Head: Project Finance
Mining companies that are investing in captive power projects are looking to renewable energy to reduce their electricity bills and stabilise supply.
The interest of Mining Companies in a renewable energy and captive power supply from Independent Power Producers (IPPs) is rising on the back of concerns relating to the availability, cost, quality and reliability of electricity supplied by national utilities.
The state of power in South Africa
The pace of investment in renewable energy is expected to accelerate in the coming years as a result of a significant drop in renewable energy prices.
South Africa is currently leading the region in renewable energy following the signing of the agreements for the 27 projects procured under the Renewable Energy Independent Power Producer Procurement Programme (REIPPP).
This represents an investment of about R56 billion to produce approximately 2 300 MW of generation capacity to be added to the national grid over the next five years.
There are currently three types of miners considering captive power solutions. These are:
- Companies who do not have an alternative option, particularly mines in Africa located far away from a utility’s transmission and distribution networks. These mines have to self- provision/contract with IPPs to generate power in situ (captive power), typically using diesel/HFO generators, at a cost significantly higher than conventional grid power.
- Companies who want to improve power stability. These are instances where, even though a national grid / distribution network connection is available, the power supply is not always stable or available. This presents significant risk to the mining operation. In these cases, mines either self-provision/contract with IPPs to supply baseload power to cover their critical operating requirements, whilst the balance of power is still sourced from the grid.
- Mining companies who want to decrease power costs by taking advantage of the significant drop in renewable energy prices, a trend that has been gathering momentum over the past two years, with several mining companies entering into contracts with IPPs to develop solar photovoltaic captive power plants for their offtake. With an increased focus on the environment, investment in green power also helps miners to reduce their overall carbon footprint.
Renewable energy providers are attracting mine operations
We are now seeing mines looking to replace a portion – typically 20% to 30% – of overall power demand with renewable energy sources for specific operations.
Renewable energy developers are, for example, offering South African mining companies power tariffs at rates which are at parity or better than what Eskom charges – with the added benefit that future tariff increases will be capped at CPI.
This provides greater price path certainty when compared to potentially higher tariff increases which may be imposed by the utility.