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, and according to consultancy SRK Consulting director and principal consultant Andrew van Zyl, there is no better time to consider such opportunities.
Encouraging comments by Mineral Resources and Energy Minister Gwede Mantashe at the Investing in African Mining Indaba, in Cape Town, this week, has the industry abuzz with possibilities for self-generation of electricity.
“While Eskom’s baseload 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 commitments and future carbon tax liabilities,” says Van Zyl.
He notes that positive movements in some commodity prices may 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,” he says.
“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.”
He also highlights the mining industry’s commitment to a greener future and to lowering the carbon footprint of mining operations.
Many mining groups have adopted global best practice standards and protocols to achieve this goal, but government’s application of a carbon tax will soon have a more direct impact on the industry’s bottom line.
“It, therefore, makes sense for mines 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.”
Another important consideration for mining is the increasingly assertive stance of international financiers with regard to environmental, social and governance, or ESG, factors. Van Zyl emphasises that 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,” he says.
“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.”