Eskom softens coal crisis stance

[miningmx.com] – GOOD news has been in short supply at Eskom so it’s welcome to hear that the massive shortage in coal supply the utility said was a probability from 2018 now looks to be less likely.

Unfortunately, this is cold comfort. One of the reasons the so-called “coal supply cliff’ won’t materialise is down to the fact that the South African economy is shrinking and electricity demand is expected to fall beneath previously demand growth rate estimates.

At the same time, Eskom has also met with some success in its efforts to secure new sources of coal despite saying in the past that there wasn’t enough new investment in the sector. In fact, a significant amount of un-contracted coal had been identified and was in “various stages of negotiation’.

That’s according to Vusi Mboweni, acting executive of Eskom’s primary energy division, who also said coal would remain as central to the country’s energy generation as it ever was, regardless of the push towards reneweable and nuclear forms of energy.

Speaking at the IHS Energy South African Export Coal Conference 2015 earlier this month, Mboweni said that coal was currently “the dominant resource’ for electricity production in south Africa.

“There had been a lot of talk about this coal cliff that Eskom was facing,’ he said. “This trend [of increased coal usage] is expected to continue for the foreseeable future,’ he said.

Quite what this means for the redraft of the Integrated Resource Plan (IRP), a blue-print for South Africa’s energy mix in the future, is up for conjecture.

Initially written to ensure an increase in the amount of energy sourced from renewable energy sources, as well as nuclear, the new IRP, which is yet to be signed off by the Department of Energy, seems to have fallen back on coal whilst promoting gas above nuclear, notwithstanding the South African government’s high profile agreements to discuss nuclear technology supply from Russia and China.

“Historically, coal has been the principal contributor to Eskom’s generation capacity. It is projected that coal will remain the principal contributor as the demand increases into the future,’ said Mboweni.

Data from Eskom showed that coal will provide 86% of power generation up to 2020 at least which is no change from 2005 to 2015.

The IRP in its 2010 version had anticipated that renewable energy would supply 42% of new power supplied over the next 20 years and nuclear power about 23%. Coal was expected to make up 15% of new power plants coming on stream in the same period.

The centrality of coal as a source of new energy supply has been backed up by president of the Chamber of Mines of SA, Mike Teke, who is looking into the prospects of installing off-the-shelf generating technology producing 600MW to 1,200MW near existing coal resources, such as a property his new company, DediCoal, owns in the Waterberg coalfields of Limpopo province.

“How quick would it be to import the technology to supply 600MW to 1,500MW, and can we do that rather than worrying about 4,800MW plant?’ he said.

“We’ve seen the time that takes,’ said Teke referring to Medupi and Kusile (Eskom’s R200bn plus power projects). “We are keen to sit in a room and bash our heads together in order to work this out,’ he said.

Neal Froneman, CEO of Sibanye Gold, seems to have a similar idea on his mind.

Although his company’s plans to source the majority of its 500MW power needs from a coal or gas-fired installation are conceptual, it seems as if the private sector is increasingly seeking its own remediation to the power crisis rather than relying on Eskom.

He commented that owing to the scaleable nature of the power generating units he envisaged could be built in South Africa, the participation of other gold mining companies may be a possibility.

Mines minister, Ngoako Ramalthodi, said efforts to attract private sector investment in coal-fired power stations were intensifying.

“We have received applications since December to build independent coal-fired stations,’ he said in a press briefing at the Mining Indaba. “We realise there cannot be any mining without electricity. We are treating this urgently,’ he said.

Commenting on coal procurement, Mboweni said: “The un-contracted volumes will be made up with the successful conclusion of coal sourcing projects, life extensions to cost plus agreements (with mines that only supply Eskom power stations) and new long and medium terms source’.

He estimated that over the next decade, an average of 22 million tonnes a year (mtpa) would be sourced from new coal supply agreements.

Said Mboweni: “With the existing and planned generation expansion, coal demand will continue to increase into the future’. However, the vote of confidence in the coal sector came with a health warning.

Eskom data shows that the price it pays for coal has increased 20% a year on a compounded basis for the last few years whilst the tariff its charges for its electricity has not kept pace.

“Eskom is juggling with escalations on the coal side which is the input for the generation of electricty at higher percentage than the regulated electricity price,’ said Mboweni.

“Surely there must be a balance at some point?,’ he said. “We can’t have a situation where we have regulated electricity price and unregulated coal as we have to make sure we have a sustainable business.’

Mboweni also said that the utility was working on having up to 55% of coal supplied to it provided by black-owned businesses which compares to about 40% in 2013 – an aspirational target that was met with some scepticism by coal industry executives at the Mining Indaba.