The electricity crisis in South Africa has not only highlighted the importance of growing the country’s power generation capacity but also its ability to supply coal feedstock to power plants. Around 85 percent of electricity generated in South Africa is produced from coal fired stations, and this dependence is likely to continue for the foreseeable future.

While sectors across the South African economy are therefore viewing the electricity crisis as a significant challenge to business, global growth consulting company Frost & Sullivan believes that coal miners are faced with a huge opportunity.

“Coal mining companies have the opportunity to tap into this rising domestic demand for coal in order to grow their businesses,” says Frost & Sullivan metals & mining analyst Wonder Nyanjowa. “Exxaro Resources has already positioned itself well by signing contracts to supply 14 million tonnes of coal to Eskom’s Medupi power station. This is in addition to the 14.7 million tonnes that it supplies to the Matimba power station.”

The increased demand for coal is also likely to result in supply imbalances. While this will result in increased competition for the available coal, it could drive up prices. If production remains stagnant, exports are also likely to suffer as most of the available coal will be directed towards power generation activities.

However, coal mines will of course not be spared the difficulties brought about by Eskom’s supply constraints.

“The mining industry lost one week of production time in 2008 when Eskom could not guarantee the availability of adequate power,” Nyanjowa says. “The mining industry’s electricity consumption was curtailed at 95% of normal consumption in 2009, which, when combined with other operational problems that mining companies were facing, reduced capacity utilisation in the mines to levels around 90%.”

There is also a dire need to improve the manner in which coal is transported from the mines to the power stations. With coal reserves adjacent to certain plants decreasing, a great deal more coal is now being transported over long distances to each plant.

“It has become important for stakeholders in the coal industry to address the transportation challenges that are being experienced in moving coal from the mines to power generating plants.” Nyanjowa says. “The costs associated with this have risen enormously over the past couple of years.”

Nyanjowa believes it is therefore imperative for coal companies to develop new mines in close proximity to existing or new power stations.

“Exxaro is expanding the production capacity of its Grootegeluk mine in the Waterberg coal basin from 18 million tonnes per annum to 36 million tonnes in 2013,” he notes. “The bulk of this incremental production is targeted at Eskom’s Medupi power station.”