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Renewables and gas take on king coal in Africa

South Africa wants to go greener, but abandoning coal will be a tough task

South Africa revived its renewable energy programme in April with the signing of agreements that paved the way for the construction of 27 renewable energy independent power producer (IPP) projects. It's a move that could trigger the erosion of coal's pre-eminent position in the country's energy mix.

Energy Minister Jeff Radebe declared that the agreements marked the "dawn of a new era" for renewables, following years of delays and uncertainty over private sector investment in the energy sector.

These 27 projects are expected to add 2.3 gigawatts of capacity to the South African grid over the next two or three years and are aimed at a wider Renewable Energy IPP (REIPP) programme that could expand capacity by up to 30GW. Some 55 REIPPP agreements have been signed previously, but only around 20 are fully operational, covering photovoltaic solar, concentrated solar and hydro projects and have added around 3GW of nominal capacity.

Impetus for the REIPP programme has been rekindled following the replacement of Jacob Zuma as South African president by Cyril Ramaphosa. While Zuma's government became mired in controversy over its focus on developing a nuclear programme, Ramaphosa seems prepared to embrace a more varied energy mix to reduce the country's dependence on coal.

South Africa relies on cheap domestically produced coal, which accounted for around 90% of its power generation in 2015. It's largely responsible for making South Africa one of the world's largest carbon emitters, in per capital terms, roughly on a par with Germany and Japan. Of the remaining domestic generation, renewables, including hydro, accounted for less than 5%, while the Koeberg nuclear power station generated most of the rest.

Eskom under fire

While South Africa has suffered from electricity shortages, this has not been primarily due to a lack of generating capacity, but more to do with inefficiencies in the power sector.

State-owned power utility Eskom, which supplies 95% of the country's power demand, has battled to keep its coal-fired plants operational, due to maintenance problems and delays in bringing new coal plants on stream. The utility has also been plagued by scandals surrounding opaque contracts, which have helped drain its coffers.

Recent shortages have been attributed, in part, to a cut in coal supply to Eskom from Tegeta Exploration and Resources, a firm owned by the Gupta family, which has sought insolvency protection. The Guptas are South African based industrialists, whose close relationship with former President Zuma raised questions about their influence over state affairs—something they deny being able to exert.

Eskom is "broken and unsustainable", according to Ted Blom, a partner at South African consultancy Mining and Energy Advisors, who has worked for Eskom on strategy and is a vociferous critic of the company. It needs "full forensic, massive write-offs, competent and experienced staff and a miracle to survive," he told Petroleum Economist. Blom has, in the past, described Eskom as being desperate for money to satisfy its "voracious" cash-guzzling activities.

The state utility's vested interests in the coal sector have led to frequent accusations that it is part of the problem when it comes diversifying South African power generation. Some critics claim Eskom would rather see nuclear power developed than renewables, as the development of big-ticket centralised nuclear plants controlled by Eskom would cement the company's role at the heart of the power sector. By contrast, more renewables and the development of gas IPPs to complement them, would loosen its grip by introducing more players, the argument runs.

Redefining Eskom's role—and displacing coal—may yet prove to be a tough task. Coal is a cheap and—if supply issues can be rectified—easily obtainable, locally sourced feedstock. A lot of jobs depend on it-more than 100,000 by some estimates—and that's no small thing in a country where the unemployment rate is more than 27%.

The National Union of Metalworkers (Numsa), South Africa's largest union, was party to an unsuccessful court challenge against the recent REIPP agreements, on the grounds that they would result in job losses and that renewables would be too expensive. Little wonder then that Jeff Radebe has been keen to stress estimates that the new REIPP projects could create 58,000 jobs, mostly in the construction phase.

Costing the options

But it's not just the vested interests who think that a massive renewables programme may be too costly in light of the alternatives.

