Avania Moosa - Principal: Mining & Resources

The African mining sector, one of the most energy-intensive sectors in the world and arguably the largest contributor to global warming, has the responsibility as well as the opportunity to incorporate renewable energy into its energy mix. However, several barriers have to be addressed to make this transition a reality. Until recently, incorporating renewable-energy sources into a mining operation was not a viable option: the cost of building a solar-powered plant was exorbitant and the reliability of supply was a significant concern.

However, the renewable-energy space has evolved rapidly – technological advancement aided by the drastic drop in prices of solar panels and batteries over the past 10 years have given mining companies the confidence to adopt solar photovoltaic (PV) technology and, more recently, large-scale battery storage in their operations.

Consequently, more mining companies in Africa and around the world are transitioning to renewable energy. They are taking advantage of the benefits that these technologies provide, including reduced operational costs, increased energy reliability, price security (hedging against long-term energy prices), and reduced emissions and environmental impact, which assist in meeting environmental, social, and governance (ESG) goals.

In South Africa, the regulatory environment has matured to allow for the adoption of renewable-energy technologies. It is now possible for mining companies to get a significant percentage of their electricity from renewable-energy sources (up to 50% – 80% if both wind and PV technologies are deployed), either on-site or wheeled through the electricity network, at a lower cost than when energy is supplied by the grid. Mining companies do not have to fund the capital costs of these renewable-energy projects, as many reputable independent power producers are now able to fund the projects and sell electricity to the mines via a power purchase agreement (PPA). The key commercial terms of a PPA that ensure bankability include:

• the take-or-pay provision;
• protection for the developer against changes in the law;
• compensation on termination to keep the developer whole for offtaker defaults; and
• a provision that leaves the grid risk with the offtaker.

In conclusion, the multiple barriers to adopting renewable energy in the African mining sector can be overcome with the right investments, partnerships, regulatory support and bank financings. Nedbank Corporate and Investment Banking is well positioned to work together with mining companies to define the best technical solution and the most appropriate legal and financial structuring to ensure the bankability of their renewable-energy projects. We look forward to embarking on the journey with you.