Solar can save small-scale miners
Although there is a lot of hype around the energy transition and mining companies migrating to renewable energy sources, the reality, especially for smaller mines on the ground, is a lot different.
By Leon Louw, owner and editor of WhyAfrica
On a recent road trip through the Northern Cape province of South Africa, the challenges mining operations face in the switch from baseload and fossil fuels to alternative energy sources, were made clear to me by managers of especially smaller operations with a limited life of mine.
According to one manganese miner, it is more cost efficient to use diesel generators than to invest in solar panels or other sources of renewable energy. “When your life of mine is less than five years, it is difficult to recoup the capital invested in a renewable project in such a short space of time,” he said.
Considering the return on investment (ROI), it is a lot easier for multinational mining companies with a long life of mine to make the change from baseload and/or diesel to green energy. However, even the large-scale operations in the Northern Cape are finding it difficult to convert overnight, despite an unlimited supply of sunlight and wind. The recent supply chain squeeze and bottlenecks at ports across the world due to Covid-19 lockdowns, has not helped the case. The higher logistics costs have meant higher overall costs for several ongoing projects. Furthermore, prices of solar and battery equipment have increased exponentially due to higher commodity prices.
Although several open pit quarry owners and small-scale diamond miners that I spoke to in the Kimberley area are enthusiastic about installing solar panels, most of them still consider diesel generators and/or electricity supplied by government entity Eskom, as the most cost-effective energy solution. This is despite rising fuel prices, exacerbated even further by the Russia/Ukrainian crisis, and intermittent and unreliable supply from Eskom.
Renewable stability makes planning easy
The energy crisis brought about by the instability in Europe and the resultant spike in fossil fuel prices have certainly strengthened the case for alternative energy solutions and a diversified energy base. A mining or quarrying operation, no matter how big or small, that relies solely on fossil fuels, will always be exposed to market volatility and geopolitical instability. In most African countries, not only the prices, but the reliability of electricity supply, remains unpredictable, which makes planning and forecasting extremely difficult.
Installing a stable renewable system eliminates this uncertainty and reduces exposure to geopolitical risk. Renewables allow mines to forecast energy cost and reduce exposure to fuel prices and unpredictable energy security. But there are more than a handful of other reasons why mining companies should invest in renewable energy as the world moves into a transitional period.
There is more than enough research to prove that solar power is one of the most cost-effective energy solutions around. In paper thin marginal operations like quarries or small-scale diamond mines, where owners are always looking to reduce running costs, solar power is almost a no-brainer. This is especially true in the Northern Cape, where the sun shines for an average of between 272 and 300 hours per month.
Energy makes up 15-40% of a mine’s operating costs. A renewable energy solution like solar panels or a solar/hybrid system can reduce the energy cost significantly, while protecting the mine’s balance sheet by shifting capital expenditure to operating expenditure.
Investing in renewables does not only reduce operational costs. In a world where Environmental and Social Governance (ESG) standards are increasingly important, especially for investors and potential funders, having a mine run on renewables or some form of hybrid system, will go a long way in ensuring that the operation is in good standing in terms of its green credentials.
Generators guzzle diesel and increase carbon emissions
Running a mine on diesel generators could incur significant costs even if the generators are only used as back-up. This not only refers to day-to-day input costs like fuel, but also to carbon emission tax, which came into effect in South Africa earlier this year. Combustion emissions, process emissions and fugitive emissions could now potentially incur a tax depending on the threshold that is applicable.
The South African Treasury has set a 10MW installed thermal input capacity threshold for combustion activities that result in emissions. This means that regardless of utilisation or fuel type, if an operation has the capacity to combust 10MW (th) then the emissions will be subject to carbon tax. Many process and fugitive emissions have no threshold, and a mine will be taxed on it regardless of how small the operation is.
According to Hans Olav Kvalvaag, SVP Release at Norwegian based Scatec, the most important benefits for mining companies to invest in renewable energy are savings, energy security, meeting decarbonisation targets and carbon credit generation.
Scatec’s Release system is mobile and ideal for smaller scale remote mining operations in Africa. Depending on the logistics involved, a 1MW to 40MW Release plant will take about six months to set up from the time the client has signed the contract to the day commercial operations get underway.
According to Kvalvaag, Release will supply renewable energy solutions to any mine or quarry no matter how small the operation. “One of our Release design blocks is 1 MWac, so our target projects start from 1MW upwards. While we can offer solutions that are smaller than 1MW, it is more cost-effective to stay above the minimum size. Each facility and offering is based on customised design according to the customers electricity load and needs, and Release will engage the customer to satisfy that its production and operational needs are met,” says Kvalvaag.
The Release model is flexible and will benefit mines in remote regions of Africa. Scatec has extensive experience of operating in Africa and the company is capable of delivering their energy solutions (which includes a variety of hybrid systems) across the continent.
“Release is a great short- and mid-term solution to answer immediate energy needs pending the deregulation of the South African energy sector and increased ease of wheeling,” says Kvalvaag. Apart from the substantial monetary benefits derived from investing in renewable energy, the ESG benefits for any operation that installs a renewable solution will give it a competitive advantage, especially if it is a greenfields project that needs funding.
ESG credentials essential for funding
In a world where investors consider all aspects of an operation and shun it if it falls short on the environment and social side of things, high ESG ratings are beneficial. Funding and compliance with environmental and social legislation are two major challenges for junior mining companies. The upfront costs for investing in renewable electricity supply is often too exorbitant for small scale miners. This is certainly the case for the micro diamond miners of South Africa who are expected to comply with the same regulations as multinationals. To get the paperwork done not only costs an arm and a leg, but it takes up considerable time, which could be spent mining. The result is that they need to get their processing plants up and running within one or two months after they’ve been given the green light to mine by the government. It means that in most cases, they do not have the money to splash on renewable solutions, even if they know it will benefit them in the long term.
Kvalvaag is aware of the challenges small scale miners face. Therefore, he says that the Release concept (from Renewable Energy Lease) is based on a flexible lease commercial offering. “This flexible structure allows for a simpler and more streamlined contract, avoids the upfront commitment of an Engineering, Procurement and Construction (EPC) structure, and avoids the long-term commitment of a 20-year Power Purchase Agreement (PPA) structure. Release also offers flexibility in terms of the ownership of the asset at any point in time during the lease,” says Kvalvaag.
There are always questions about the life of solar panels, the effect of dust on their performance, maintenance, possible damage by severe hailstorms and other extreme weather events, as well as the fact that they often get stolen. Kvalvaag recommend that the plant is fenced as a minimum and monitored by CCTV cameras and even security patrols if needed.
“The equipment is resilient to most weather events, and we train the local power management teams on day-to-day maintenance, including vegetation cleaning and module washing. Our solar modules and equipment normally come with 20-year warranty and is designed to generate power for up to 35 years,” he says.
Leon Louw is the founder and editor of WhyAfrica. He specialises in natural resources and African affairs.
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