Breath of fresh air for dying sector

 

 

NEWS ANALYSIS

An accelerated retirement of the Eskom coal fleet could catalyse a just transformation in the electricity supply industry.

The scheduled decommissioning of the Eskom coal fleet presents a real opportunity to transition to a new renewable replacement fleet, at the same time as transforming the electricity supply sector.

Given the poor state of the aging Eskom coal fleet, and the urgent need for all possible steps to be taken to reduce carbon emissions on an unprecedented scale to have a chance of containing global warming, the coal fleet should be retired on an accelerated schedule. In addition, many of the units in the fleet operate in flagrant violation of air pollution legislation and, by Eskom’s own admission, are the cause of hundreds of deaths each year in the areas affected by the pollution plumes. The fleet should and can be fully retired within the next 10 to 15 years.

The rate of cost reduction in the storage-backed wind and solar photovoltaic (PV) industries is such that the coal fleet can be beneficially replaced within this timeframe. At the same time, the economy can be kick-started by a huge and ongoing renewable build programme.

The programme should be a private/public partnership spearheaded by the workers and other people most at threat from the impending transition. Properly planned and aggressively implemented, the programme will be job accretive, not only directly in the build programme, but more so by stabilising the future electricity tariff trajectory for electricity sensitive industries.

The programme can and should be funded primarily with local pension fund money. At current tariffs, the investment will be able to provide pension fund beneficiaries with returns that are of the order of two percentage points above historical 10-year averages.

The fact that the urgent need to replace the coal fleet coincides with the lowering of renewable replacement fleet costs is a once in a lifetime opportunity, and one that SA Inc should embrace. Now.

We see on a daily basis that the low-cost wave of storage-backed wind and solar energy is unstoppable. New low-cost records are regularly set, and prices are, in some cases, lower than electricity generation costs for fully amortised coal- and gas-fired generators, leading in many instances to stranded fossil-fuel assets.

French bank BNP Paribus recently released a study showing that oil is “in relentless and irreversible decline” for light-duty vehicles, and that it is six to seven times cheaper to power cars by renewables than oil. Both Volkswagen and Daimler have just announced that they will no longer develop any new internal combustion engines.

Eskom has a detailed decommissioning schedule for its coal fleet. By 2050, only Medupi and Kusile will still be operational, assuming they are ever successfully commissioned. The reality is that the Eskom coal fleet is old, and is operating at low energy availability factors, mainly because of years of accumulated poor maintenance. More than half of the available capacity of the coal fleet is more than 35 years old, and 80% more than 30 years old. This translates into ever-declining energy availability factors, which dropped from 90% in 2005 to 70% in 2018 — and actually dipped below 60% in the first quarter of 2019 resulting in load-shedding in March. This means there is a self-induced accelerated retirement of the coal fleet.

We need to accept this accelerated retirement, and aim to replace the fleet in a well-planned and well-organised fashion. But Eskom does not appear to have a plan of how to mitigate job losses and socioeconomic effects.

An assertive retirement schedule offers South Africa a golden opportunity to rein in carbon emissions in line with attempts to limit global warming to 1.5°C — if we are bold enough to make the correct decisions about the energy generation mix for a replacement fleet. At the same time, it affords us an opportunity to effect sweeping transformation in the energy supply industry.

At current costs of solar, wind and storage, a replacement fleet would cost R100-billion a year less to finance, maintain and operate than a new replacement coal fleet, and R200-billion a year less than a replacement nuclear fleet. As solar, wind and storage costs continue their steep decline, this annual cost differential will increase.

The rate of change in the energy supply industry is such that as little as five years ago, the annual cost differential between a new coal fleet and a solar, wind and storage fleet was reversed.

There are currently about 80 000 total direct jobs in the coal mining industry. About 50% of the coal mined is sold to Eskom. So about 40 000 direct coal mine-related jobs are linked to Eskom. This translates to one job per megawatt, as Eskom has about 40 000MW of total installed coal-fired nameplate capacity.

The existing fully commissioned coal-fired power stations each employ fewer than 1 000 people. Staff employed at all of the coal-fired plants adds up to about 10 000, or about 0.25 jobs per megawatt. So, for each 1 000MW of retired coal-fired units, there are about 1 250 combined direct jobs lost, 1 000 from coal mines and 250 from power stations.

