Coal Transition in South Africa Understanding the Implications of a 2Oc-Compatible Coal Phase-Out Plan for South Africa a Project Funded by the KR Foundation
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Coal transitions in South Africa Understanding the implications of a 2oC-compatible coal phase-out plan for South Africa 2018 Authors Jesse Burton, Tara Caetano, Bryce McCall Coal transition in South Africa Understanding the implications of a 2oC-compatible coal phase-out plan for South Africa A project funded by the KR Foundation Authors Jesse Burton, Tara Caetano, Bryce McCall Cite this report as Burton, J. et al. (2018). Coal transition in South Africa - Understanding the implications of a 2°C-compatible coal phase-out for South Africa. IDDRI & Climate Strategies. Acknowledgments The project team is grateful to the KR Foundation for its financial support. The authors are grateful to those who reviewed the report. Contact information Oliver Sartor, IDDRI, [email protected] Andrzej Błachowicz, Climate Strategies, [email protected] Jesse Burton [email protected] Tara Caetano [email protected] Bryce McCall [email protected] Copyright © 2018 IDDRI and Climate Strategies IDDRI and Climate Strategies encourage reproduction and communication of their copyrighted materials to the public, with proper credit (bibliographical reference and/or corresponding URL), for personal, corporate or public policy research, or educational purposes. However, IDDRI and Climate Strategies copyrighted materials are not for commercial use or dissemination (print or electronic). Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the materials are those of the various authors and are not necessarily those of IDDRI’s board or Climate Strategies Board/Secretariat. Publishers: IDDRI and Climate Strategies Editors: Pierre Barthélemy, Andrzej Błachowicz, Oliver Sartor Graphic design: Alain Chevallier, Ivan Pharabod Coal transition in South Africa Understanding the implications of a 2oC-compatible coal phase-out plan for South Africa Executive summary 4 The scenarios 4 Employment in coal mining decreases 4 Implementing NDCs 5 Opportunities and challenges 5 Introduction 7 Coal in the national context 8 Role of coal in the national energy system 8 Reserves and resources 8 Dynamics of the local market 8 Dynamics of the export market 9 Role of coal in national GHG emissions 10 Role of coal in the economy 10 Employment in the coal sector 10 Coal-related investments 13 Policy aspects of the transition 14 Primary cost increases and energy security risks in coal 15 National debates on the future of coal 17 Coal transition scenarios for South Africa 19 Quantitative coal scenarios 20 Current NDC-based scenario and implications for coal 21 2oC consistent coal transition scenarios for South Africa 24 2oC scenario 25 2oC Secunda sensitivity 26 Coal-related policy dimensions for achieving NDCs and moving to 2°C scenarios 30 Implementing NDCs 30 Moving from NDCs to 2°C compatible transitions for coal 30 Conclusions 32 References 34 COAL TRANSITION IN SOUTH AFRICA 3 Executive summary 1Executive summary South Africa is highly coal and energy intensive, and has of the coal mining workforce is unskilled, and the trend an economy characterized by extremely high levels of in- has been towards higher numbers of skilled and semi- equality and poverty (with more than half of the popula- skilled workers. This could be exacerbated as mining tion living in poverty. In the long run, sustainable growth technology develops and autonomous mining becomes and development in South Africa will depend crucially on the norm. There is already an employment crisis in min- the transition away from a coal-intensive energy system ing in general and coal mining in particular that requires and economy. This study has examined the challenges intervention from the state to manage and resource. 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. The scenarios Nonetheless, mitigating the effects of the energy and The study examines three future pathways for South coal transition on vulnerable workers and communities Africa’s coal sector that allow us to assess key risks and means understanding the challenges already facing the opportunities in South Africa’s coal transition. First, we sector, planning to make the transition one that is just examine a least-cost energy pathway that assumes no for workers and communities in coal-dependent areas, climate change mitigation policy is implemented beyond and implementing strategies for the country to diversify a gradual phase down of coal power as stations reach into new sectors and maximise employment. the end of their lives or become uncompetitive with new The difficulty of the transition is exacerbated by South generation technologies. In this scenario, South Afri- Arica’s very high dependence on coal for energy and ca meets its nationally determined contribution (NDC) coal’s role in the economy in general and Mpumalanga under the Paris Agreement in 