Coal conundrum: why South Africa shouldn't abandon its black gold
While South Africa is mulling over shutting down roughly12 000 MW of its coal power stations, more and more other countries are building brand new coal power plants.
The annual report by Global Energy Monitor (GEM), titled Boom and Bust Coal 2024: Tracking the Global Coal Plant Pipeline, showed that there is an increase in new coal power plants coming into the power pool stream.
More countries have opened up new coal power plants, while adding more coal capacity at a higher rate than they are shutting down and retiring their own coal plants.
China is leading the race of new coal power plants shoring up its coal power capacity to more than 1 million megawatts - using it to grow its economy.
China is building 172 coal power stations, Indonesia is building 56 coal power stations, India is building 47 coal power stations, Vietnam is building 11 coal power stations, Bangladesh is building 11 power stations, Japan is building eight power stations, Pakistan is building eight coal power stations, Korea is building four coal power stations, Philippines is building four coal power stations and Poland is building two power stations.
Up until early 2000, Eskom was regarded as the crown jewel of South Africa’s state-owned enterprises and one of the leading power companies in the world. Subsequently it lost that status.
It disappeared off the top energy list as it slowed down its policy program to build new baseload (coal, nuclear, gas, fossil fuels and hydro) power plants.
Currently there is a major increase in the demand for coal power energy generation capacity as an economic multiplier. As economic activity of a country increases, the overall power demand increase as a result. For a country's economy to keep up with increasing economic activity demand, new energy capacity must be added onto the grid.
Economic planners of a country have to consider electricity availability as a key catalyst for growth. New baseload energy power plants must be built to supplement economic growth demand. Building new coal power is the most financially sound decision to make. Coal is cheap and produces guaranteed baseload energy generation.
So why is South Africa closing down its coal power plants? The main reason for the coal plants closures is that South Africa signed up to the Paris Climate accord. As a member state it has an obligation to shutdown its fossil fuel power plants to reduce the levels of emissions and in the place of coal build new renewable energy generation and storage capacity.
The debate around coal usually gets lost in emotions. And everyone gets hooked on the emissions issues rather than the new HELE technology, which South Africa actually details in the IRP2019. In a HELE coal power system, essential components used in conventional coal power plants operate at higher steam temperatures and pressures, enhancing efficiency.
However, the world at large has decided to slow down its pace of closing down coal power plants due to the fact the current renewable technologies cannot outmatch the reliability of coal power.
In 2023 China brought online 47.4GW of coal power capacity. This is the equivalent of South Africa's entire electricity generation capacity for over the last 100 years. This 47GW capacity China brought online in just a year. This is a demonstration of the scale and magnitude of China's commitment towards growing a fast paced industrial and domestic energy demand economy.
However, this does not mean that China is not investing in renewable energy. It is. In 2020, China committed to have 1200 GW of renewables capacity by 2030, but is on track to meet that goal five years early.
Electricity generation capacity should be at the top of nation’s priority infrastructure list.
There are about four academic theoretical hypotheses that support the assertion that economic growth is directly interrelated to electricity production and consumption in an economy. So the gross domestic product of an economy directly depends on the relationship between the production and consumption of electricity.
Bear in mind that more than 90% of electricity in an economy is produced and consumed simultaneously as it comes into production. Storage technology is not as yet advanced to accommodate storage of excess unused electricity. We are still years ahead before such technologies mature to match demand.
Many may argue and dismiss the point of view that says electricity is directly linked to GDP of an economy. Directly translating to mean that electricity production can positively and negatively impact GDP.
The four hypothesis namely:
1. Growth hypothesis (GH)
2. Conservative hypothesis (CH)
3. Feedback hypothesis (FH)
4. Neutrality hypothesis (NH)
Growth hypothesis
The growth hypothesis (GH) suggests a unidirectional causal relationship from electricity consumption to economic growth. According to Ozturk (2010) and Mutumba et al. (2021), the above approach is based on the idea that energy consumption [electricity] can directly or indirectly stimulate economic growth by complementing the capital and labour factors in the production process.
Moreover, Squalli (2007) highlights the theoretical dependence of an economy on energy [electricity] making it clear that economic growth will be reduced if there is a reduction in energy consumption [electricity], and Payne (2010) points out that conservation policies—aimed at reducing electricity consumption—could have negative effects on economic growth. Empirical evidence regarding this hypothesis can be found in (Chouaïbi and Abdessalem, 2011, Ho and Siu, 2007, Pata and Yurtkuran, 2017, Yoo and Kwak, 2010).
Conservation hypothesis
The conservation hypothesis (CH) states that economic growth influences the demand for energy consumption [electricity]; therefore, there is a unidirectional causal relationship from economic growth to energy consumption [electricity] (Nazlioglu et al., 2014). Furthermore, as Squalli (2007), Ozturk (2010) and Payne (2010), indicate, CH establishes that conservationist policies aimed at reducing electricity consumption would have little or no effect on economic growth. Yoo (2006), Ciarreta and Zarraga (2010), and Sekantsi and Okot (2016) show empirical evidence supporting this hypothesis.
Feedback hypothesis
The feedback hypothesis (FH) suggests there is a bidirectional causal relationship between electricity consumption and economic growth, establishes that electricity consumption and economic growth complement each other (Sekantsi and Okot, 2016). As Payne (2010) states, under this hypothesis, conservation policies designed to improve the efficiency of electricity consumption might not have negative effects on economic growth. Yoo (2006), Yoo and Kwak (2010), Nazlioglu et al. (2014), Hwang and Yoo (2016), Bildirici (2016), and Sekantsi and Okot (2016) obtained empirical results supporting the FH.
Neutrality hypothesis
The neutrality hypothesis (NH) states that there is no causal relationship between electricity consumption and economic growth. Consequently, electricity consumption should not affect a country’s economic growth because it represents a small share of GDP (Squalli, 2007) and it explains that policies to preserve or expand electricity consumption would not affect economic growth and vice versa (Mighri and Ragoubi, 2020, Ozturk, 2010). Ciarreta and Zarraga (2010), Yoo and Kwak (2010), Nazlioglu et al. (2014) and Tamba et al. (2017) find empirical evidence supporting this hypothesis”.
To achieve higher growth rates in an economy, a substantial amount of electricity must be developed or made available in generation capacity to bolster economic growth. Remember electricity is one of the few products that is built on a complex model of (produce and consume) instantly principle. As electricity is produced It must be used immediately.
The existence of a national generation, transmission and distribution grid infrastructure exists for the sole purpose of enabling electricity generators to produce electricity instantaneously used by industry and supplying domestic demand. produced and used within minutes of its production. And if it is not used immediately, it is lost. It is only lately that there is technology available that enables energy generators to produce and store unused electricity in small scales.
South Africa’s economy is on its knees, despite huge economic revival promises under the Government of National Unity. To plot robust economic growth ahead, our government needs coal to drive industrial growth as other countries are doing. Our government should seriously consider exploring the Asia economic development model. To walk away from coal, which our country is blessed with, would be a grave error and kill those green shoots of growth the country is seeing. Only with a stable energy supply can we as a nation succeed.
Crown Prince Adil Nchabeleng is president of Transform RSA and an independent energy expert.
* The views in this column are independent of “Business Report” and Independent Media.
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