Last year may prove to have been a pivotal year in the history of the energy transition. Tellingly, 2023 was also the hottest year to date on record, and two trends in energy demand speak to this state of affairs.

The first relates to wind. Energy consultancy Wood Mackenzie said in a report on 18 March that orders for wind turbines hit a record in 2023, “… with 155 gigawatts (GW) procured for the year, an increase of 16GW from 2022… As both China and Western markets broke records for order intake, annual investment reached an estimated $83-billion.”

Overall, global investment into the green energy transition in 2023 surged 17% from 2022 to almost $1.8-trillion, according to research provider BloombergNEF – also a record. Coal also had a record year, defying the prophets of its imminent doom.

According to the International Energy Agency’s (IEA’s) latest annual report on coal, demand for the fossil fuel in 2023 was expected to have reached a historic high of just more than 8.5 billion tonnes, a 1.4% increase over the previous peak scaled in 2022.

Turning point for coal

But the IEA forecasts that 2023 will be the year of “peak coal”, and it’s downhill from here.

“Overall, we expect global coal demand to drop in 2024 and plateau through 2026, even in the absence of governments announcing and implementing stronger clean energy and climate policies,” the IEA forecast. “A turning point for coal is clearly on the horizon.”

What is emerging is a tale of two coal markets. Its use in advanced economies is set to plunge at an accelerated pace, while it will remain robust for a while in a handful of big emerging markets.

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“India, Indonesia and other emerging and developing economies are expected to rely on coal to power strong economic growth, despite commitments to accelerate the deployment of renewables and other low-emissions technologies,” the IEA report said.

“By contrast… we do not see a major risk of coal use rising again among advanced economies. Coal power plants are being regularly shuttered in these economies, and industrial coal consumption is set to decline owing to weak industrial output, improved efficiency and increased switching to other fuels.”

And because of the winds of change symbolised by the rise of turbines and other renewable energy sources, this is a trend that looks set in stone.

“We have seen declines in global coal demand a few times, but they were brief and caused by extraordinary events such as the collapse of the Soviet Union or the Covid-19 crisis. This time appears different, as the decline is more structural, driven by the formidable and sustained expansion of clean energy technologies,” said Keisuke Sadamori, IEA director of energy markets and security.

China, as always, is key.

“…[The] pace of economic growth in China and its coal use in the coming years is subject to uncertainty. The country’s economy is undergoing major structural changes as it reaches the end of infrastructure-led, energy-intensive growth, but the speed at which it changes gears and continues to expand clean energy capacity will have a significant influence on the outlook for coal.”

As already mentioned, 2023 was also the hottest year on record, which would make it a poignant marker for the fossil fuel and its historical impact. Its use has been clearly linked by science to rapid climate change, which is why wind turbine demand – fuelled by mounting concerns about our blazing planet – also reached a record last year.

Whither South African coal?

Where does all of this leave South Africa’s coal industry?

Like their global peers, South African coal producers reaped rich earnings after coal prices soared to record prices in the wake of Russia’s invasion of Ukraine.

Graph source: International Energy Agency’s ‘Coal 2023: Analysis and forecast to 2026’ report.

“Coal mining companies have paid back debts, increased dividends and buybacks, and retained some cash. Diversified miners have often channelled coal profits towards other commodities as growing demand tied to the energy transition is expected to drive up their prices,” the IEA said.

This global trend has been reflected in South Africa, where major coal producers recently reported their 2023 results.

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Thungela announced a R500-million share buyback and paid dividends amounting to 41% of free cash flow. Exxaro announced a special dividend and had the capacity to do so, with net cash at the end of December of almost R15-billion.

The companies reported lower earnings on falling prices, but they were still in a position to reward shareholders. One imagines they may also be keeping cash on hand, as they face a potential class action suit launched by Richard Spoor over occupational lung diseases afflicting coal miners.

And both are on diversification drives. Thungela’s is geographical for now: In 2023 it acquired Australian coal producer Ensham. That provides proximity to the Asian markets, where the IEA still sees growing coal demand for now. It also reduces exposure to the risks inherent to South Africa such as the logistics, power and crime crises.

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Exxaro is focused on shaking up its commodity mix, with an eye to expanding into green metals such as copper, manganese and lithium.

And unlisted coal producer Seriti Resources has a renewable energy arm, Seriti Green, which is focused on wind power. Seriti Green is building South Africa’s largest wind farm in Mpumalanga, which will generate 155MW of power. That is the way the winds are blowing.

Cash generated by coal these days is increasingly going back to shareholders or into other commodities or renewable energy. Meanwhile, banks are increasingly reluctant to finance new coal projects but are falling over themselves to fund renewable energy initiatives.

The writing is on the wall and 2023 may go down as a pivot point in this history. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.