The Integrated Resources Plan's shift away from coal as an energy source and its over reliance on nuclear and renewable energy could threaten South Africa's security of supply, says Ian Hall, chairman of the steering committee for SA Coal Road Map.

Hall, who is also head of regional strategy for Anglo American, told delegates at the Coaltrans conference on Tuesday that the government's desire to have greater renewable energy sources and more nuclear plants was "ambitious".

"It will be a very tall order to deliver," he said, pointing out that failure to deliver on these ambitions could be a key threat to electricity security. In the meantime, the IRP also presents a danger to new investment flows into the coal mining sector.

South Africa currently relies on coal for 77% of its electricity, but the IRP aims to change this with new generation capacity made up of 42% renewable energies, 23% nuclear and 15% coal by 2030. While Eskom is currently building two new coal-fired power stations - the country's first in about 30 years - no further fossil fuel plants are planned. "So that means there is no need for big mega mines," Hall suggested. "If there are no new power stations, most resources in SA region are going to struggle to get developed. It will mean we will battle to attract investment into new mines," he warned. South Africa is the world's fifth largest coal producer and it sits on an estimated 33 billion to 35 billion tons of available coal reserves.

The country uses about 250 million tons a year. Hall also suggested that SA's plans to introduce a carbon tax on fuel inputs could treble the price Eskom pays for the coal it needs to run its power stations. He said Eskom currently paid about R200 per ton last year, but the tax could lift this cost by R300 or R400 a ton. Audit firm Deloitte has estimated that the proposed carbon tax would cost Eskom some R37 billion a year based on a tax rate of R165/ton of CO2 emitted, which is also in line with the tax rate used in the draft integrated resource plan for electricity of 2010. This additional cost would no doubt be passed on to Eskom's customers in the form of increased electricity prices.

But without investment in new mines, and particularly investment in infrastructure or logistics, Eskom might not have any coal to buy. The power utility currently sources its coal from the central basin which lies close to the bulk of its power stations in Mpumalanga but this resource is already dwindling. New largely under-developed coal resources sit in the Waterberg, Tuli in Limpopo and the Soutpansberg but these needed adequate infrastructure if they are to be tapped.

"Eskom requires substantial volumes of coal over the next 30 years to meet South Africa's electricity demand and any further power station life expansion will result in substantial coal shortfall," confirmed Eskom chief commercial officer Dan Marokane. Marokane said that mining companies would have to invest about 100 billion rand between now and 2018 if the utility's needs were to be met. He said a project by project analysis with project owners painted a very "sombre" picture of coal actually available to Eskom.

Another major threat to the utility was exports. Eskom requires over two billion tons of new coal supplies to meet its current planned station operating lives. "The bulk of this coal is at a quality specification that competes directly and indirectly with lower grade exports," said Marokane. Eskom therefore foresees a substantial shortfall and increasing competition for coal between export and domestic users. Marokane stressed that a collaborative approach with the mining industry would "be mandatory" to ensure coal supply - both volume and quality - for domestic power generation.

By businesslive.co.za