Exploring the opportunities afforded by mine sites generating at least some of their own power, with a particular focus on the potential in South Africa
With their recent profitability buoyed by price improvements in certain commodities, some South African miners may consider investing part of their windfall gains to create their own renewable energy generating capacity.
Encouraging comments by the Minister of Mineral Resources and Energy, Gwede Mantashe, at February’s Mining Indaba in Cape Town had the industry abuzz with possibilities for self-generation of electricity.
There is no better time to consider such opportunities. While [South African electricity public utility] Eskom’s base-load supply is still vital to keep mines running, independent power generation from renewable sources holds value for a few reasons. These relate to issues of rising electricity prices from the grid, as well as to mines’ environmental commitment and future carbon tax liabilities.
Current operations with energy generating capacity
On-site electricity generation projects in South Africa would follow suit from similar projects currently implemented in Australia and elsewhere.
Sandfire Resources was one of the first to install solar power generation, as early as 2016. There is a 10 MW facility at its DeGrussa copper mine. In recognition of its efforts, the company was awarded the ‘Renewables in Mining – Project of the Year’ at the Energy & Mines conference in Toronto in 2016. The company also received the Golden Gecko Award for Environmental Excellence in 2019 from the WA government’s Department of Mines (Industry Regulation and Safety).
Gold Fields’ Agnew and Granny Smith mines – both based in the goldfields region of Australia – also make use of hybrid power plants. At Agnew, there is a mix of five wind turbines – together delivering up to 18 MW of electricity – and a 4 MW solar plant with battery and gas backup. This mix provides up to 60 per cent of the mine’s energy requirement. Granny Smith mine has an 8 MW solar power facility with battery and gas backup.
Fortescue Metals Group has also recently announced plans for a 150 MW solar generation plant as part of the Pilbara Generation Project this year.
Internationally, in Essakane, Burkina Faso, IAMGOLD has a 15 MW hybrid solar-thermal plant – for which it won the Mining Association of Canada’s 2019 Towards Sustainable Mining® (TSM) Environmental Excellence Award.
What are the benefits?
One environmental benefit of on-site generation is a smaller carbon footprint. In terms of financial benefits, the mines have lower energy costs and less volatility in these energy costs. While the price of oil and diesel can be volatile, the costs of solar and wind energy are typically fixed. Using less diesel also simplifies logistics and reduces the fuel transport cost, while having a lower impact on roads and communities.
A potential additional benefit is for mining communities to own and operate local renewable micro-grids as a means of alternative income in the mining supply chain – if the mine is close enough to communities or even to the national grid. Currently, about 50 per cent of solar power generated in Western Australia (WA) never reaches the grid, as mine sites are typically so remote. Alongside these opportunities, however, are issues relating to the infrastructure legacy, maintenance or decommissioning following mine closure. Fortunately, solar panels have a lifespan of 20-25 years, which may be similar to the planned mine life of some of the longer-term copper and gold mines.
In some African contexts, a solar or hybrid supply of electricity has been viewed as a way of overcoming unreliable grid power and providing a consistent supply. Ensuring a higher level of energy security in this way does, however, need to be supported by local capacity development.
Positive movements in some commodity prices may also give mining companies a bit more leeway to consider capital investments in renewable power projects.
The mining sector continues to struggle with costs rising faster than productivity – and the administered price of electricity from Eskom has clearly been an important and unavoidable contributor to this headache. As renewable energy technology has lowered the cost of solar and wind energy, for instance, private producers now have the opportunity to peg a portion of their future energy costs. Being partially off-grid will also make mining companies less vulnerable to the full impact of load shedding, which is very disruptive to continuous operations as found in the mining industry.
Risks to consider
There seem to be few mines that have independently built their own power facilities; rather, the trend appears to favour a contract with an independent power provider (IPP) – sometimes in collaboration with adjacent mines – to build and operate a hybrid system.
There would be a risk in relying on a ‘pure renewables’ arrangement – say, with solar or wind energy only – as this power supply would be variable. So the norm has been to use renewables to supplement existing supply, to lower costs and to reduce the carbon footprint rather than to provide a sole source. Where renewable energy sources can be used as a sole power supply is to feed facilities like mine offices and non-core technical areas. As storage solutions improve, however, it is likely that renewables could become the primary energy source in more applications.
There would be a risk in relying on a ‘pure renewables’ arrangement – say, with solar or wind energy only – as this power supply would be variable. So the norm has been to use renewables to supplement existing supply.
Mines also need to consider that power facilities may need to be decommissioned, which involves a cost at the end of a mine’s life.
The situation in South Africa
Around the world we are seeing more and more the mining industry’s commitment to a greener environment, and to lowering the carbon footprint of mining operations. Many mining groups have adopted global best practice standards and protocols to achieve this, but the South African government’s application of a carbon tax will soon have a more direct impact on mining’s bottom line.
It makes sense for mines in South Africa to be considering alternative sources of energy to augment coal-fired power. While contributing to their environmental goals, it could also potentially reduce their carbon tax exposure.
South Africa’s President signed the Carbon Tax Act into law in May 2019 and it became enforceable in July 2019. While the initial tax – at R120 per tonne of CO2 emitted – is low compared to other countries, its implementation was an important starting point for South Africa in meeting its commitments to the Paris Agreement. The regular reviewing of the Act is expected to step-change South Africa’s carbon tax into a rate comparable with other countries. There is still some debate on the tax’s actual cost to users and on how the impact will be distributed between the end-user and the source.
Another important consideration for mining is the increasingly assertive stance of international financiers with regard to environmental, social and governance (ESG) factors. The world’s leading financial institutions are looking carefully at how mines address their climate change impacts, for example, before approving loans.
Building internal energy generation capacity from renewable sources is likely to become a more popular mechanism for mines to send the right message to lenders. Even if mines are not – for now – able to sell any of their own power back into South Africa’s national grid, there are still many good economic reasons to consider renewable self-generation options.
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