Rob Jeffrey, manging director of Johannesburg-based consultancy Econometrix, says the cost of installing renewables will be much greater than for coal-fired plants and would be more expensive even than Jacob Zuma's cherished nuclear programme, the future of which now hangs in the balance. The grid would also need to be upgraded to cope with higher levels of intermittent solar and wind projects, adding to costs.

That's a potential problem if South Africa is to develop its industrial base, as it will need the upfront cost of electricity to be as low as possible, he argues.

Jeffery believes the costs for developing a nuclear plant make it unaffordable for South Africa. The Hinkley Point nuclear power station in the UK, a 3.2GW facility due to open in the mid-2020s, could cost at least $25bn to build. That contrasts with Eskom's 4.8GW Medupi coal-fired power station, now partially operational, which is forecast to cost around $16bn.

Jeffrey estimates that the 2.31GW of renewable capacity already installed in South Africa has cost around $14bn to install, making it more expensive to construct per megawatt of capacity than the new coal plant.

He also questions whether the rapid speed renewables can be added to the grid is relevant in South Africa. Jeffrey notes there is already ample coal-fired and other capacity to meet existing demand, while slow economic growth suggests power demand won't be sky-rocketing within the next two or three years.

There is also a danger that the jobs generated in the renewables sector will be more than wiped out by the loss of jobs in the coal sector, which could almost halve in size if renewables are scaled up as planned, Jeffrey says.

Others point out that the falling cost of installing solar and wind farms, together with improvements in battery storage, are likely to make those technologies increasingly attractive in the long term. They also note that the levelised cost of building, running and decommissioning renewables installations over their lifetime tend to compare much more favourably with the cost of coal than a straight comparison of construction costs per megawatt of capacity.

The potential for a high national or internationally agreed carbon price or tax in the coming decades could also leave a coal-dependent economy in a worse place financially. Carbon capture and storage offers one way to ameliorate that problem, but the process remains at the pioneering stage globally and will add to costs.

There's no doubt though that South Africa needs to industrialise in the short term, so arguments about the best way to help that process are likely to persist.

The case for gas

The other key element in the power debate is South Africa's gas potential. While the talk has mostly been about renewable IPPs, gas-fired IPPs are back on the agenda. They offer the prospect of reduced carbon emissions—around half those of coal—and plants whose output can be ramped up and down fast, as required, making it a good partner for renewables.

Niall Kramer, chief executive of the South African Oil and Gas Alliance, an industry group, welcomes Radebe's apparent support for both gas and renewables, saying there is a "good wind" blowing in South Africa.

He welcomes government interest in investigating potential gas imports from Mozambique, where Eni, Anadarko and others are poised to start production from large offshore gas reserves in the Rovuma Basin. Kramer says that makes "complete sense" for South Africa.

"We have an adjacent country with probably some 200 trillion cubic feet of gas in Mozambique, and South Africa is the largest industrial economy in Africa. The synergies are obvious," he says.

Kramer also believes that South Africa should be looking at its own gas potential and that long-mooted shale gas exploration in the onshore Karoo Basin, which covers much of the centre swathe of the country, should remain an option, even though it has proved controversial.

"Yes, I think it will remain on the cards until it is proven there are or aren't viable reserves. The only real way to do that is to drill," he says. "It may well be true there is nothing there but let's make a call on the basis of evidence."

The southern main Karoo basin is considered to be the country's most prospective area for shale gas, due to the presence of deeply buried, thermally black shales. The volumes of gas in place is highly uncertain but some scenarios suggest that gas resources could amount to 13 trillion cf.

Environmentalists and farmers have opposed exploring the Karoo for shale gas on environmental grounds. In addition to the range of concerns raised globally over fracking, there is added controversy in South Africa, because of the amount of water needed to frack in an environmentally sensitive rural region that has become increasingly arid in recent years.

But whether it comes from the Karoo, or Mozambique, or from further afield via pipeline or liquefied natural gas imports, gas could yet become a mainstay of South Africa's power sector in the years to come.

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