Coal producers seek edge in renewables

Coal producers, already facing low prices because of slow demand from China and stricter environmental regulations, are now also grappling with the possibility that new technology could further erode their market.

Tesla , with its Powerwall battery, hopes to enter South African homes by providing a power source that will enable consumers to run TVs, lights, fridges and computers without having to rely on Eskom.

Exxaro, which provides Eskom's power stations with coal, is closely watching how readily South Africans take to the Powerwall, and whether businesses will be able to adopt similar technology.

"If the technology on power batteries goes to the extent where it can actually sustain a company and eventually an industry ... how electricity is generated will be a growing concern," said Exxaro spokesman Mzila Mthenjane.

Coal accounts for 40% of global electricity production and because of its wide distribution and abundance in emerging markets has until now been the most cost-effective source of energy.

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However, low commodity prices, a decline in demand, environmental regulation and new technology have steadily turned the screws on the industry - so much so that Exxaro is planning to cut about 565 jobs in its coal and alloy divisions to reduce costs, Bloomberg reported.

For Xavier Prévost , coal analyst at XMP Consulting, exporting coal to India seems to be where hope lies for the industry in South Africa - the country exported 47% of the coal it mined to India last year.

"China is of course not buying coal anymore, at least not as they used to. China is now on the forefront of the countries trying to cut down emissions ... our only client and hope is India ... but not for long as India also wants to follow China's footsteps," said Prévost.

Exxaro reported an increase in its coal production as it was hoping to supply India with about 15million tons this year. Last year, the company produced 41.8million tons of coal.

But despite demand from India, Exxaro is also considering partnerships in renewable energy.

"At the centre of our strategic questions is the implication of these technologies to our business and where we find ourselves in the value chain. Do we continue to be a mining company, specifically a coal mining company? Do we diversify and what do we diversify into? Do we get into energy?," said Mthenjane.

For Eskom, batteries or other sources of renewable energy could pose a threat.

However, Barry MacColl, general manager of research, testing and development at Eskom, said companies such as Tesla provide partnership opportunities for the utility.

"Eskom is actively seeking ways to evolve its business model and identify new revenue streams, and storage technologies linked to other enablers are being considered very closely.

"The ability to store energy is a service to the consumer that Eskom may provide in future," he said.

We have resources. We don't have reserves and we need them badly
now 

As these forms of storing energy became more prevalent in South Africa, the price of such technologies would fall and their value could be maximised - which was why Eskom was considering energy storage solutions for its customers.

Batteries and other forms of renewable energy also reduced the dependency on energy produced by coal, gas and nuclear technology, reflecting the growing movement towards a greener society.

"At the moment this is also useful because the power system is constrained and any additional energy is helpful," said MacColl.

Thefuture of coal-fired power plants in the next 30 to 40 years would be determined by the success of the implementation of clean coal technologies and the price at which coal could be converted into electricity.

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According to Prévost, 46% of South Africa's coal production is used to generate electricity and because of the strong market, local consumption outstrips coal exports.

Domestic sales of coal generated about R56.6-billion, while exports generated R46.9-billion.

In its annual report, global mining company Glencore reported a 10% decline in its annual coal production, citing market conditions and the sale of one of its coal operations, Optimum Coal.

Anglo American - which is trying to reduce its portfolio to three minerals - has put all its coal assets on the market.

With weak demand and increasingly stringent environmental regulations on the use of coal by the World Coal Association, the question remains whether Eskom should build a third coal-fired power station after the completion of Medupi and Kusile - especially since in 30 to 40 years it would be competing with cheaper, cleaner renewable energy sources.

Prévost insisted Coal Three would be necessary even after Medupi and Kusile were completed.

If there was no investment in the big coal players to keep production up, production might be limited and the "dreaded coal cliff" would become a reality by 2020.

"We have resources. We don't have reserves and we need them badly now," he said.

Prévost said that despite the debate about the negatives of using coal to produce energy , the reality was that South Africa was a third-world country. The main issue was affordable electricity, and if the country wanted electricity at a price that did not hinder growth, "we must still use coal - and plenty of it".

SA homes with batteries included

With the Tesla Powerwall entering South African homes, the rechargeable lithium ion battery manufactured by Tesla Energy is giving those who can afford it the off-grid power to lessen their dependence on Eskom.

The battery stores electricity - generated from solar panels on the roof of the house - and, according to Tesla, provides energy day and night, and when there is load-shedding.

The battery, which stores about 6.4kWh, can be used to power a range of household appliances. Multiple batteries can be installed in the home to meet the power needs of households of different sizes.

The price of the Tesla Powerwall kit is subject to the rand/dollar exchange rate. The current price in the US for one Powerwall battery is about $3,000, or R43,000.

mtonganal@sundaytimes.co.za