Ukwazi Views

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Just transition – A preliminary perspective

Eskom and the coal industry are at the core of the just transition. Approximately, 75% of our electricity is coal based and derive from 16 large power stations. By 31 December 2021, Eskom was due to split out its transmission business from generation and distribution, while it is sticky debt of R400bn plus and deep operational challenges remains an issue. Eskom has to retire approximately 80% or more of its coal fuelled power stations by 2050. South Africa is globally ranked as the 14th highest emitter of greenhouse gases in the world and Government has committed to COP26 to reduce carbon emissions as part of our National Determined Contribution to reduce CO2 emissions by between 350 – 420 metric tonnes.

Decarbonisation and the transition to a low carbon economy represents a profound moment in our political economy locally and globally. It is a fundamental shift in our reality, which has been driven by fossil fuels for the past two hundred years. Circuits of commodities and circuits of capital will be shifted; and their associated value chains and eco systems with them. This will require new ways of working, innovation and digitisation, as wells different skillsets, mindsets, institutions, regulatory and labour regimes. Simultaneously, herein lies the deepest risks and the greatest opportunities. Risks that have to be managed and opportunities will need to be commercialised, or they will remain nascent.

What this means in the short, medium and long term?

  • A transition from a high carbon emissions-based economy to a low emissions economy is much broader and more fundamental transition than moving from coal-based energy to renewables.
  • The policies, principles and practices around the just transition from coal will become increasingly contested, with social dislocation and potential conflicts between stakeholders becoming more strident, unless the process is managed, phased and funded appropriately.
  • What is critical is how to achieve sufficient inclusivity and consensus between core stakeholders to move the process forward in a manner, where there is both procedural and substantive fairness in terms of impacts, outcomes and trade-offs. The tension between lives and livelihoods in the coal industry is only one binary to manage, while access to affordable electricity and environmental sustainability of the industry (pre- and post transition) and its products are others which also require solutions.
  • Some lessons can already be learned from cases involving community consultation which have been adjudicated by the Constitutional Court, which may be used as guidelines, while international experience suggests creating green funds, green construction and building codes as well as incentivising the transition works well; as does refining the national energy mix beyond the current IRP formulation, with a greater emphasis on the adoption of renewables particularly wind and solar are crucial enabling mechanisms
  • On 24 November 2021 during a talk at the Ahmed Kathrada Foundation, Eskom CEO, Ander de Ruyter, indicated that R100bn would be needed to remediate Eskom’s environmental footprint and to reduce emissions. Fixing Eskom is the most important pillar in a range of initiatives needed to reduce reliance on coal and to achieve significant progress towards a carbon neutral economy.
  • However, the industry cannot wait indefinitely for Eskom to get its house in order. Pressure also needs to be created around changing the regulatory environment which governs energy and the configuration of energy markets into macro, mezzo and micro grids and national, regional and local independent power producers.
  • Loadshedding will remain a relative fixture in our mineral-energy landscape for the foreseeable future, with steady increases in electricity costs of from 10% to 20% per annum. It is likely to be aggravated by poor governance and incapacity at local government level, where municipalities distribute electricity to local residents and businesses.
  • Mines in particularly are likely to respond positively to ESG compliance requirements from funders, shareholders and regulators and are likely to improve their ESG performance in the short to medium term, thus migrating faster to a zero emissions status over time
  • Mining companies are also likely to move off grid to ensure energy security and leverage their ability to self-generate 100MW. Potential exists to allow energy trading and energy wheeling between mines or between mines and other third parties, thus also opening the potential to sell back into the national or local grid. Municipalities in the Western Cape such as George and Overstrand are already doing so
  • Mining companies have the potential to be at the forefront of building the hydrogen economy. Deeper collaboration is needed to promote and develop the hydrogen valley project which extends from Anglo Plat’s Mogalakwena mine to Durban.
  • The hydrogen economy is a game changer for the coal industry and our national economy generally and may allow us the industry to off-set job losses and other potential negative impacts in the coal sector with potential positive opportunities in the hydrogen economy.

Our company has made a strategic decision to support these initiatives as the coal industry pivots by establishing renewable energy company, where we can combine our expertise is mining, engineering and environmental services developed since 2004. In particular, we have a service offering intended to assist mining companies to build, operate and maintain their 100MW solar projects. We are also looking at initiative which will create green hydrogen from minerals beneficiation, using coal gasification.

In conclusion, South Africa’s journey toward decarbonisation is only starting, what this means and how it is implemented is beginning to emerge slowly. The issue is not so much the consultation, or the vision per se which are critical, but rather the depth of stakeholder consultation and the quality of execution of the transition strategy; and the trade-offs that are required to make the transition successful. Some vested interest in the status quo in the mining-energy complex will resist the transition but transition we must, as a country and as a society, as part of the global transition provided we do it on our terms. While the transition which will neither be linear nor smooth, coal will still be required in the short to medium term for energy. The UK announced this year that it will no longer be using coal-based power from 2024 and in the decade between 2010 and 2020, it reduced the amount of energy it used from coal power fire stations from 40% to 1.8% today, so it can be done.

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