MIHLALI SITEFANE Energy is one of the most significant expenses for the mining sector, comprising between 15% and 40% of the total operating costs
With the South African mining sector facing obstacles in terms of securing reliable and sustainable electricity, a clear view of the opportunities and challenges of integrating renewable energy into mining operations to fortify the sector’s contribution to the economy, is necessary, advises law firm Sitef and Co’s director Mihlali Sitefane and representative Njabulo Mchunu.
Sitefane and Mchunu explain that energy is one of the most significant expenses for the sector comprising between 15% and 40% of total operating costs, adding that the availability and cost of energy is key to the continuity of operations.
“Right throughout history, the mining industry has relied heavily on fossil fuels, particularly coal, for its energy needs. The reliance on fossil fuels continues, however, there is mounting pressure to reduce the carbon footprint, and lenders and customers require sustainability of mining operations, including throughout the value chain.”
They note that there are constraints in relation to the quantity of renewable energy that can serve operational loads, adding that the sector’s energy demands require careful evaluation when considering the integration of renewable sources.
Nonetheless, Sitefane and Mchunu say the mining sector in South Africa is still well placed to seize the opportunity and navigate the challenges.
Sitefane and Mchunu point out that land used by mines tends to be “highly desirable” owing to its suitable climatic conditions, topography, environmental conditions, proximity to a grid connection point – for the purpose of electricity evacuation into the national grid – as well as existing site access through a main road to facilitate the movement of machinery, equipment, infrastructure and people during the construction phase.
Mining companies can, therefore, use existing infrastructure and, to the extent necessary, conclude land use agreements for the construction of renewable energy facilities.
Sitefane and Mchunu contend that another opportunity is presented in collaboration on, and concluding of, agreements with neighbouring mines to share in the opportunity, costs and availing of resources for the development of these facilities.
In their social and labour plans (SLPs) – which relate to specific mining rights as contemplated in the Mineral and Petroleum Resources Development Act of 2002 – mining houses can fund degrees geared towards technology development with the intention to absorb students into their workforce for energy-related projects.
Additionally, the SLPs can make provision for existing workforces to be trained in the technical and transferrable skills related to renewable energy.
Further, Sitefane and Mchunu highlight that these projects provide opportunities to collaborate with local communities in running the facilities and in relation to procurement of goods and services, and the creation of jobs, adding that effective stakeholder partnerships are key for maintaining the social licence to mine.
Hence, investing in research and development (R&D) is critical for finding innovative solutions to electricity challenges in the mining sector.
“Mining companies can collaborate with academic institutions and research organisations to explore new technologies, such as hydrogen fuel cells, geothermal energy or advanced energy storage systems. R&D efforts can lead to breakthroughs in power generation, storage and efficiency, enabling the sector to become more resilient, sustainable and competitive,” they note.
One of the major challenges faced in the mining sector is a misalignment of commercial incentives for the energy industry.
Sitefane and Mchunu state that mining is cyclical, owing to fluctuating commodity prices over time, and that, as such, the mining industry values flexibility with the ability to ramp down, cease production or stockpile whenever the price of the commodity is unfavourable and leads to the operation being unprofitable.
“On the other hand, given the high capital costs related to renewable energy, the power purchase agreements used in the energy industry require a more predictable term,” they note.
Additionally, the profitability of a mining operation is generally evaluated over the life-of-mine which can typically range between two to 50 years, while asset life of renewable projects is typically a minimum of eight years.
In this regard, they note that it becomes imperative for the mining sector to negotiate cost-effective renewable energy contracts in full recognition of these differences.
“To deal with this, many mining companies develop and commission their own renewable energy projects. In so doing, mining companies need to understand the legal impact of the development of such facilities on an area which forms part of a mining right.”
Hence, Sitefane and Mchunu say that the mining company must ensure that the regulatory requirements are in place for the development of the renewable energy facilities.
This includes amendments, or new applications, for environmental authorisations issued in terms of the National Environmental Management Act of 1998, authorised water uses and the implications from a mine, health and safety perspective in terms of the Mine Health and Safety Act of 1996.
Further, to the extent that any consent is required from communities in terms of the Interim Protection of Informal Land Rights Act of 1996, this will need to be obtained.
In all, they say that mining companies must be aware of property law implications, including applications for approvals which may be necessary, or required for the subdivision of the leased property, in terms of any applicable legislation including, without limitation, the Subdivision of Agricultural Land Act of 1970.
“A failure to understand the regulatory framework is an impediment to the development of renewable energy projects. Energy is a key issue for the mining industry and the integration of renewable energy into operations presents great opportunities which must be balanced with a careful navigation of the challenges to ensure a resilient mining sector in South Africa,” Sitefane and Mchunu conclude.