Impact of stranding power and coal mining assets in South Africa. Tara Caetano Date: 15 June 2016 TIPS Annual Forum: Energy Utilisation

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1 Impact of stranding power and coal mining assets in South Africa Tara Caetano Date: 15 June 2016 TIPS Annual Forum: Energy Utilisation

2 Global context Is this the beginning of the end for coal? - 71Mtoe in 2015 Coal is in structural decline export to who? Special pricing agreements from Eskom at above export parity Zambia s solar contract 6 US cents/kwh Reliable and cost effective renewables BP Statistical Review of World Energy

3 South Africa and Coal Highly dependent on coal 65% of primary energy electricity, liquid fuels, direct use Amongst top exports New state-owned coal power: Medupi and Kusile (2x 4.8 GW), 2.5GW of new IPPs, further replacement GW in build plan to 2030 Upstream infrastructure: expansion of rail lines (R40bn?) Sasol investment of +-R15bn in new mines for CTL Substantial reserves (10Gt) and resources (55Gt) emerging miner procurement from Eskom: to grow junior miners and enhance black economic empowerment lots of political support Domestic coal prices have been historically low because of geology, markets and export returns this is changing

4 Research Aim Related to coal mining in SA We aim to understand the implications for the coal sector of South Africa reducing emissions in line with global targets. Potential stranding or underutilisation of rail, power sector and mining assets An analysis of the downstream effect of the electricity price on electricity intensive industry in South Africa under increasingly stringent mitigation targets

5 Mt CO2-eq Copenhagen Pledge Coal sector emissions and mitigation policies Base NEE Gt IPE excl CTL Natural gas 300 [CELLREF] 10 Gt Liquid fuels Coal PPD Upper PPD Lower PRIMAP 90th PRIMAP 10th Base 10Gt Constraint 12Gt Constraint 14Gt Constraint

6 Model and scenarios Linked Energy and Economic Model SATIM-e-SAGE South African Times Model (SATIM) Full energy sector model Least-cost optimisation: meets projected future energy demand, given assumptions such as the retirement schedule of existing infrastructure, future fuel costs, future technology costs, learning rates, and efficiency improvements, as well as any given constraints such as the availability of resources Base vs carbon constrained scenarios Base: model optimises without a carbon constraint (17.7Gt CO2-eq ) 10, 12 and 14Gt CO 2 -eq ( ) constraints imposed for comparison with and without SASOL fixed and with various export price assumptions

7 Electricity Production (TWh) Power sector Coal power plants Stranding coal fired plants, or underutilizing them, is highly likely Some units are built and shut down after 5 years huge mis-investment Spatial impacts? Imported Electricity (Gas) Imported Electricity (Coal) Imported Electricity (Hydro) Biomass Pumped Storage Hydro domestic Wind Central Solar PV Solar Thermal Nuclear Coastal Gas 100 Gas Domestic Shale Gas from N Moz Inland Gas Plants OCGT diesel New Coal 10 Gt constraint 12 Gt constraint 14 Gt constraint Existing Coal

8 Electricity Price (2007 R/kWh) Electricity Prices Rand billion % change compared to 14Gt scenario , , ,04 7,6 14,

9 Other sectors? Concentrating on domestic use Energy intensive users will be hard hit either shut down or move off grid What happens if there is no export market for coal? SERVICES Electricity Machinery Metal products Nonferrous metals Iron and steel Metals Non-metal minerals Plastic products Rubber products Other chemicals Basic chemicals Chemicals Petroleum products Manufacturing Other mining Natural gas mining Coal mining Mining INDUSTRY AGRICULTURE TOTAL GDP GT 12 GT 14 GT

10 Key findings Socio-economic consequences of stranding assets in South Africa are likely to be substantial - even with an assumed export demand If coal remains in structural decline, the spatial impacts will be significant An unwillingness to strand assets is likely to lead to South Africa overshooting our global fair share Stranding of assets may be necessary in a carbon-constrained world. And stranded assets result in higher electricity prices. Building new coal plants will only add to this risk Higher electricity prices Slower growth in or the shutdown of energy-intensive sectors overall These users moving off grid Disaster? This could be an opportunity for structural change; South Africa could be competitive in a low carbon world

11 Tara Caetano On behalf of all the co-authors: Jesse Burton, Bruno Merven, Alison Hughes, Adrian Stone, Fadiel Ahjum and Bryce McCall. And also, to our funders: