Having started to engage South African mining companies on renewable energy opportunities almost ten years ago, we’ve witnessed an explosion of interest particularly over the past 2-3 years as more and more companies face pressure from their boards, shareholders and other stakeholders to make the transition to cleaner and more sustainable sources of energy supply.
Based on recent industry conferences including the Africa Energy Indaba, the Energy & Mines Africa Summit and the Mining Indaba, below are our key reflections as the adoption of renewable energy gathers pace.
GREEN IS THE NEW BLACK
Far from being a fleeting trend, there is now widespread consensus amongst South Africa’s leading mines that adopting renewable energy is a non-negotiable from a cost, energy security and sustainability perspective. As such, there’s an unprecedented volume of renewable energy projects on the horizon. Based on our research, there are currently more than 4GW of projects in the planning phase in South Africa, a 40x increase compared to the less than 100MW in operation as of December 2020.
In terms of technology selection, solar PV continues to be the preferred technology given its scalability and land availability on mine sites. That said, more recently there has been an uptick in interest in wind projects, particularly from larger mines where energy demand is sufficient to offset larger project sizes (typically 140MW) and where wind generation profiles are well-suited to addressing energy demand that extends outside of periods of high solar irradiance. Battery storage options are also a common feature of many energy plans – but with implementation timing is dependent on whether improving system costs and efficiencies outweigh upward pressure in underlying commodity prices that have seen significant increases over the past twelve months.
In terms of project funding, the market continues to evolve rapidly. For most mines, the starting point is to seek out the most cost-effective sources of funding, whether this is on a balance sheet, via contracting with IPPs, or through more innovative models such as green bond issuance. However, as more and more projects are brought to market, so longer debt tenors as well as more nuanced risk allocations between off-taker and energy suppliers are creating a wider (and potentially more attractive) set of commercial terms for mines to consider. Timing also continues to be a consideration – particularly in terms of the impact of project finance requirements on overall project schedules.
“Mitigating climate change through decarbonisation is not only a global imperative, but crucial for businesses to remain globally competitive in the new ESG paradigm.” – Sibanye-Stillwater
THE OPPORTUNITIES AND THE PITFALLS
As with any major change, there are both opportunities and challenges ahead.
Having witnessed the evolution of the market here in South Africa and in Europe over the last 15 years, our first piece of advice to clients is to build flexibility into their energy plans.
While the prevailing narrative is of a seamless transition to a decarbonised, liberalised energy market, there are still many unknowns to navigate. For example: How will Eskom manage the reduction in demand for grid power as well as the increase of distributed energy feeding onto the grid? How will the costs of maintaining infrastructure be allocated? And, more broadly, will the path be managed and one-directional or will there be bumps and changes of direction along the way as has been the case in other energy markets?
Executing the many projects in the pipeline will also involve a massive deployment of development and construction capacity, with corresponding risks in terms of timetable and cost overruns. With this in mind, it’s never been more critical to seek out experienced partners that have the track record and capacity in South Africa to deliver successfully, without unnecessary disruptions and delays.
For those that effectively roll out their pipeline of projects, greater energy diversity, a competitive advantage in terms of cost of power, and lower greenhouse gas emissions, are some of the major advantages that await.
THE ROAD AHEAD FOR RENEWABLE ENERGY IN MINING
Our expectation is that the energy supply for South Africa’s mines will look very different in five years’ time from how it looks today—with a far more diversified mix of energy sources.
Making the right choices in a timely fashion, will have a material impact on who wins and loses in terms of the security of energy supply, cost competitiveness and GHG emission reductions.
Our team of experienced engineers, consultants and financial analysts are currently working with a number of mines on developing alternative energy solutions that promise to lead the way. From solar and wind onsite, to wheeled storage and hydrogen projects—talk to us if you’re needing a partner with in-depth knowledge of the South African mining industry, as well as cutting-edge insights on renewable energy solutions that really work.
