Energy and Mines Africa Virtual Summit 2021 Event Report

Authored by MELODIE MICHEL REPORTER Energy and Mines

Miners take renewable energy procurement to the next level in Africa

Abundant renewable resources, unstable or expensive national grids and an increasingly favourable regulatory environment are placing Africa at the forefront of the mining energy transition. The Energy and Mines Africa Summit, held virtually on May 4-6, 2021, brought together miners, IPPs, financiers and renewable energy experts to discuss recent projects, remaining barriers and development opportunities.

CONTENT POD 1: BUSINESS CASE FOR RENEWABLES IN MINES

Renewable energy procurement in Africa is growing steadily, according to Kwasi Ampofo, Metals and Mining Analyst at Bloomberg NEF. “Even with Covid 19, 40 MW of renewable energy was procured in 2020 in Africa,” he said. This trend is supported by the continuous price drop in renewable power, which is currently the cheapest form of new electricity generation in many African countries, where grid power prices are particularly high.

Among the latest projects to be implemented in Africa, Martin Horgan, CEO of Centamin, announced the construction of a 36 MW solar farm and 7.5 MW battery storage system at the Sukari gold mine in Egypt. “We are constructing the world’s largest offgrid hybrid diesel-solar farm, which will deliver between US$9mn and US$13mn of savings per year,” he noted.

While the aforementioned savings made the business case quite clear, Horgan took the audience through the company’s decision process: as an offgrid mine, Sukari currently uses 100 million litres of diesel a year, representing about 12 to 14% of operating expenditure. The 12-year mine life (with potential to be extended), and a strong balance sheet made it possible for Centamin to invest in a renewable solution through an engineering, procurement and construction (EPC) contract with juwi and Giza Systems, with a 10-year payback.

De Beers is another miner committed to decarbonisation, with a global carbon neutrality target set for 2030. In its operations in southern Africa, the company expects to require about 350 MW of renewable projects to replace fossil fuels. While the company is still in the research and pre-feasibility phase, Kirsten Hund, Head of Carbon Neutrality at DeBeers Group, pointed to the need to address the full lifecycle of renewable energy solutions. “Every solution creates new problems, and we need to think about the potential negative impacts of green energy. We need to think circular and make sure we are not going to create big hazardous waste piles,” she warned.

Rio Tinto also expects renewable energy to play a fundamental role in mine decarbonisation, but warned that there is no one-size-fits-all algorithm, and that miners need to secure the appropriate skills and capability in the project team. “The most challenging part is developing an overall credible business case. Assessment criteria including location resources available, existing infrastructure and technologies and permitting requirements must all be considered together,” advised Owen Lofthouse, Study Lead at Rio Tinto.

Because of the complexity of energy projects, miners tend to prefer a phased approach to renewable implementation. Bruce Anderson, CEO of modular solar and thermal battery system provider 247Solar, suggested starting with just one battery, and then phasing out diesel generator sets as they reach their end of life.

Storage is also expected to play a key role in further decarbonisation. Dave Manning, Director of Global Hybrid at juwi Renewable Energy, explained: “Lithium-ion batteries are taking the stage at the moment. Hydrogen is the buzzword with its ability to transport and store energy for a long time, but thermal energy storage is also being explored.” juwi is currently working on a 9.8 MW hydrogen storage solution, as well as a thermal energy storage system (TESS).

Finally, an important business case consideration in Africa is the regulatory environment. Many miners pointed to the immaturity of regulatory frameworks around renewable energy generation on the continent. “In the countries where we operate there are very early discussions but evolution is slow, so there is a lack of regulatory incentives. In many countries, the local content preference can also be a challenge if there are no suppliers available in that country,” noted Jessica Volich, Group General Manager, Sustainability, at Perseus Mining.

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Azelio presented its combined heat and power (CHP) solution for longduration storage, whereby electricity from renewables is transformed into high-temperature heat and stored for up to 13 hours.

JA Solar gave a presentation on its proprietary solar panel innovation, which has attracted 33,000 customers and 11% of the global solar PV market.

Fulcrum3D talked about the importance of good baseline renewable resource data before getting started on energy projects.

CONTENT POD 2: MINE RENEWABLES STRATEGIES

To kick off the second content pod, representatives of Ivanhoe Mines, Centamin and Orion Minerals took part in a panel to discuss the integration of renewable energy development into overall mining strategies. All of them agreed that the mindset change has to come from the top, and while it can be difficult for miners to raise the capital needed for energy projects on top of their capital-intensive core business, the emergence of CO2 calculations per tonne of metal produced could help to steer the industry in the right direction.

