Energy infrastructure becomes a competitive advantage to Resources companies
African-based mining and resource companies which have invested in renewable energy infrastructure over the last few years are not only reaping the benefits through access to cheaper power but also achieving sustainability goals identified by stakeholders including lenders looking to fund expansion.
Sustainable financing is becoming an increasingly topical issue for both bank and non-bank financing institutions and mining companies will feel the pinch at the balance sheet level if they are not embracing a shift towards clean energy projects. This could be encapsulated in possibly lower funding costs for clean energy projects. Due to ‘Traceability’ considerations by certain markets – for example pending European Union (EU) legislation, or possible London Metal Exchange (LME) requirements – the price paid for certain commodities including green copper and green steel – could be higher. At the same time, the demand for commodities that do not meet this threshold could wane as the price becomes more expensive due to additional carbon and other taxes or restrictions imposed by such legislation or guidelines.
Some of South Africa’s largest mining and resource business have recognised this and have proactively invested in energy infrastructure which is not only supporting their operational needs through energy access but is also aligning with sustainability goals and growth strategies.
A key development in 2023 was the recognition that generation was only part of the equation when it comes to energy infrastructure and storage; transmission and distribution will be the focus areas in the foreseeable future.
The November announcement of the first four bidders for phase 1 of the Battery Energy Storage Independent Power Procurement (BESIPPP) Programme is an important milestone which will provide a catalyst for further energy storage projects on the continent. Traditionally, electricity is a commodity that could not affordably be stored – with very limited storage capacity existing mainly in the form of pumped storage.
BESS (Battery Energy Storage Systems) would allow for electricity storage and dispatchability on an ‘as-needed’ basis and will assist to unlock grid capacity in congested areas where surplus generation – for example from the Northern Cape – can be stored during the day and released during peak demand periods. The investment into transmission grid capacity would help unlock the bottlenecks that currently exist and allow for more generation capacity, including decentralised generation capacity, to be built.
While South African businesses have made significant progress in the rollout of renewable energy projects to support the mining sector and drive sustainability, most of the rest of Africa has not kept pace with SA. Notwithstanding this, there have been some very notable activity on the continent:
As an example:
1) Zambia has been an interesting country to watch as it is undergoing a significant shift in its energy infrastructure. The country has a relatively low generation base – roughly 2800MW – of which 85% is via hydro-electric power. Climate change has severely impacted rainfall patterns in the country and the State Owned Power utility (ZESCO) has been forced to implement load-shedding as a result of lower than expected hydro-generation capacity. This has curtailed investment in key sectors including agriculture and mining.
Considering that Zambia is one of the top 10 copper producers in the world, home to one of the largest nickel mines in Africa, a leader in gemstones and is considered a key supplier in the electric vehicle battery supply chain for battery minerals, these crippling power issues will impact the ability of the country to unlock its economic potential.
The country will experience increased investment in its clean energy sector to help diversify its generation base and provide stability to the mining sector, noting that mining companies are also turning to captive power initiatives to augment its grid power supply.
2) Egypt is another country which is worth watching closely – particularly with its ties to the Middle-East – and its proximity to Europe.
As a country which is rich in resources including oil, gas, gold, phosphate, tantalum and other minerals, developments in its energy sector are of paramount importance to support these energy intensive industries. The country enjoys a combination of flat terrain, glorious levels of sunlight and wind which makes it a destination of choice for renewable energy projects and capital-intensive green hydrogen projects.
Despite this, less than 10% of its nearly 60GW of installed capacity is delivered via non-fossil fuel sources. The country has set itself a goal of securing $1bn in new mining project investment by 2030 and through its abundance of clean energy sources – wind, solar and hydro – it has the potential to be a destination of choice for mining houses.
Investment in power is the precursor to any energy-intensive business. Mining and resource companies which have recognised that investments in distributed, affordable clean energy infrastructure will be a comparative advantage are likely to find themselves better positioned relative to peers who have under-invested in this area. As an active financier in the mining and renewable energy space, we look forward to continue working with our clients on transformative projects in 2024 and beyond.