2025 and 2030, and also in particular. At the same time, the coal sector is already achieves average annual GDP growth of 3.3%. facing challenges and crises due to cost increases, energy The largest users of coal are the electricity and liquid security risks, export demand risks, and low local demand fuels sectors, where alternative supply options and mit- growth. These are already having profound implications igation costs are also considerably lower than in end-use for South African electricity consumers. For example, sectors such as industry. As our results show, meeting Eskom’s primary energy costs have increased by 300% South Africa’s NDC is possible through decarbonising in real terms over the past 20 years. The large increases electricity and liquid fuels, but without large scale miti- in Eskom’s primary energy costs have, along with cost gation in the industrial sector. By 2050, wind and solar overruns at new coal fired plants under construction, PV provide 71% of electricity. contributed to rapidly increasing electricity prices that The trend is towards higher growth in the electricity have put Eskom, and the economy, under increasing sector, And this is also reflected in the employment num- pressure. Demand for electricity has thus stagnated over bers, where the net job effects in the electricity sector the past decade even as Eskom continues to bring new are positive, even as the number of workers employed coal-fired generating capacity online. At the same time, in coal plants decreases as stations are decommissioned new renewable capacity is now considerably cheaper on (since only Medupi and Kusile are online in 2050). 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, Employment in coal mining decreases & Steenkamp, 2016). by 28,200 workers by 2050, relative to 78,000 workers From an employment perspective, coal mining employ- in 2015. The impact on total coal mining employment ment peaked in 1981, and has declined as mines have is limited by the increased use of coal directly by the increasingly mechanised their operations. The sector em- industrial sector, which grows over the period. However, ploys far fewer workers than in the past, and has become overall, coal production in the NDC scenario declines by more skills-intensive over the past 20 years. Around half 1.1% per year between 2017 and 2050 in a least cost 4 COAL TRANSITION IN SOUTH AFRICA Executive summary energy pathway for South Africa. This points that there does not build new coal plants. The inclusion of either is a need for planning for South Africa’s due to the rela- new coal plants or the life extension of older plants in the tive economics of new supply options alone. Even with IRP will not only prevent South Africa from achieving the limited implementation of climate change policy, coal low range of its NDC (398 Mt CO2-eq in 2025-2030), is no longer South Africa’s future. but will potentially raise greenhouse emissions to a level Compatibility with 2oC will require large scale and rapid that exceeds the upper range of the NDC in 2025. switching away from coal in the electricity sector and South Africa will already exceed the lower end of the liquid fuels sectors, and also requires industrial fuel NDC commitment range in 2025 and 2030. The inclu- switching. Meeting the low-PPD emission budget to sion of new coal-fired power, for example the planned 2050 results in the installation of substantially more coal IPPs Thabametsi and Khanyisa, or the full new coal renewable energy in the electricity sector, where, be- capacity envisaged in the IRP 2010, would further reduce cause of its lower cost, most mitigation still takes place. the likelihood that the country could move towards the By 2040, the share of coal in the electricity sector is zero low range of its NDC (and thus it’s PPD). with both Medupi and Kusile coming offline before then. At the same time, an IRP should explore the implications Unlike the older coal plants that are surplus in the 2020s of allowing coal-fired power plants to retire because they but have been paid off, Medupi and Kusile will only be are surplus to capacity needs, no longer economic to online by 2022, and their retirement by 2040 results in run, or cannot be environmentally compliant. This is both economic and technical stranding of the stations. also necessary to understand the rate of South Africa’s Given this, calls for the last 2 units of Kusile not to be coal transition even without climate change mitigation completed make economic sense given South Africa’s policy. In previous iterations of the IRP, the plants were climate mitigation policy commitments and the need committed to run for 50 years, but as we have seen, it for least-cost mitigation planning. is already feasible from both an economic and energy By 2050, solar PV and wind make up 80.2% of electricity security perspective to retire some plants due to their generated, and gas 16% (with hydro 1.3%, and imports high costs (Steyn, Burton, Steenkamp, 2017).