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The potential for Africa’s mining sector in driving renewable energy investments - ARIS 2023 Breakaway Session

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Capital, communities and clean energy: Powering mining in Africa

In this article, Gilles Dumont, Head of Project Development at JUWI Renewables, shares insights from a recent expert panel discussion on renewable energy investments in mining. This dialogue took place during the Africa Renewables Investment Summit (ARIS), held in Cape Town last week, and featured representatives from Yellow Door Energy, Partners in Performance, Nupen Staude de Vries Incorporated, and Anglo American.

Mines in Africa are transitioning to renewable energy due to a combination of economic, environmental, and societal factors. This shift aligns with global efforts to combat climate change by significantly decreasing greenhouse gas emissions, enhancing corporate sustainability profiles, and mitigating regulatory risks. Concurrently, renewable energy proliferation means explosive demand for ‘green minerals’ – mineral resources essential for the production of clean energy technologies and the reduction of greenhouse gas emission. Renewable energy truly has become an integral component of modern mining strategies, driving a greener and more responsible industry.

Traditionally cautious about new technologies, African mines are now at the forefront of decarbonisation efforts, primarily motivated by cost-efficiency and environmental considerations. It is sobering to consider that for South African mines, electricity will make up about 12.5% of overall costs by the end of 2024, up from about 9% in January 2023, according to the Minerals Council of South Africa.

At the same time, the South African energy crisis and need for energy security has seen the mining industry targeting around 7.5 GW of renewable energy projects at a cost of more than R150 billion. For instance, Anglo American, a mining giant, is on a path to carbon neutrality across its operations by 2040 and aims for a 50% reduction in Scope 3 emissions. Teaming up with an independent power producer, Anglo American has established a regional renewable energy ecosystem in South Africa. This initiative aims to meet the mining company’s power needs, alleviate load shedding, drive decarbonisation, stimulate renewable growth, and provide clean energy for green hydrogen production.

Innovation continues to redefine the renewable energy landscape for mining. Lithium-ion batteries are becoming a staple to manage energy intermittency, while increasing panel efficiencies reduce land requirements for large-scale solar and wind projects. Containerised solutions, especially suited for off-grid or short-lifecycle mines, are gaining traction. Additionally, floating solar technology is emerging as a viable option for specific mining operations. The broad adoption of green hydrogen, albeit contingent on resource availability and pricing, holds significant potential for emission reduction, as demonstrated by Anglo American.

However, the transition to renewables in the mining sector faces hurdles. Challenges include land availability, skill shortages in the renewable energy sector, and a pressing need for expanded grid capacity. Regulations, while capable of driving progress, can also delay projects, as exemplified by the complexity of environmental and water use licensing in South Africa, where multiple Acts apply.

Two vital aspects of the mining energy transition are finance and community involvement.

Capital and finance

Mines possess the balance sheets and available land to develop behind-the-metre projects, allowing some to self-fund embedded projects. However, the capital requirements for transitioning the entire mining sector are substantial and necessitate external funding.

For mining CFOs, the challenge lies in striking a balance between behind-the-metre (or embedded) projects and wheeled projects (where electricity is generated elsewhere), as well as deciding whether projects should be owned or financed through Power Purchase Agreements (PPAs). The choice of finance structure depends on a mine’s specific goals. For energy security, embedded hybridised solutions are often ideal, while wheeling may be appropriate for other objectives.

Early partnerships with renewable energy developers tend to result in more tailored finance contracts and systems, offering greater value to mines. These early partnerships are not mere electron-purchase agreements but comprehensive collaborations that address the unique needs of mining operations.

In terms of alternative finance models, the good news is that there appears to be no bottleneck in the provision of PPAs, construction finance, loans and guarantees to fund renewables for mines. However, further efforts are needed to unlock the right type of financing that precisely suits the needs of risk-averse mines with shorter life cycles.

Community involvement

Local communities play a pivotal role in the just energy transition, which for South Africa is defined as a transition to a low carbon economy that addresses present and historical inequality, creates jobs, relieves poverty, restores the country’s natural systems to build resilience, and leaves no one behind.

Mining companies are seeing greater pressure from communities to spread the benefits of renewables. Mines are recognising the importance of equitable relationships with local residents and are increasingly incorporating communities into renewable energy plans. Projects frequently lease land for large-scale solar initiatives from local communities.

As a potential model for engaging and incorporating communities, project developers and mines can learn much from the South African Government’s Renewable Energy Independent Power Producer Procurement Program (REIPPPP) and its focus on socio-economic development.

Through its unique approach, the REIPPPP mandates that utility-scale renewable energy projects (developed for the grid) incorporate socio-economic development components, which have had significant benefits. The projects have created many jobs, especially rurally and have facilitated skills development in local communities. Through its local ownership and participation requirements, the programme helps historically disadvantaged individuals and communities to become stakeholders in renewable energy ventures. By blending renewable energy deployment with socio-economic development, the REIPPPP ultimately drives a sustainable energy future while uplifting communities, ultimately fostering a more equitable and prosperous society.

It is worth highlighting that Anglo American seeks to work with experienced renewable energy partners that are willing to engage with communities (especially in rural areas) and on SED activities, and that are open to engage with mines on the concept of “free carry”. The latter provides a share of project returns to local communities without requiring them to invest capital upfront. This approach not only promotes community inclusion but also supports the long-term sustainability of renewable energy projects.

In conclusion, the transition to renewable energy in African mining not only aligns with global sustainability objectives but also presents immense opportunities for economic growth, environmental responsibility, and community engagement. The collaboration between mining companies, renewable energy developers, project financiers and local communities will be pivotal in fostering a just energy transition that benefits all stakeholders and contributes to a more equitable and prosperous society.

AUTHOR: Gilles Dumont, Head of Project Development at JUWI Renewables

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