The Role of Coal in SA’s proposed energy mix for 2030
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Hatch Africa associate and president of the South African Coal Processing Society, Gerrit Lok, says that the 20 year electricity capacity plan is crucial towards determining South Africa’s long-term electricity demand, as well as how this demand should be met in terms of generating capacity, type, timing and cost.
Based on an average 4,6 % annual Gross Domestic Product (GDP) growth trajectory over the next twenty years; government has investigated three primary options, namely: the Low Cost Scenario, the Revised Balance Scenario, and the Low Carbon Scenario. The scenario evaluation process confirmed that the Revised Balanced Scenario represents the best trade-off between least-investment cost, climate change mitigation, diversity of supply, localisation and regional development.
The Revised Balanced Scenario proposes that by 2030, South Africa’s generation mix should include the following: 48 % coal, 14 % nuclear, 16 % renewables and 9 % peaking open cycle gas turbine. Lok notes that each one of these energy sources has a cost allocated to it – both from a capital investment cost perspective and from an operating cost perspective.
The IRP states that South Africa will require an estimated R850-billion investment, which will see a 250 % increase in the cost of power. At a rate of 100 US cents per KWh by 2020, South Africa will be placed in the top quartile of countries that are South Africa’s main competitors in the beneficiation of minerals – namely India and China.
It is important to draw attention to the fact that the IRP inherently contains significant energy efficiency savings, which are accounted for in the demand forecasts. An energy efficiency improvement of 35% is built into the IRP, based on the reducing energy intensities which are used to determine the future energy demand. The IRP assumes that over the next 15 years, most of the reduction in energy intensity will be derived from improved energy efficiency, driven by increased electricity prices.
As a result, the energy efficiency field will become hugely-influential and far-reaching. “From Hatch’s perspective, we have already built energy efficiency programmes into our projects and design philosophies, allowing our clients to make their projects more energy efficient,” explains Lok.
Nuclear – a necessity
Although nuclear is only included in the energy mix from only 2023 in the IRP, a decision must be finalised as soon as possible to allow the procurement process to begin.
Early in 2007, state-utility Eskom’s board approved a plan to double generating capacity to 80 GWe by 2025. This included the construction of 20 GWe of new nuclear capacity so that the nuclear contribution to power would rise from 5% to more than 25%; while coal’s contribution would fall from 87% to below 70%.
Nuclear group’s Areva and Westinghouse offered to build the full 20 GWe, with a further ten large EPR units by 2025. However, in December 2008, Eskom announced that it would not proceed with either of the bids due to a lack of finance.
“If this had gone ahead in December 2008, South Africa would have been ‘ahead of the pack’. However, the situation now is that South Africa is going to be in the middle of the competitive bidding processes by trying to lock in suppliers of nuclear technology,” notes Lok.
He points out that although the IRP includes six new 1,600 MWe reactor units coming online in 18-month intervals from 2023; Eskom has said that it would be looking for lower-cost options than the earlier proposals and would consider Generation ll designs from China or South Korea. Lok points out that this could result in the capital cost per MWe almost being halved.
“An important consideration is the time it would take to reach the 4,6 % GDP growth rate, as well as the necessary 10 - 12 year horizon from when investigations begin to when the project would be complete. Considering this time line, South Africa would need to make a decision with regards to nuclear within the next year to meet the 2023 target,” explains Lok.
Uranium – demand to outweigh supply?
The need for nuclear energy as part of the energy mix is essential if South Africa is to meet base load requirements for the future, says Lok.
“We do, however, need to look at the operating costs of these nuclear units - specifically with regards to the input requirement of uranium and the cost thereof,” he explains.
In addition to the capital required to build a nuclear power station, one also needs to consider the operating cost. While it is commonly stated that the operating costs of nuclear power stations is cheaper than coal-fired power stations, this isn’t necessarily true for the future.
Globally over the next ten years, there will be an additional 91 reactors coming online. “The problem herein lies with the total demand currently, in that there is 180-million pounds a year of uranium u308 being consumed globally, while production is only sitting at 140-million pounds a year. The short fall is sourced from secondary sources, such as the nuclear arms programs under treaties between the US and Russian governments.
“With the growth in the number of nuclear stations, we can quite possibly expect a significant hike in uranium prices, which will make the operating costs of nuclear power stations much more expensive,” notes Lok.
Meanwhile, emerging nations such as China and India are following a very similar approach to the IRP, which is to reduce coal as a percentage of the energy mix. Importantly, this doesn’t mean that less coal will be used – instead coal as a percentage of the energy mix will come down.
“Many countries are trying to minimise coal as an input into primary energy, but it is not possible to eliminate it. It will actually more than likely grow with regards to the physical tonnage used,” Lok points out.
He adds that South Africa shouldn’t, however, lose sight of the fact that coal is by far the cheapest way to secure economic growth. “For a developing nation like South Africa, it is very important that we don’t lose sight of this, because if we get this plan wrong, then we won’t be competitive as a nation,” stresses Lok.
The South African Coal Roadmap
The South African Coal Roadmap (SACRM) study is an initiative that commenced in early 2010, with the overall aim of clearly delineating the South African coal industry’s future. The SACRM is currently coordinated and administered by the Fossil Fuel Foundation and supported by the South African Government and many coal industry and related stakeholders.
The Fossil Fuel Foundation’s website outlines the following, “The initiative is intended to detail and assess options and scenarios for the future development of the domestic coal industry and extract recommendations to maximise the economic opportunities for coal as a valuable energy and chemical resource whilst ensuring a better quality of life for current and future generations.”
Lok urges that all players in the coal industry need to get involved with the SACRM for South Africa’s future. One of the key issues that the coal industry needs to address is that of: what happens if the IRP doesn’t work? The fall back position would be going back to coal, thus the widespread involvement of the coal industry will ensure the comprehensive planning of future scenarios of coal usage.
“At current projected GDP rates, South Africa is looking at another 120 – 140 years of coal consumption, which is twice as long as uranium will last. Within the next 150 years, or at least within the next 80 years, renewable energies will need a substantial investment in order to meet electricity demand and pick up the eventual shortfall of uranium and coal,” concludes Lok.
Lok, as a Hatch Associate, is currently looking after the company’s coal interests in Africa and India. Currently, Hatch is running a number of major coal studies. Hatch's energy unit has more than 85 years of continuous service in renewable power (hydro, wind and solar), thermal and nuclear power, and transmission and distribution. Hatch’s services in the coal industry include performing studies and the execution of projects. Hatch plays the role of Engineering, Procurement and Construction Management (EPCM) consultant, integrating the entire value chain in a horizontal package.
Notes to the Editor
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