ANDREW BAHLMANN: Why SA cannot wean itself off coal

Those who see SA as a bogeyman in the climate change narrative are holding us to a standard they are not applying to themselves.  

Perhaps the worst example of rich-society hypocrisy is Germany, the green poster child of the West. That country is expected to record its biggest jump in emissions in 30 years in 2022 due to a sharp rise in coal use as it phases out carbon-free nuclear power.

According to Foreign Policy magazine, “Germany burned 28% more coal in the first half of 2021 compared to the same period in 2020 and now generates 27% of its electricity from coal”. This number is expected to rise further because the country is closing its remaining six nuclear plants in 2022, two decades ahead of the original phasing-out schedule.

Yet whenever the UN climate summit convenes, these same rich countries pressure SA to speed up its energy transition. This is because we are one of the world’s largest emitters of greenhouse gases — 12th largest in 2019 — and our use of fossil fuels is still growing as we seek to industrialise and raise our standard of living.

One of the effects of this pressure is that foreign investors have leant on SA banks to no longer finance the coal sector, other than to help Eskom keep the lights on. Until recently they trod quite lightly, conscious of the need not to take too hard a line with a government that is reliant on fossil fuels lest the stance prove counterproductive.

However, the approach has hardened; earlier in 2022 we saw two promising deals stall as banks refused to invest in coal transactions. More recently, it has been of interest that one of these, a significant project in the coal mining space we are involved in that went to market in early February to minimal traction, has seen a big uptick in interest from potential international coal mine acquirers following the war in Ukraine.

At a time when this country has serious socioeconomic challenges in a range of areas, not least of which is high unemployment and poor access to power to stimulate economic growth, we should do everything in our ability to grow the economy and employment and let a transition from coal occur in a more nuanced and natural manner that suits us holistically. The immediate global trend is for a reconsideration of the role of coal, as seen in Germany. India, like SA, is rapidly increasing its consumption of coal. Challenges relating to Russia and China at the moment also mean we can’t turn our back on coal due to its far-reaching socioeconomic effects.

SA’s energy supply is 70% reliant on coal, and the completion of the latest module of Medupi will require 16-million more tonnes a year. This suggests that at a policy level this country has no plans to reduce its coal appetite and banks need to reconsider — within limitations — feeding that need.

Instead of emulating a rich West, SA should rather see India as an appropriate pacesetter. Like us, it is highly dependent on carbon-based fuels — especially coal — and has little interest in stifling its own development. Unlike India, which has not agreed to phase out coal consumption and end the financing of coal plants, we are seemingly intent on taking that path.

We all know that burning coal is bad for the environment and detrimental to the health of the country’s estimated 90,000 coal sector workers and local communities. But is it not fairer to ask developed countries like Germany to make significant emissions reductions before expecting poorer countries like SA and India to do so? The rich are demonstrably not walking their talk. Yet weaning SA off coal too fast would come with a terrible human cost.

One of the main reasons Africa is poor is that it doesn’t have access to enough energy, which is critical for lifting people out of poverty, improving health and education outcomes and raising industrial productivity. We should seize whatever power we can — renewable or carbon based — and consider following the West once we too are rich. Local conditions demand that financial institutions still support the energy generation industry even if they face growing pressure from international investors in the push to cut emissions, and even if insurers are less ready to share the risks linked to coal assets.

To put this in perspective, Eskom COO Jan Oberholzer recently appealed for urgent and co-ordinated public-private action to prepare the way for the replacement of 22,000MW of coal-fired power stations that will be decommissioned over the coming 14 years, and also to close an immediate electricity shortfall of 6,000MW. By 2035, Eskom is scheduled to have decommissioned nine power stations with a combined capacity of 22,000MW, nearly 10,000MW of which is scheduled for closure by 2030.

Oberholzer said if the bulk of this new electricity is to originate from variable renewable sources, with associated capacity factors of about 30%, the country should be preparing to introduce at least 50,000MW of this capacity by 2035. This is a tall order for renewables in SA. Would a self-evident solution not be to phase out coal-fired power stations at a far slower pace?

We need to assess where we stand from an energy industry point of view, as well as the broader economic landscape we are now in, and not pander to developed country interests when they are quite clearly hypocritical.

• Bahlmann is CEO: corporate & advisory for Deal Leaders International.