaper than running existing coal- or gas-fired plants virtually everywhere in the world, which is already the case in India, South Africa’s major coal export destination.

Added to this, Buckley, notes is that access to coal debt and equity financing is becoming increasingly “problematic”, with more than 100 significant global financial institutions, including South African banks, now having formal coal exclusion policies in place.

He reckons South African coal exporters are likely to seek alternative markets going forward as opportunities for growth in renewable-driven destinations dry up. However, the long-term outlook for coal exports to other destinations is also likely to disappoint.

In 2018, 48% of all South African exports out of Richards Bay Coal Terminal went to India, a nation with a clearly-stated policy of reducing reliance on coal imports. In the first half of 2019, those exports rose to 60%.

However, India plans to cut coal imports by one-third, or around 85 million tonnes, by 2024, the report notes.

In addition, South Africa will see increased competition from coal exporters such as Indonesia, Australia and Russia, the authors say.

“The limited growth potential for coal exports in the long-term will no doubt disappoint the industry, however, it’s a timely reminder that the world is transitioning away from coal and South Africa needs to keep up and turn its sights to renewable energies,” says Nicholas.

“It’s time to plan for an alternative future. That planning should have already begun.”

Read the report: South African Coal Exports Outlook: Approaching Long-Term Decline