“Companies that embed ESG in their decisionmaking process are often demonstrated to outperform their peers, so if done correctly, it makes great commercial sense as well,” noted Martin Horgan, CEO at Centamin.

Again, presenters insisted on the benefits of a phased approach. Barry Naicker, Group ESG Manager at Pan African Resources, outlined a case study on a 10 MW solar project at the Evander Mine in South Africa, and explained that lessons learned from this project would be used for further expansion. “From a management perspective, any cost reduction is beneficial to the operations, it gives us an opportunity to be more sustainable as a gold producer,” he added.

Martin Schlecht, Chief Operating Officer at Suntrace, also stressed that phased implementation could bring tremendous commercial and GHG reduction benefits, and advised the audience to look for independent guidance. “There are a lot of solutions on the market, which are difficult to compare. Commercial restrictions need to be taken into account as well: do you invest your own cash, or ask an IPP to invest and sell you electricity across the fence? What are the cost savings and profitability of such an investment? The guidance of an independent technical expert can be very helpful in the process,” he said.

It can sometimes be beneficial for miners to choose a partner that can deliver turnkey solutions, particularly when it comes to shorter mine lives. “It is tough to commit renewable capital for short-term projects, but we’re looking at mobile and modular solar and wind options. We’re able to take renewable assets onto our balance sheet and offer that to customers on a short-term contract,” pointed out Rod Saffy, Global Head of Mining at Aggreko.

In a panel of renewable and finance experts, speakers talked about the importance of the commercial viability of renewable energy projects. “None of this should be a corporate social project, profit is still important, these projects should stand on their own feet,” said Marco Lotz, Sustainability Carbon Specialist at Nedbank. Build, own, operate and transfer (BOOT) contracts can be an attractive solution for miners looking for long-term cost reduction, but Jason de Carteret, Head of Development at Solarcentury Africa, recommended acting fast to get projects implemented. “Especially with a BOOT system, the quicker you install it, the quicker you can pay the capex off and own it, that will drop your power cost down to half a cent a kW/h, and for a long mine life that’s great,” he said.

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ENGIE Impact is working to kickstart the hydrogen economy, and expects total cost of ownership for hydrogen mining trucks to become competitive before 2030, due to the increased efficiency compared to internal combustion engines.

CONTENT POD 3: OFFGRID MINES CASE STUDIES

In the third content pod of the conference, miners presented their offgrid hybrid projects across Africa — some with very interesting business synergies. For instance, vanadium miner Bushveld Minerals is implementing a proprietary vanadium battery at its Vametco mine in South Africa. “The challenge of a mine is about the quality of the grid connection, the need for a stable power supply over a 24 hour period. Solar PV didn’t offer that for us, since solar has a very specific curve, so our challenge was to figure out how to integrate a battery into this process, and it became apparent to us that we had an opportunity to develop a vanadium battery around our own mine use case,” said Peter Oldacre, the company’s Head of Project Origination. Bushveld is now setting up a 3.5 MW solar plant and 1 MW vanadium (VRFB) battery that can be discharged four times a day for four hours, with no degradation. consumption, this is the largest energy storage project in Africa banked using non-recourse finance. “The lesson learned is that the South Africa commercial banking sector is still at an early stage of understanding this type of project,” Oldacre added.

David Kelly, Chief Operating Officer at Resolute Mining, presented the progress achieved in the Syama mine power project in Mali. After an extensive feasibility study, Resolute settled on an integrated power station comprising HFO engines instead of LFO (for 30% extra fuel efficiency and emissions benefits), a battery for spinning reserve, a solar penetration of 30%. The company also decided to use the current tailing storage facility, once decommissioned, to house solar.

“HFO and LFO present immediate opportunities, but you also need to look at your commodity and how a hybrid solution can support the continuation of your production,” said Alex Caldwell, Head of Mining at Vivo Energy in his presentation. “Across Africa, some countries have got power interruptions, so there are good opportunities there,” he added.

Working with a provider that can finance the project on its own balance sheet can be a good way to circumvent the lack of support from commercial banks. “When you’re negotiating the PPA, it’s with Vivo, not with the bank. This is a long-term partnership, so we’re happy to take some of the commercial risk, and in doing that it’s critical that we align our interests,” Caldwell noted.

