In the midst of South Africa’s ongoing energy crisis, characterized by frequent power outages and escalating tariffs, the mining sector is seeking sustainable solutions to cut costs and decarbonize operations. As reported by ESI Africa’s Editor-in-Chief, Nicolette Pombo-van Zyl, Standard Bank is playing a pivotal role in collaborating with the mining industry to implement these solutions.
The mining sector, a critical component of South Africa’s economy and a major electricity end user, faces significant challenges due to the current energy crisis. The government’s initiative to open the power sector to private investment has been a crucial step in addressing these challenges. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has successfully attracted billions of dollars in renewable energy investments.
Recent regulatory changes have further facilitated private power generation by allowing energy-intensive users to generate their own power without requiring a generation license, regardless of project size or capacity. This development has led to an increase in private power projects, significantly impacting the sector that accounts for about 40% of South Africa’s electrical energy consumption.
The Minerals Council of South Africa estimates that electricity will constitute around 12.5% of overall mining costs by the end of 2024, a notable increase from about 9% in January 2023. Consequently, the mining industry is targeting approximately 7.5GW of renewable energy projects, amounting to an investment of over R150 billion.
These private power projects are typically procured through Requests for Proposals (RFPs). They can be implemented through wheeling on the Eskom grid or can be on-site or embedded, depending on land and resource availability. On-site projects, unaffected by loadshedding, offer additional benefits but are often not feasible during the energy crisis.
Standard Bank, a market leader in private power funding, has been instrumental in facilitating and funding significant private power projects for the mining sector. Rentia van Tonder, Head of Power and Infrastructure at Standard Bank South Africa, emphasized the bank’s role in supporting large-scale projects that aid countries in their energy transition.
Notable transactions facilitated by Standard Bank include the Scatec deal under the RMIPPPP, involving an R18 billion transaction with a R15 billion underwrite. The bank also supported Seriti Green in transitioning towards renewables and funded a 200MW solar project for Tronox, a mining company purchasing power from an Independent Power Producer (IPP).
Standard Bank’s involvement extends beyond South Africa, with significant projects like Genser in Ghana, which provides energy solutions for the mining sector. The bank’s commitment of close to R20 billion to various projects highlights its influential role in the sector.
Despite the benefits of private power, challenges such as limited transmission grid connection points and wheeling issues through municipal distribution networks remain. The emergence of the aggregator/trader model, however, offers a solution by allowing offtakers to purchase power from multiple generation projects and wheel over distribution networks, enhancing flexibility and reliability.
Standard Bank supports this trader/aggregator model, viewing it as a crucial step towards a liberalized electricity market in South Africa. However, reliance on the Eskom grid for procuring power from traders or aggregators still poses loadshedding risks during the energy crisis.
The future of private power procurement in South Africa hinges on amendments to the Electricity Regulation Act and its impact on private sector development. As the country navigates its energy crisis, the mining industry’s shift towards private power and renewable energy projects marks a significant stride in ensuring sustainable and cost-effective operations, with Standard Bank playing a central role in this transition.
