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Incentive schemes for miners could be the key

Publish date: 24 March 2020
Issue Number: 647
Diary: Legalbrief Environmental
Category: Energy

Is it possible to incentivise coal miners to support the transition to renewables, asks Tobias Bischof-Niemz, CEO of Enertrag-SA, in a Mining Weekly analysis. ‘Coal, which has been the workhorse of SA’s electricity system for generations, will continue to play a significant role for years to come,’ he notes. ‘Those coal-fired power stations that remain in operation will also need to secure continued supplies of the energy mineral and state-owned electricity utility Eskom has expressed a preference for doing this through long-term contracts,’ he explains. ‘There is a risk, however, that these long-term coal-supply agreements could lock in SA’s coal dependence. Already, it is becoming increasingly difficult to raise bank finance for coal-related investments,’ warns Bischof-Niemz. ‘One way of addressing this risk would be to replace long-term coal-supply agreements with energy-supply agreements,’ he argues. ‘Under such contracts, an Eskom-supplying coal miner could be given the option to either deliver a certain volume of coal to a power station every year or offset those supplies with the injection of renewable electricity into the grid,’ he states. ‘If a miner chooses the electricity option, the volume of coal it can deliver under the contract is adjusted downwards automatically,’ he explains. ‘From an Eskom perspective, the financial effect of having a contract whereby coal and electricity are fungible is cost neutrality,’ writes Bischof-Niemz. ‘From the miner’s perspective, this will amplify the incentive to invest in renewables, as the company will not only be earning an additional margin by selling electricity rather than coal, but will also be in a position to reduce the amount of own-capital needed for ongoing operating costs. That surplus equity could, thus, be invested elsewhere,’ he notes. ‘The beauty of the scheme is that it is a truly self-accelerating mechanism. The cheaper wind and solar PV becomes, the more the coal suppliers will want to supply wind and solar instead of coal – and the more people they would employ, because wind and solar PV are actually more labour-intensive per energy unit than coal mining,’ he argues. ‘Such alignment will help address the “incumbent inertia” which appears to be emerging as a significant political risk to SA’s energy transition,’ he concludes.

Full Mining Weekly analysis