Speakers also stressed the value of hybrid power systems for mines: reliability, predictability, cost reduction and ESG benefits. Additionally, Wilco De Villiers, Business Development Manager, DRA Global, compared hybrid projects to insurance. “One aspect that’s often neglected is how the mine is affected by downtime. Investing in a hybrid is almost like buying insurance: how do you get the hybrid solution to add value and reduce downtime and the loss in revenue that goes with it? It’s almost an insurance policy,” he said.

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Scatec presented Release, its plug and play PV and BESS rental solution, which can allow mines with short lives to embrace renewables through a short-term rental contract.

CONTENT POD 4: RENEWABLES FOR SOUTH AFRICAN MINES

South Africa’s regulatory changes around energy generation were mentioned throughout the conference, but the fourth content pod was entirely dedicated to new opportunities in the country. In his presentation, Roger Baxter, CEO of the Minerals Council South Africa, explained that the government is looking to phase out roughly 11 GW of coal-fired power over the next decade, leading to enormous capacity pressure for the national utility, Eskom. “We’re of the view that it’s critical to bring new private energy generation onto the network. We need to fast-track the addition of renewables to the network through REIPPP [the Renewable Energy Independent Power Producer Programme, a national tender process for adding renewables to the public grid],” he said.

Eskom’s operating and capital structure is currently being unbundled to separate generation from transmission, allowing for private generation to be distributed through the national grid. According to Baxter, there are currently plans for 2.4 GW of mining selfgeneration projects in South Africa, of which 1.6 GW are renewable projects. However, these are slowed down by red tape and a lack of clarity around wheeling costs.

“The wheeling framework with Eskom needs to be analyzed early in the project. If you’re looking at a long project, the cost of wheeling is not very clear over an extended period of time,” pointed out Vusumuzi Dlamini, Principal Engineer, Electrical, Control and Instrumentation at Anglo American.

For instance, any project above 10 MW requires a license from the National Energy Regulator of South Africa (NERSA), but most speakers at the conference said they were pushing for this threshold to be lifted to 50 MW to streamline smaller projects.

Gold Fields was recently granted a NERSA licence for a 40 MW solar project at the South Deep mine, but Martin Preece, Executive Vice President, Gold Fields South Africa, explained that the project also had to go through an approval process with Eskom, which is still ongoing. “Relations with the regulator and licensing authority are important: you need to be close to those people and build those relationships,” he said.

Some speakers wished for a one-stop shop for regulatory approval, to simplify the process they have to go through. “We are becoming very good administrators, but a big barrier for us is getting all of this together: there are so many different departments and licenses and other aspects we have to go through. If there was a one-stop shop, it would greatly help self-generation,” said Henning Visser, Area Manager Energy at Columbus Stainless.

Sitting at the crossroads between its mining and energy businesses, Exxaro shared insights on its Grootegeluk mine project, reducing up to 36% of scope 1 and 2 emissions with an 84 MW PV solution behind the fence, which was optimized for Eskom peak tariff to reduce the cost of electricity to the mine.

The company is also exploring the possibility of bringing groups of mines together to create economies of scale on South African power projects. “Mines often occur in clusters, and a single mine’s energy project may not be project financeable around 4-5 MW, but it could produce more savings if we could increase that to 15 MW. We know our neighbours and we are seeing if we could work together to all benefit from cost savings, rather than each procuring their own solution,” said Roland Tatnall, Managing Director, Energy, Exxaro.

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Heliogen presented its Sunlight Refinery, a modular concentrated solar plant (CSP) system that can be configured to produce heat, power and fuel on demand, and uses AI to reach higher accuracy.

Global Affairs Canada reminded the audience of Canada’s track record in clean technology, and offered to help connect African miners interested in developing projects with Canadian companies.

CONTENT POD 5: COMMERCIAL STRUCTURES

The different commercial structures available to miners pursuing renewable energy projects were a recurring topic at the conference: EPC (where the miner contracts a provider to build a plant on the mine’s balance sheet), PPA (where the IPP owns the plant and sells electricity to the miner via a long-term agreement) and BOOT (where the IPP builds and owns the plant, but transfers ownership to the mine once a return on investment is obtained) were the most commonly cited models.

In the fifth content pod, miners, IPPs and financiers discussed the benefits of each commercial structure. Chester Goodburn, Group FM and CIO of Caledonia Mining Corporation, explained that the EPC structure worked better for the company’s 12 MW solar project at the Blanket gold mine in Zimbabwe. “Ownership provides more flexibility and future expansion possibilities,” he said.

