The role of the local mining industry in the renewable-energy value chain and the need for mines to investigate diversification activities should be key topics at the 2015 Investing in African Mining Indaba, suggests consulting firm Frost & Sullivan programme manager for energy and environment and global growth Johan Muller.

According to the International Energy Agency, mining companies in remote areas globally spend an average of $7.5-billion a year on diesel, with about 80% of these mining companies operating in sub-Saharan Africa, Frost & Sullivan noted in its ‘Solar Power Cracking the Mining Industry Code’ report.

The firm adds that “climate change and the uncontrollable rise in diesel prices have created the perfect opportunity for solar technology to power off-grid mining operations”.

Currently, anything that can increase the competitiveness of South African and sub-Saharan Africa mining companies is critical, Muller says, emphasising that solar energy is not only independent from national and regional grids but also leads to lower production costs, given the solar grid parity figures per region.

“As long as solar power and other renewable energies are able to provide the required levels of power and are cost competitive, then diversification is a viable option.”

Muller tells Mining Weekly that the mining industry has traditionally faced particular challenges in attempting to leverage solar power. Solar projects, for example, are often measured over a longer life cycle than that of mines, and mines demand versatile, modular solutions that can operate in a hybrid format.

However, Frost & Sullivan supports the adoption of a new solar energy business model, the viability and sustainability of which can be measured in the way it addresses two essential factors: focus on meeting customer needs, which centres on establishing solar farms, and adopting an asset-based financing model, Muller says.

Evolving Model
Frost & Sullivan notes that for independent power producers (IPPs) to successfully exploit the trend towards renewable energy in the mining sector, they have to “strategically mass produce or preconstruct a series of flexible solar farms, regardless of the offtaker”.

While energy consumption is a signifcant cost for mining companies, they have low capital expenditure budgets for energy and, therefore, are reluctant to add energy solutions to their balance sheets, Muller says.

In light of this, IPPs will have to embrace a new business model to drive the development of solar farms as products, not projects, the firm suggests. “IPPs have to design their operational processes in such a way that the output is a product that is standardised, versatile, modular, deployable, easy to dismantle and transport, and can effortlessly operate on a hybrid mode.”

The firm further cites the success of Germany-based international IPP Redavia Rental Solar Power as key evidence for the sustainability and viability of this business model. Redavia has operations in east, west and central Africa, and is exploring a pipeline of 755 MW, which includes planned solar farms and ones that need to be scaled up, 80% of which are in the above-mentioned African regions.

Frost & Sullivan also stresses that asset-based financing proves to be a viable solution when targeting the mining sector, as it “eliminates the high initial capital outlay barrier, enabling solar farms to be easily integrated into current energy plans for mines”. 

Gold producer Barrick Gold director of power projects Scott Fraser notes that energy decisions associated with new developments are integrated into the life-of-mine planning process; therefore, Muller says energy solutions introduced after the planning process have to be flexible to be sucessfully integrated into an ongoing long-term mining plan.

Frost & Sullivan highlights that Redavia’s shift from a project-based to an asset-based financing model has effectively addressed this issue, since its “highly adaptable three- to five-year rental agreement enables its versatile solar farms to be seamlessly integrated into the rigid mining long-term planning process”.

The firm further explains that, under the asset-based financing model, Redavia owns its pre-engineered solar farms and “as these solar farms are redeployable, the company, therefore, offsets production costs by amortising its solar farms over the life of the asset, not over the five-year rental agreement”.

This model, encompassing these key focus areas, should be “front of mind” at the indaba, which will take place at the Cape Town International Convention Centre from February 9 to 12. Such a model directly impacts on the return on investment, with Muller suggesting that there should be interest from the local mining industry, with questions regarding applicability and application answered on a “case-by-case basis”.

Moreover, when energy storage becomes more prevalent, this will increase the attractiveness of the new business model. Currently, the cost of generating power is often just passed on to the end-consumer. Therefore, lower production costs mean that “everyone stands to win”, Muller says.

“However, new business models should investigate not only producing power for mining activities but also distributing excess power to nearby communities, and even towns. The transmission and distribution networks should follow suit,” he concludes.