To replace one gigawatt (1 000MW) of coal plant, it would be necessary to build about 3GW of solar, or just over 2GW of wind, supported by 4GWh of storage.There would be slightly fewer direct operations and maintenance jobs associated with the 3GW of solar or 2GW of wind — in fact about 1 000 direct operation and maintenance jobs would be created for the 1 250 jobs lost.

Consider the following, though. If 2GW per year of the coal fleet is decommissioned, it will require the construction of 3GW of solar and 2GW wind a year — forever. This is because the new storage-backed wind and solar fleet will require replacement or at least extensive refurbishment when the entire coal fleet has been replaced. The estimated permanent and ongoing direct construction jobs for a fleet of this magnitude would be of the order of 60 000, about 40 000 for the 3GW of solar, and 22 000 for the 2GW of wind.

These permanent direct job figures do not included the following:

• Jobs related to the construction and operation of very large energy storage systems, primarily battery energy storage systems;

• Jobs related to the construction of the requisite open-cycle gas turbine fleet or reciprocating gas engines and the associated gas handling and storage facilities;

• Jobs related to the decommissioning of the coal fleet and associated infrastructure;

• Jobs related to the environmental restoration of the coal-fired plant;

• Jobs related to the rehabilitation of old coal mine land for best possible future land use;

• Jobs related to agricultural activity linked to the release of significant water rights and water storage facilities currently servicing the coal-fired power stations and coal washing plants;

• Jobs related to possible component manufacture that can be underpinned by an orchestrated large and ongoing build programme of this nature; and

• Lastly but potentially most importantly, jobs created by a stabilisation and decrease in electricity tariffs in the future.

Who then to lead us through this transition and use the unique opportunity linked to the retirement of the coal fleet to champion transformational change in the energy sector?

There are no such signs from within the ranks of Eskom. Not sure that any of the political parties fully grasp the severity of the situation — or the opportunity that it provides to invoke sweeping and breathtaking reform.

It is clear that the transition/transformation needs to be championed, led and co-managed by the workers and other people most affected by the impending changes.

In Mpumalanga, there is significant transmission infrastructure, designed to transmit electricity to all corners of South Africa, especially to the economic heartland of Gauteng, and the mines, smelters and manufacturing facilities in Gauteng and surrounds. When a power station is retired, workers and other affected people should have first rights to involvement in and ownership of any renewables fleet.

As far as is possible, practical and economically sensible, as much of the replacement fleet should be built in the immediate proximately of the retired power stations and associated mines — in many cases, old coal mines represent ideal sites for solar PV installations. This will ensure that jobs lost as a result of power station retirement can be more than replaced by construction and other related (rehabilitation and land-use repurposing) jobs in the vicinity of the job losses.

It turns out that, although Mpumalanga has 7% less annual solar energy yield than the Northern Cape, this is more than compensated for by the fact that it has a huge transmission infrastructure, is closer to the economic heartland of Gauteng — thereby lowering transmission losses — and has 3% higher energy yields in winter than the Northern Cape.

The entire storage, wind and solar fleet can be financed by local pension fund money. If current electricity prices are capped to no more than consumer price index increases, investment in the new fleet will underpin returns to pension fund beneficiaries of the order of two percentage points higher that averaged returns for pension funds of JSE performance over the past 10 years. Those entities willing to be lead funders, can expect additional returns of about one- to two-percentage points.

There will be global support and all-round goodwill for a worker led and government supported accelerated retirement of the Eskom coal fleet — on a well-planned collective basis. The alternative, a poorly or unplanned retirement scenario, will lead to severe collateral damage. Correctly managed and orchestrated, a solar, wind and storage replacement fleet has the potential to reverse the trend of sovereign and Eskom credit downgrades, address unemployment directly as part of the new fleet build and by stabilising the price and price trajectory of electricity, thus boosting sectoral economic growth.

Additionally, commitment to the accelerated replacement of the Eskom coal fleet with a solar, wind and storage fleet will help underpin efforts to rollover the Eskom debt burden into a long-term soft loan, potentially subsidised as part of global green transition funding initiatives.

Importantly, South Africa, through a pact between government, the private sector, the pension funds, and the workers and other affected people, could lead the way in accelerating emission reductions well in excess of our current country commitments.

It would be nothing short of a breath of fresh air.

Clyde Mallinson is a geologist who has lectured in Earth history. He now focuses on Earth future, and to use his experience in fund management to channel pension funds into renewable living annuities