INTRODUCTION
In a landmark development for renewable energy projects within the South African mining sector, Harmony Gold Mining Company (Pty) Ltd has secured R10.2bn to build a portfolio of energy projects which will be rolled out as part of a three-phased decarbonisation strategy. The first phase comprises of 30MW of solar PV and has been jointly developed by Harmony, Energy Group and BBEnergy.
We sat down with Energy Group Director, Amedeo Buonajuti, to discuss the significance of these projects, as well as the path forward.
WHAT WAS ENERGY GROUP’S INVOLVEMENT IN THE MINING PROJECTS?
We developed these projects from inception together with Harmony and BBEnergy, working through the legislative and market developments until their successful financial close. Alongside Harmony, we identified and optimised sites and undertook all permitting. Then, we drafted a Power Purchase Agreement and reviewed it with key lenders in South Africa to ensure it was bankable. After that, we drew up the memorandums and RFP documentation, and ran a formal selection process for funding, EPC and O&M.
WHAT MAKES THESE PROJECTS UNIQUE?
Given the fast-changing markets, we have seen that customers can get the best deal and increased control over projects if they own the projects and procure funding and construction on a standalone basis, with the tariff being set near the financial close. When customers procure on a tariff basis, in a market with rapidly changing prices, they either run the risk of missing out on falling prices, or, in the recent context, being told that the tariff needs to be renegotiated without the tools to have a transparent discussion.
At Energy Group, we provide customers with the insight and the tools to extract fair value from projects which, as the off-taker, they ultimately sponsor. Ultimately, controlling the project also provides customers with the option to fund construction themselves.
WHAT WERE SOME OF THE MAJOR OBSTACLES TO OVERCOME?
Historically the legislative environment has been a significant obstacle, where the private offtake market was not being permitted to proceed. This is now significantly easier, and we thank the government and in particular Operation Vulindlela for facilitating the process. The Eskom teams were also helpful in assisting developers and funders to address the uncertainty around wheeling and net metering arrangements associated with these projects.
YOUR MOST IMPORTANT LEARNINGS?
Customers can benefit significantly by investing time upfront in defining what they require and how procurement will work. The structure of project finance means that there is an additional level of complexity that not all customers are prepared for and implementing on this basis takes time. We recommend ensuring appropriate partnerships upfront to secure expertise and set up a successful process.
HOW CAN THESE TYPES OF PROJECTS BE ACCELERATED?
There are multiple interdependencies to consider, so keeping things as simple as possible helps. A clear roadmap to ensure items are concluded at the right time and in the right order is critical. This needs to govern the interface of permitting, design, finance and construction. In addition, the fastest way to accelerate projects is to self-fund. The use of ESG funding, as Harmony has just closed, can greatly assist in executing on a self-funded approach.
CLOSING THOUGHTS?
We’re just thankful to all the stakeholders involved and especially with the energy-intensive users who entrust us with addressing their energy requirements. Private off-take contracts of this scale are a milestone for renewable energy in South Africa—and would not have been achieved without Harmony’s visionary partnership, the support from Eskom, NERSA and Government, and partnership with leading funders and advisors in the market.
As part of Phase One, three 10 megawatts (MW) solar energy plants are being developed to supply power to Harmony’s Free State mining operations (expected to enter commercial operation by April 2023). In Phase Two of the strategy, the company is planning to build an additional 137MW of renewable energy to power its various longer-life mines.