Reforms in the power industry in South Africa provide some optimism

When he learned that his effort had been a success and that he had managed to secure the majority of the top positions posts in the ANC for his friends, the Rand rose as much as 2.8% (ZAR17.22/USD). The result gives South Africa’s president incentive to undertake urgently required economic changes before voters go to the elections in 2024.

Due to endemic issues at the struggling power and freight parastatals (Eskom and Transnet), production remained below pre-pandemic levels in 2022 despite new capex commitments from mining companies. These issues disrupted production and caused delays in the export of bulk commodities like iron ore, coal, chrome, ferrochrome, and manganese. According to statistics from Statistics South Africa, intermittent power supply from the national grid caused a 10% drop in mining output between October 2021 and October 2022.

As a “critical nation” for the supply of numerous essential minerals, South Africa is recognised.

South Africa is designated as a “critical nation” for the supply of many of the vital minerals required to decarbonize our planet due to its resource base, which includes the biggest reserves of platinum-group metals, manganese, and chromite. But for South Africa to achieve the position of a preferred mining jurisdiction, it urgently has to complete energy sector reforms and clean up its troubled parastatals. The mining industry will be able to increase output and exports if it can, which is a significant “if.”

Ramaphosa’s capacity and determination to implement changes, particularly in respect to energy generation and transmission, will be signalled by a significant cabinet turnover in early 2023, which will be a strong bellwether for the mining sector.

There are reasons to be upbeat. The 100 MW licence ceiling on private sector renewable energy projects—which had been increased from 1 MW in 2021—was announced by President Ramaphosa in July 2022.

Eskom into three distinct organisations

By splitting up Eskom into three separate entities that are each focused on production, transmission, and distribution, the government also pledged to encourage more private sector investment in electricity producing capacity. With this, an open, competitive market for power producers will be established. By creating a “one-stop shop,” the president also took steps to expedite the regulatory process.

According to industry group Minerals Council South Africa, mining companies have responded to the easing of the power generating constraints by building a pipeline of 89 projects totaling over ZAR 100 billion at 29 enterprises.

Mining will contribute the most to the estimated 8 GW of independent power projects, which are expected to produce 6.5 GW in total from embedded energy initiatives. Despite the requirement for a 24-hour baseload, miners are giving renewable energy sources, particularly solar and wind combined with battery storage, top priority.

For 3.9 GW of renewable energy projects in Africa, the sector has produced plans valued at ZAR60 billion. When completed, these initiatives will help the mining industry get closer to its 2050 objective of net-zero emissions by decarbonizing a third of its annual energy use.

Monetary Gains For Miners

Miners have had to accept a six-fold increase in power bills over the previous ten years; nevertheless, renewable energy sources promise to reduce operational expenses for them. Investment in renewable projects, particularly for underground operations, has increased as a result of Eskom’s intentions to raise electricity costs by 32% in April 2023.

For instance, Gold Fields invested ZAR 715 million (US$39.65 million) in solar panels for its South Deep mine. These panels are anticipated to save ZAR 124 million year and cut the company’s carbon emissions by 110,000 tonnes.

A total of 103 GWh of electricity will be produced by the solar plant annually, or 24% of the mine’s annual energy needs. In an effort to further diversify its power sources, Gold Fields has also started applying for environmental permission for wind power production potential.

Eskom’s expressed desire to buy electricity from the private sector implies that miners may now think about selling excess power back to the grid, even though the majority of mining corporations prioritise site supply. According to internal calculations, the state-owned utility would require an extra 4-6 GW of producing capacity to maintain its current fleet of power plants without interrupting the flow of energy.

The 10 MW Elikhulu solar renewable energy plant constructed at Pan African Resources’ Evander gold mine was the first integrated project above 1 MW to receive Eskom approval for grid connectivity in December 2022.

The licencing requirement for the Elikhulu solar project was 10 MW when it was designed; however, with the licencing threshold rising to 100 MW, the business expects to raise the facility’s production to 22 MW in 2023.

Energy Transition alone

Due to its reliance on coal for industrial operations and electricity production, South Africa is one of the top 20 countries in the world for GHG emissions. South Africa introduced its Just Energy Transition Investment Plan (JET IP) at COP 27 in November 2022 with a US$8.5 billion financial package provided by international partners over five years.

JET IP is in line with the National Just Transition Framework, which was approved by the Cabinet and outlines US$98 billion in total financial requirements from both the public and private sectors to achieve the country’s decarbonization commitments, while protecting vulnerable communities. These communities include coal mining communities in the province of Mpumalanga, where a development plan that demonstrates how the just transition will unfold in ways that will not threaten the livelihoods of workers and other community members has been implemented.