Still, the company solicited both types of proposal (EPC and PPA) when it first went to the market, which allowed it to get a cost comparison and consider the availability and quality of local service providers. “The EPC structure also allowed us to ensure local labour participation,” Goodburn added.

In a panel on the bankability of these projects according to their commercial structures, Clément Faure, Head of Business Development at Total Eren, noted that there are benefits and downsides to every structure, but getting clarity on the chosen option as early as possible is a good idea. “PPA and EPC structures pull very different strings in terms of project development. Maintaining several options in parallel can leave options open but it can create complexity in the development as well. The most challenging parameter is to try and set up a phased and pragmatic approach in addressing complexity,” he said.

At the end of the day, lenders explained that the structures are all about clear risk allocation and who the offtaker is. “The first question is: do we have appetite for the offtaker and the underlying sector, in this case the mining sector?” said Rentia von Tonder, Head of Power, Corporate and Investment Banking at Standard Bank.

Among the elements included in lenders’ due diligence is the commercial structure, company and project ownership, OEM arrangements, and increasingly, ESG safeguards. Lungile Mashele, Energy Specialist, Development Bank of Southern Africa (DBSA), warned: “One of the key things lenders are looking for is how you as the mine are going to evolve and address environmental and social issues in your entire value chains. We look at everything from community ownership to gender equality, across the entire mining operation. This is why it is much easier to look at operational mines. The time it takes to do all the stakeholder consultations is very long and growing longer by the day.”

CONTENT POD 6: ALIGNING ESG WITH ENERGY STRATEGY

The last content pod in the conference focused on investors, shareholders and customers’ environmental, social and governance expectations, and how these could be integrated within mines’ energy strategies. A recent BMO Capital Markets survey of mining executives found that 45% of respondents identified ESG as the main risk to the industry in 2021, with CO2 emissions as the most scrutinized element.

“At the moment, getting scope 1 and scope 2 in order is the first thing, but as we go forward, scope 3 will be a bigger area of focus. Water use and sustainable water management is also something investors are quite concerned about,” said Colin Hamilton, Managing Director, Commodities Research at BMO Capital Markets. He added that while the social aspect of ESG, including community involvement, was generally well managed within mines, greater focus is now being placed on governance, including board diversity and management pay justification, for instance.

But the focus on climate also represents an opportunity for the mining sector, as renewable energy generally requires a lot more metals, driving investments in the industry. For Giyani Metals for instance, decarbonizing manganese production makes business sense, since clients are mostly in the battery-electric vehicle market. Still, implementing decarbonization initiatives can often be an uphill battle for miners. “Governments may not understand the benefits of supporting green initiatives and may miss opportunities for development projects due to unfair taxing schemes, and shareholders may not understand the cost implications of demanding a net zero solution to an area that desperately needs infrastructure development,” pointed out Bill Lytle, Senior Vice President, Operations at B2Gold. He added that when considering the triple bottom line of people, planet and profit, renewable energy projects like B2Gold’s Fekola plant in Mali and Otjikoto in Namibia could bring tremendous commercial and ESG benefits, even after mine closure.

Detailed analysis of the sector and its environmental footprint can also help refine miners’ ESG strategy. For instance, the World Gold Council has conducted research in recent years to quantify gold’s carbon footprint, 99% of which comes from mining. This is helping gold miners to go into energy projects with confidence, knowing that scope 1 and 2 emissions are their most impactful area of focus. Harmonization of ESG certification and reporting schemes such as the Global Reporting Initiative (GRI) or the ClimateRelated Financial Disclosures (TCFD) would also be helpful, according to the speakers.

Many miners are hoping for a green premium to level the playing field between those who invest more in cleaning up their production, and those who don’t — and therefore benefit from lower production costs. But according to Hamilton at BMO, a premium is unlikely in the near future. “As of yet, there’s no evidence the customer is going to pay more for that. The smarter way, and what we’re seeing more of is the producer asking their customer to add a specification, just like you would do for quality, about carbon. So rather than a premium, it becomes a qualification process, pressuring the whole industry towards a green base,” he said.

While mine decarbonization is still far from an easy road in Africa, the number of recent projects announced or completed, as well as miners’ increasing focus on ESG performance and the alignment of their carbon targets with their business strategies, bode well for net-zero mining on the continent.